On March 18, 2020, President Trump signed additional emergency relief legislation known as the “Families First Coronavirus Response Act” (Families First Act).  The Families First Act creates expanded employee benefits and protections related to COVID-19 including a new paid sick leave law and emergency expansion of the Family & Medical Leave Act (FMLA) and expanded unemployment insurance provisions.  The effective dates are April 2, 2020, to December 31, 2020. As with any law that is quickly passed, the federal regulatory agencies will have to provide guidance on how to execute or implement the new requirements.  

Emergency Paid Sick Leave

Employers with fewer than 500 employees will be required to provide full-time employees with an additional 80 hours of paid sick leave, or, for part-time employees, the number of hours worked during an average two week period (calculated over a 6 month period).   This leave does not need to be accrued like most sick leave. This leave is provided in addition to any existing sick leave provided by employers.  So for instance, in California, there is a sick leave law.  This would be in addition to that sick leave that is accrued.

Employers must provide this emergency paid sick time when the employee is unable telework/remote work because the employee is:

  1. Subject to a federal, state or local quarantine or isolation order related to COVID-19; 
  2. Advised by a health care provider to self-quarantine due to concerns related to COVID-19; 
  3. Experiencing symptoms of COVID-19 and seeking a medical diagnosis; 
  4. Caring for an individual who is subject to a government quarantine or a self-quarantine advised by a health care provider (reasons 1 and 2 above); 
  5. Caring for their child if the child’s school or place of care has been closed, or the child-care provider is unavailable due to COVID-19 precautions; or 
  6. Experiencing any other “substantially similar condition” specified by the Secretary of Health and Human Services. 

Employees must be paid at their regular rate for reasons 1-3 above, except that pay cannot exceed $511 per day and $5,110 in the aggregate. When employees are taking paid sick leave to care for someone else or the employee is experiencing any other “substantially similar condition,” i.e., reasons 4-6 above, then employers can pay employees two-thirds their regular rate, except that pay cannot exceed $200 per day and $2,000 in the aggregate in those circumstances.

Note that there is no pay for the first 10 days of leave (an employee may use other paid time off or sick leave already accrued.)

To compensate employers, the Act also provides tax credits for employers required to pay sick leave under these conditions.  The credits are allowed against the employers’ portion of Social Security taxes. Employers are entitled to credit for qualified sick leave wages, up to $511 per day, or $200 per day if the leave is for caring for a family member or child for up to 10 days.  If the amount paid to the employees exceeds the amount of the payroll tax, then the employer will receive a credit.

Emergency Family and Medical Leave Expansion

The Families First Act also provides emergency FMLA leave for a “qualified need related to a public health emergency.”  This applies to any employee that has been employed for at least 30 days. The employee may only take this leave when the employee is unable to work (or telework/remote work) due to a need to care for the employee’s child under 18 years of age if the school or place of care has been closed.  The first 10 days of emergency FMLA leave may be unpaid and employees may substitute vacation, personal leave or paid sick leave during that time. After the first 10 days, the employer must pay full-time employees at a rate of no less than two-thirds of their regular rate of pay for the hours normally scheduled.  This paid leave is capped at $200 per day and $10,000 in aggregate. Like paid sick leave, employers will be provided with quarterly tax credits for paid family leave, allowing credits against the employers’ portion of Social Security taxes. Employers are entitled to credit for qualified family leave wages, up to $200 per day for each individual and $10,000 total with respect to all calendar quarters. 

Your Strategy

The business has to look at all contingencies at this point.  What if many employees take this leave all at once? What if the business has to put out more money than the credits due to them through the payroll credits of social security taxes and cannot wait for the credit?

In the above analysis, if the leave is for items 1-3, you should be able to require a note from the doctor.  This should partially mitigate the issue of people taking advantage of the illness to get paid while not working.   This is a time where hopefully people don’t take advantage of this pandemic. Many employees are worried about their jobs and are less likely to try to take advantage for fear of being fired.

In the above analysis, if the leave is for items 4-6, this becomes a bit more problematic as most schools are closed and employees could decide to take advantage of this benefit.  Again, many employees are worried about their jobs and are less likely to try to take advantage for fear of being fired.

If the business were to either deny the time off or retaliate against the employee for the request, this could lead to the filing of a complaint with the Department of Fair Employment and Housing (DFEH).  I would defer to your employment counsel on what could lead to litigation.  No matter what, you should get counsel from an employment attorney before you make a definitive move.

What is not clear yet is how the payroll processors will process these credits against the employer’s payroll credit.  Are these credits taken real-time against the current payroll and how are they processed through your payroll system? I would call your payroll processor before you have to process payroll to know what you need to report and where that information will need to be entered into the payroll system so it gets reported correctly and your company receives the correct credit.    

If the amounts reimbursed through the payroll tax are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

If things start to get extreme, with people taking more sick leave than the company can handle which imperil operations, emergency planning becomes necessary.  For instance, can contractors fill in for your staff on the interim? Are there people who retired that you can bring back? These are unprecedented times and may require unique solutions.

In the end, if you have to cut staff as a small business, there are options.  For instance, the company could institute a temporary across-the-board payroll reduction of 10-20%.  You could also reduce the time people spend on the job commensurate with the payroll reduction. While this is not optimal, it does reduce the money coming out of the company.  The company can look at its workforce and furlough a portion of the workforce. This allows the workforce that has been furloughed to qualify for unemployment. While it is not clear what the Federal/State government will do with expanded unemployment insurance as there is a package under debate in the House and Senate, it may pay employees for their full-time salary for up to 12 weeks.  If this is true, it would shift the burden from the employer to the government.  

Finally, the U.S. Small Business Administration (SBA) is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).

The events are happening quickly and more will be released in the coming days.

Need help navigating these waters?  We’re here to help! Call us at (925) 256-6321 or email me jrunalp@unalpcpa.com.