Responding to the Families First Coronavirus Response Act
What small and midsize companies need to know and do now to protect their employees and their businesses.
By Daniel F. Rahill, CPA, JD, LL.M., CGMA |
Digital Exclusive - 2020
As COVID-19 sends shock waves through nearly every industry, one of the biggest challenges for businesses is adapting to fast-moving legislative updates. On March 18, 2020, President Trump signed the second bipartisan stimulus package, the Families First Coronavirus Response Act
(FFCRA), which brings multiple changes for small and midsize businesses—all of which must be implemented by April 2, 2020. The act legislates free testing for the novel coronavirus (COVID-19), establishes emergency paid sick leave, expands family and medical leave, and provides several payroll tax credits for employers with fewer than 500 employees.
Here’s a guide to what the FFCRA means for those companies:
Emergency Sick Leave Expanded
The act requires all employers with fewer than 500 employees to provide their employees two weeks of paid sick leave regardless of how long the employee has worked for them and whether the employee is full- or part-time. Under the act, “two weeks leave” means 80 hours for full-time employees and the typical number of hours over two weeks for part-time employees. Any paid sick leave is in addition to any sick leave already offered by the employer.
Paid sick leave would be available to any employee absent for:
• Self-isolation or quarantine because they have COVID-19;
• Obtaining a diagnosis because they are exhibiting symptoms of COVID-19;
• Complying with an order from a healthcare provider requiring them to self-quarantine or to stay away from work;
• Caring for a family member who is facing quarantine or self-isolation;
• Caring for children if schools are closed or a caregiver is unavailable due to the ongoing public health emergency; or
• Any other “substantially similar condition” specified by the secretary of health and human services in consultation with the secretary of the treasury and the secretary of labor.
Generally, employers would pay employees at their regular rate of pay for emergency sick leave, capped at $511 per day ($5,110 in the aggregate) if the leave is taken for an employee’s own illness or quarantine (i.e., for the first three bullets above). Employers would pay employees two-thirds of their regular rate of pay for emergency sick leave, capped at $200 per day ($2,000 in the aggregate) if leave is taken to care for others or due to school closures (i.e., for the last three bullets above).
An employer may not require an employee to use other paid sick leave before giving access to the new federally mandated paid sick leave. An employer must allow an employee to use the federal paid sick leave first, and only after the federal paid sick leave is exhausted, require an employee who needs more time off to utilize their company-offered sick banks.
The act also requires the secretary of labor to publish a poster for employers to inform employees of their rights under the act, which must be posted along with the other federally mandated posters relating to federal labor and employment laws.
The secretary of labor has been empowered to issue regulations to exempt healthcare providers and emergency responders from the definition of “employer.” The secretary also can exempt small businesses with fewer than 50 employees from the requirement to offer leave for a child when a school is closed when that paid sick leave would jeopardize the viability of the business.
Payroll Tax Credit for Emergency Sick Leave
To help small and midsize businesses cope with the impact of the legislation, the relief bill contains several payroll tax credits for employers. Subject to certain limitations, the act provides an employer payroll tax credit that equals 100 percent of the qualified sick leave wages paid by the employer.
The credit is effective for sick leave wages paid starting on a date within 15 days of enactment through Dec. 31, 2020. The credit is generally available for up to $511 in wages for workers who are quarantined, self-quarantined, or have COVID-19, and wages of up to $200 for other workers for each day an employee receives qualified sick leave pay. The credit would be available for up to 10 days per calendar quarter.
To prevent double benefits, employers’ gross income will be increased by the amount of the credit, meaning the credit is not taken into account to determine any amount allowable as a payroll tax deduction, deduction for qualified sick leave wages, or deduction for health plan expenses, and no credit will be allowed for wages for which a Sec. 45S family and medical leave credit is claimed. The credit would not apply to the federal government, the government of any state, any subdivision of a state, or any agencies or instrumentalities of these entities. Employers could also elect not to apply the new provision for any calendar quarter.
The credit can be increased by certain qualified health plan expenses of the employer that can be allocated to qualified sick leave wages. Until a mechanism to track these expenses is in place, employers should maintain detailed records supporting their allocations.
The bill also provides eligible self-employed taxpayers with a refundable credit against income tax for qualified sick leave equivalent amounts. An eligible self-employed individual who regularly carries on any trade or business (as defined in Sec. 1402) would be entitled to receive paid leave under the act.
Emergency Family Leave Expanded
In addition to paid sick leave, the act extends and amends the Family and Medical Leave Act to obligate most employers with 500 or fewer employees to provide employees with up to 12 weeks of family leave (10 of which are paid family leave).
To be eligible, an employee must have been employed for at least 30 days at the time they begin the paid family leave. Once they have been employed for 30 days, employees can take paid family leave if they are unable to work or telework because of the need to care for children if schools are closed or daycare is unavailable because of a declaration of a public health emergency. This paid leave is not available for an employee to recover from a COVID-19 diagnosis or to self-quarantine.
