LGT's Profit Sense

On Wednesday, March 18, 2020, the U.S. Senate passed H.R. 6201, Families First Coronavirus Response Act, which was signed shortly thereafter by the president. Now that the bill is signed into law, here are some key provisions affecting small businesses set to take effect by April 2^nd.

Emergency Paid Sick Leave Act (EPSLA)

For private employers with fewer than 500 employees, emergency paid sick leave must be made available regardless of the amount of tenure with the company. Employees eligible for the emergency paid sick leave are those that fall into the following categories:

• Employees that are subject to federal, state, or local jurisdiction orders requiring quarantine or isolation stemming from COVID-19;
• Employees that have been advised by a health official to self-quarantine because of COVID-19;
• Employees that are in the process of seeking treatment but may not have a diagnosis from a health official for symptoms of COVID-19;
• Employees caring for someone that has been advised to isolate or self-quarantine related to COVID-19;
• Employees caring for a child whose school, place of care, or ordinary care provider is closed or unavailable due to COVID-19; and
• Employees that are experiencing similar conditions set forth by the secretary of Health & Human Services in conjunction with guidance from the secretaries of Labor and the Treasury.

Full-time employees that are part of the first three categories above will receive 80 hours of paid sick time at their regular rate. Full-time employees that fall into the last three categories above receive two-thirds of their regular rate of pay for 80 hours. For part-time employees, the same conditions hold except that the number of hours paid is equivalent to what the part-time employee generally works in a two-week span.

There are also limits to the amount that is paid to employees under these qualifying conditions. Employees must be compensated at their regular rate up to a maximum of $511/day (or a total of $5,110) for the two-week span if qualifying under the first three conditions. Employees must be compensated at two-thirds their regular rate up to a maximum of of $200/day (or a total of $2,000) if qualifying under the last three conditions. Employers must apply emergency paid sick leave before applying any other type of paid time off (PTO). Further, the Act specifically states that accrued PTO must not be required to be taken first. However, PTO already taken by employees may not be recategorized as emergency paid sick leave. 

Employers may exclude health care providers and emergency responders, and the Department of Labor can issue regulations exempting businesses with fewer than 50 employees

Emergency Family and Medical Leave Expansion Act (EFMLEA)

EFMLEA also affects employers with fewer than 500 employees. Eligible employees are full- and part-time employees that have been with the company for at least 30 days. Note that the qualifying length of time is much faster than traditional FMLA.

Eligible employees may take EFMLEA for up to 12 weeks if they have a qualifying need related to a public health emergency. A qualifying need is limited to situations where an employee is unable to work (either at a physical location or telecommute) because they are needed to care for a child whose school or place of care has been closed due to a public health emergency.

Similar to FMLA, the first 10 days of EFMLEA can be unpaid or can be covered by some other type of leave, including the emergency paid sick leave discussed above, accrued PTO, or some other type of compensated leave. The successive days off can be paid out at two-thirds the employee’s regular rate at the number of hours usually worked by that employee. The amount of pay is capped at $200/day or a total maximum of $10,000 for the full 10 weeks.

Similar to traditional FMLA, job protection applies for the employee. This means that employers must restore the returning employee to their same position, or an equivalent position, prior to taking EFMLEA. Further, all other facets of traditional FMLA apply.

Employer Tax Credits

Employers paying wages under the EPSLA and EFMLEA components of the Act are eligible for refundable tax credits for the employer, but not employee, portion of the OASDI part of payroll taxes. The EPSLA credit per employee will be capped at $511/day for wages paid to an employee to care for themselves and $200/day for wages paid to and employee caring for a family member or child whose school is closed. Credits are available for only 10 days per quarter per employee. The EFMLEA credit is capped at $200/day per employee and a maximum of $10,000 for the duration of the EFMLEA period. To prevent double benefit, employers must include the credits in their gross income. Employers may also opt not to take credits for a given quarter.

The amount of the EPSLA and EFMLEA credits are increased by the portion of the employer’s qualified health plan expenses that are properly allocable to qualified sick leave wages or qualified family and medical leave wages.  Qualified health plan expenses means amounts paid or incurred by the employer to provide and maintain a group health plan but only to the extent that such amounts are excluded from the gross income of the employees.

The credits are refundable to the extent they exceed the employer’s payroll tax.

The effective date of the bill is fast approaching, and employers will need to work swiftly to ensure that operations and human resources are in compliance with the Act.

Please don’t hesitate to reach out to any of our professionals for tax and consulting guidance. Visit our COVID-19 Financial Updates page located here for developments on this quickly-changing topic.