The first (but certainly not last) Federal package designed to help employers (both businesses and nonprofits) with the impact of the COVID-19 outbreak is the Families First Coronavirus Response Act (FFCRA), which was signed into law on March 18, 2020.
The FFCRA was designed for employers with less than 500 employees to provide paid sick and family leave to employees affected by the COVID-19 outbreak. There are 3 key provisions in the FFCRA that affect employers, as named in the FFCRA
1. Emergency Family and Medical Leave expansions
2. Provision of Emergency Paid Sick Leave
3. Tax Credits for Businesses to Offset these costs
One key component of this act is that it requires employers with less than 500 employees to provide these benefits. The act does leave room for exemptions, for which regulations are anticipated on March 25, 2020 – these include for health care workers, emergency responders, and companies with less than 50 employees, provided that such requirements would “jeopardize the viability of the business.”
Emergency Family and Medical Leave Expansion
The Family and Medical Leave Act (FMLA) has been expanded, requiring that employees with at least 30 calendar days of service are eligible for up to 12 weeks of job-protected leave to deal with certain COVID-19 related impairments. Protected leave means, in a general sense, that the employees must be provided with their original job or an equivalent job with equivalent compensation upon return. Companies with less than 25 employees are not required to provide protected leave if the job has been eliminated due to economic conditions. The expanded FMLA is required when the employee is unable to work (or telework) to care for a child under 18 if the school or child-care provider is closed.
The first 10 days of leave may be unpaid, and the employer may allow but not require the employee to use other forms of leave (such as vacation, flex, or other time off). The remainder of the leave must be paid at 2/3rd the employees regular pay, up to a limit of $200 per day and a total of $10,000.
Provision of Emergency Paid Sick Leave
The second major part of the FFCRA requires employers with 500 or fewer employees to offer employees paid sick leave under certain circumstances. Paid sick leave is required when employees are unable to work (or telework) under any of the following conditions:
1. A government (Federal, State or local) ordered quarantine
2. A healthcare provider ordered self-quarantine
3. Need to obtain a medical diagnosis of COVID-19
4. Has to assist in the care of an individual under one of the above
5. (Similar to the expanded FMLA) must care for a child if the school or care provider is closed due to COVID-19.
The paid sick leave offers a few exemptions, as noted above. However, we are still waiting for final regulations on these exemptions.
Full-time employees are entitled to take up to 80 hours of paid sick leave; a part time employees paid leave is calculated based on an 2 week average hours worked, generally based on the prior six-months or the “reasonable expectation” of hours at those hours at the time of hiring.
The paid leave to the employees is required to be paid at the “Regular Rate of Pay” in accordance with the Fair Labors Standards Act (FLSA), up to $511 per day (for a total of $5,110) for employees with COVID-19 (1-3 above). For employees assisting in care, the cap is based on the provisions in the expanded FMLA coverage (2/3rd of wages, up to $200 per day, for a total of $2,000). To note: these are the requirements (and as such what will be eligible for tax credits, below) and employers may offer more generous programs as they see fit. Paid leave includes both wages and health insurance coverage.
Tax Credits for Businesses to Offset these costs
As the Federal act requires employers to offer these benefits, the FFCRA is also providing for tax credits to help employers provide these coverages. The tax credits will be in the form of payroll tax credits against amounts due to the IRS for both employee withholdings and employer taxes. The intention is to allow employers to keep these amounts they would otherwise have to deposit to cover these costs. In the event that is not enough, the IRS wants to have a “prompt payment” system to allow for payments of these credits.
At this time, we are still waiting on the IRS to provide more details and regulations to the mechanics of this program, along with waiting for payroll processors to determine how to implement these changes. As more information becomes available we will share.
Interactions with New York State Laws
On March 18, 2020, Governor Cuomo enacted a law that requires employers to provide employees with paid sick leave. This is not a “double-dipping” scenario, but rather an augmentation to the federal law; that is, NYS requires that employees are paid up to the amount set by NYS, but not in excess of the Federal amounts. The required leave is broken down into 3 categories:
1. For employers with less than 10 employees and a net income of less than $1,000,000 – NYS requires you provide job protection, and employees may use their existing NYPFL and disability benefits to pay for their leave.
2. For employers with 11-99 employees or 10 or fewer with a net income greater than $1,000,000 – NYS requires that the employee be provided 5 days of paid sick leave, job protection during the quarantine order.
3. Employers with more than 100 employees must provide 14 days of paid sick leave.
These benefits are, on the surface, slightly more generous than the Federal benefits. Employers in NYS need to be aware of these and know they may have an obligation even beyond what the FFCRA requires. NYS has not stated how the paid sick leave is calculated or limits, so our advice would be for employers to look at FLSA standards for regular pay. This paid sick leave is available if the employee has an order of quarantine from NYS, the NYSDOH, the local board of health, or any other government agency. Unlike the Federal act, there is no provision for the care of a child because of school closure.
While these credits are a good start, they are aimed largely at providing benefits to employees who are sick or otherwise taking leave as a result of the COVID-19 outbreak. These programs do not address the pressing concerns of many businesses on how to keep employees on the payroll during this crisis. Further legislation is expected on that, as well as more guidance from both the DOL and IRS on the mechanics of these programs.
Edward McWilliams, CPA
Ed is a Partner in the firm’s tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.