For the first 10 days of paid family leave, no compensation is required, though an employee can take other forms of paid leave, including paid sick time, to receive compensation. Once those 10 days are exhausted, the employee is compensated at two-thirds of their regular rate for the duration of the leave, capped at $200 per day ($10,000 in the aggregate).
The act contains no blanket exemption for employers of fewer than 50 employees. Rather, the secretary of labor is empowered to exempt healthcare providers, emergency responders, and small businesses with fewer than 50 employees if the leave requirement would jeopardize the viability of the business.
Furthermore, in some cases, an employer with fewer than 25 employees would not be obligated to restore an employee to their pre-leave position if that position no longer exists because of the health emergency. Finally, employers with fewer than 50 employees would not be subject to potential civil action from an employee for an alleged violation of this portion of the act, although the Department of Labor would still be able to commence an enforcement action against an employer who had failed to comply.
Payroll Tax Credit for Emergency Family Leave
The act provides an employer payroll tax credit equal to 100 percent of the qualified family leave wages paid by the employer, subject to certain limitations. The credit is available for eligible wages paid during the period that begins within 15 days of enactment through Dec. 31, 2020. The credit would apply to the employer portion of Sec. 3111(a) old age, survivors, and disability insurance (OASDI) taxes or Sec. 3221(a) Tier 1 Railroad Retirement Act excise taxes. The credit is generally available for up to $200 in wages for each day an employee receives qualified family leave wages, with a maximum of $10,000 in wages per employee eligible for the credit.
To prevent double benefits, the employer’s gross income will be increased by the amount of the credit (meaning the credit is not taken into account to determine any amount allowable as a payroll tax deduction, deduction for qualified family leave wages, or deduction for health plan expenses), and no credit will be allowed for wages for which a Sec. 45S family and medical leave credit is claimed. The credit would not apply to the U.S. government, the government of any state or any subdivision of a state, or any agencies or instrumentalities of the foregoing. Employers can elect not to apply the new provision for any calendar quarter.
The bill also provides eligible self-employed individuals with a refundable credit against income tax for qualified family leave equivalent amounts. An eligible self-employed individual who regularly carries on any trade or business (as defined in Sec. 1402) would be entitled to receive paid leave under the Emergency Family and Medical Leave Expansion Act.
In payroll tax guidance IR 2020-57 issued on March 20, 2020, an employer with fewer than 500 employees will need to make emergency sick and family leave payments while waiting to receive the matching refundable payroll tax credit after filing its payroll tax returns. IR 2020-57 clarifies that:
• Where a refund is owed, the IRS will send the refund as quickly as possible;
• There will be a 30-day non-enforcement period for “good faith” compliance efforts; and
• Businesses can retain and access funds which would otherwise be paid to the IRS in payroll taxes and obtain an expedited advance from IRS by submitting a streamlined claim form. The expectation is that these claims will be processed within two weeks or less.
Employers are generally required to pay to the IRS:
• Withheld employee federal income tax and Social Security and Medicare taxes; and
• Employer share of Social Security and Medicare taxes.
It is expected that eligible employers making emergency sick leave or family medical leave payments will be able to retain an amount of these taxes equal to the payments made eligible for credit. The retained amounts can be from the employer’s share of payroll taxes and the employee’s share of federal income, Social Security, and Medicare withholding taxes.
Consider these two examples:
• If an eligible employer pays $5,000 in covered sick leave to certain employees and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all employees, deposits can be reduced to $3,000 on its next regular deposit date.
• If the eligible employer pays $10,000 in covered sick leave, it can reduce the deposit to zero and make a claim under the expedited procedure for $2,000.
The release also covers the small business exemption from the emergency and family leave payments. While employers with fewer than 500 employees are covered, the law provides that those with fewer than 50 employees are eligible for an exemption when it would jeopardize the ability of the business to survive.
While times are tough for individuals, businesses, and the economy as a whole, this act and other stimulus packages will hopefully lessen the burden on those hit hardest by COVID-19.
Illinois CPA Society member Daniel F. Rahill, CPA, JD, LL.M., CGMA, is a managing director at Wintrust Wealth Services. He is also a former chair of the Illinois CPA Society Board of Directors.
This information may answer some questions, but is not intended to be a comprehensive analysis of the topic. In addition, such information should not be relied upon as the only source of information; professional tax and legal advice should always be obtained. Securities, insurance products, financial planning, and investment management services are offered through Wintrust Investments, LLC (Member FINRA/SIPC), founded in 1931. Trust and asset management services offered by The Chicago Trust Company, N.A. and Great Lakes Advisors, LLC, respectively. © 2020 Wintrust Wealth Management
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