On March 18, the Families First Coronavirus Response Act (the Act) was signed into law by President Trump. As temporary legislation, the Act will become effective on April 1, 2020 and will expire as of December 31, 2020.
The Act provides for paid sick leave, paid family leave, and employer tax credits as described throughout this article.
Employers with fewer than 500 employees are required to provide financial assistance—paid sick leave and/or paid family leave—to employees who must stay at home. The paid sick leave assistance is a new federal requirement while the paid family leave is an expansion of the Family Medical Leave Act (FMLA) in response to the pandemic.
Small businesses with fewer than 50 employees may be eligible for an exemption from the paid leave requirements where the requirements would jeopardize the ability of the business to continue. More guidance is expected from the Department of Labor (DOL) soon.
The Act provides two new refundable payroll tax credits designed to immediately and fully reimburse employers, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. It should also be noted that the paid sick leave includes the cost of providing health insurance to employees.
The employees of covered employers are eligible for the following:
- Paid sick leave due to quarantine (pursuant to federal, state or local government order or advice of a health care provider), and/or experiencing symptoms and seeking a medical diagnosis:
- A full-time employee is eligible for two weeks/up to 80 hours of paid sick leave at the employee’s regular rate of pay, subject to a cap.
- A part-time employee is eligible for the number of hours of leave that the employee works on average over a two-week period.
- The pay is either the employee’s regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 in the aggregate over a two-week period.
Paid sick leave due to caring for another individual who is subject to quarantine, or due to caring for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to the Coronavirus:
- A full-time employee is eligible for two weeks/up to 80 hours of paid sick leave at two-thirds of the employee’s regular rate of pay, subject to a cap.
- A part-time employee is eligible for the number of hours of leave that the employee works on average over a two-week period.
- The pay is either two-thirds of the employee’s regular rate or two-thirds of the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in the aggregate over a two-week period.
Paid family leave for an employee who is unable to work due to a bona fide need to care for a child whose school or child care provider is closed or unavailable for reasons related to the Coronavirus:
- A full-time employee is eligible for up to an additional 10 weeks of paid family leave at two-thirds the employee’s regular rate of pay, bringing the total leave to 12 weeks – two weeks of paid sick leave followed by up to 10 weeks of paid family leave, subject to a cap.
- The employee has been employed for at least 30 calendar days.
- The pay is either two-thirds of the employee’s regular rate or two-thirds of the applicable minimum wage, whichever is higher, up to $200 per day and $12,000 in the aggregate over a 12-week period.
The employer will need to set up new pay codes to track whether the employee is using existing sick leave or is using paid leave required by the Act. The employee, not the employer, makes the decision of what type of leave he/she is taking.There are two new refundable tax credits which allow businesses to retain funds they would otherwise pay to the IRS in payroll taxes or to access funds available from the IRS. Additional guidance is expected this week from the IRS and next week from the DOL.
Employer-refundable Tax Credits are as follows:
Paid Sick Leave Credit
- If an employee is unable to work due to Coronavirus quarantine or self-quarantine, or has Coronavirus symptoms and is seeking a medical diagnosis, the employer may receive a refundable sick leave credit for sick leave at the full-time employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
- If an employee is caring for someone with Coronavirus or is caring for a child because the child’s school or child care provider is closed or unavailable for reasons related to the Coronavirus, the employer may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in aggregate, for up to 10 days.
Paid Family Leave Credit
- If the employee is unable to work due to caring for a child because the child’s school or child care provider is closed or unavailable for reasons related to the Coronavirus, the employer may receive a refundable family leave credit equal to two-thirds of the employee’s regular rate of pay, capped at $200 per day or $10,000 in the aggregate.
- Up to 10 weeks of qualifying leave can be counted towards this credit.
Further guidance is expected this week but for now, this means that the employer can retain an amount equal to the amount of qualifying sick and family leave paid, rather than depositing this amount with the IRS.
Examples:
- If an employer paid $5,000 in qualifying sick and family leave and would otherwise be required to deposit $8,000 in payroll taxes, the employer could use up to $5,000 of the $8,000 of taxes for making qualified leave payments. The employer would only be required to deposit the remaining $3,000 on the next regular deposit date.
- If an employer paid $10,000 in qualifying sick and family leave and would otherwise be required to deposit $8,000 in payroll taxes, the employer could use the entire $8,000 for making qualified leave payments. The employer could then file a request for an accelerated credit for the additional $2,000.
The credit for self-employed persons is allowed against regular income tax, not self-employment tax, and is claimed on the income tax return. The credit for self-employed persons is determined by the number of days the self-employed person is unable to perform services in his or her trade or business.
There are still many unknowns and more guidance is expected to help determine the exemption applicability for businesses with less than 50 workers and to help determine who are related employers for determining the number of employees.
Thank you for your patience and trust in Kernutt Stokes during these challenging and difficult times. If you have any questions or further concerns, please do not hesitate to contact our office at (541) 687-1170.