With the flurry of new legislation in response to the COVID-19 pandemic, many companies are concerned about what benefits they have to provide their employees regarding paid sick leave, especially related to COVID-19, and what, if any, programs are available to help them bear the costs of these new employee benefits.
In short, while employers are obligated to grant employees paid sick time in accordance with these new laws, the employer will receive immediate reimbursement in the form of a credit against any Federal withholding tax amounts due to the IRS and an additional cash refund if the credit is insufficient to offset the paid leave granted to employees.
Employee Rights and Benefits
The Families First Coronavirus Response Act (“FFCRA”) granted broad, new paid sick leave rights to employees of qualified employers – namely any private business with fewer than 500 employees. These new provisions, at least currently, are limited in time and only apply from April 1, 2020 through December 31, 2020.
Importantly, the FFCRA established six qualifying reasons for an employee to take leave. These reasons are:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
- The employee has been advised by a health care provide to self-quarantine related to COVID-19;
- The employee is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
- The employee is caring for an individual subject to an order described in section 1 or self-quarantine as described in section 2;
- The employee is caring for his or her child whose school or place of care is closed or unavailable due to COVID -19-related reasons; and
- The employee is experiencing any other substantially similar condition specified by the U.S. Department of Health and Human Services.
Further, the FFCRA provides that an employer must provide up to two weeks of paid sick leave to qualified employees, paid at:
- 100% of their regular rate of pay (up to $511 per day and $5,110 total) if the leave is for any of reasons 1 through 3 above; or
- 2/3 of their regular rate of pay (up to $200 daily and $2,000 total) if the leave is for reasons 2 or 6 above.
Additionally, if the employee is taking leave due to reason 5, they are entitled to up to 12 weeks of paid leave at 2/3 their hourly rate (up to $200 daily and $12,000 total). If the employee has been employed for at least 30 days, the employee may be entitled to an additional 10 weeks of 2/3 pay if it is being taken for reason 5.
For part-time employees, the regular rate of pay is calculated based on the normal hours that the employee would have been expected to work during that weekly time period.
As with the FMLA, the employee must provide notice and that notice must only be given within a reasonable time given the circumstances. However, given the reasons for leave, reasonable notice could very well be shortly before or even shortly after the leave begins. Further, the employer may require that the employee provide documentation to support the leave. In fact, as discussed below, the IRS may request this documentation when the employer applies for reimbursement.
Finally, the employer must post in a conspicuous place notice of these FFCRA requirements. The Department of Labor poster containing these rights is available here.
Employer Benefits, and Potential Exemptions
While the FFCRA imposes significant financial obligations on small businesses as described above, it also ensures that those financial obligations are 100% refundable. Following the passage of the FFCRA, the IRS issued guidance to businesses as to how to obtain refunds. This guidance was adopted into law with the passage of the CARES Act.
Importantly, the FFCRA provides that employers who provide the leave and pay described above are entitled to 100% reimbursement. This reimbursement includes the employer’s share of the Medicare tax imposed on those wages and its cost of maintaining health insurance coverage for the employee during the leave period. To ensure that businesses already struggling due to the COVID-19 pandemic receive this reimbursement quickly, the IRS has set up a two-pronged process for reimbursement.
The first prong allows employers to deduct from their Federal payroll taxes the amounts they spent complying with the employee sick leave portion of the FFCRA. Thus, employers will immediately receive reimbursement up to the amount of their payroll taxes.
To the extent the reimbursement exceeds the payroll taxes, the IRS has created a second prong that allows the employer to submit forms for reimbursement of costs above the amounts covered by the payroll tax withholding, and even allows for advanced reimbursement for anticipated overages. The IRS is working on drafts of these forms and they are expected to be final in the very near future. Further, the IRS is promising a fast turn-around time on these refunds (two weeks), to help ensure that employers are getting these refunds quickly.
As mentioned above, the IRS is requiring that employers who claim this credit maintain sufficient documentation to show that the employee’s leave was for one of the qualifying reasons.
Finally, if the company has less than 50 employees, it may be eligible for an exemption to the requirement that the employer cover leave for reason number 5. To qualify, the employer must believe that providing said leave would “jeopardize the viability of the business as an ongoing concern.” While the Department of Labor is in the process of drafting regulations related to this exemption, it recommends that any business seeking to utilize this exemption keep detailed records supporting the reasons for the exemption.
If you need any assistance in implementing the new FFCRA sick leave provisions, obtaining the refund, or determining if you qualify for the exemption, you should contact an attorney at Smith & Associates to discuss your rights and options.