The Families First Coronavirus Response Act Update on Department of Labor and Internal Revenue Service Guidance

April 2, 2020
The Families First Coronavirus Response Act Update on Department of Labor and Internal Revenue Service Guidance

Yesterday, the Families First Coronavirus Response Act (FFCRA) went into effect. The Act includes two provisions that grant paid sick leave and expanded family and medical leave due to COVID-19 (Coronavirus). These provisions create a new, federal sick leave policy in response to the COVID-19 pandemic:

1.    The Emergency Family and Medical Leave Expansion Act (EFMLEA); and

2.        The Emergency Paid Sick Leave Act (EPSLA).

The EFMLEA permits certain employees to take up to twelve weeks of expanded family and medical leave, ten of which are paid, for specified reasons related to COVID-19. The EPSLA entitles certain employees to take up to two weeks of paid sick leave for specified reasons related to COVID-19.

To help navigate this new legislation, the Department of Labor’s Wage and Hour Division (DOL) promulgated and adopted a temporary rule issuing regulations pursuant to the FCCRA. Further, the Internal Revenue Service published additional guidance explaining the tax credit system under the FCCRA. The key takeaways from these new regulations for small business are: 

·      Small businesses with less than 50 employees may deny an employee paid sick leave under the EFMLEA or EPSLA if:

o   Leave would cause business expenses to exceed available business revenue;

o   Leave of the particular employee(s) would pose a substantial risk to the financial health or operational capacity of the company due to the employee’s specialized knowledge, skill, or responsibilities; or

o   The employer cannot find enough replacement workers to substitute for the employees who requested leave and sustain minimal capacity.  

·     To elect the small business exemption, the employer must document that a determination has been made pursuant to the criteria specified in DOL regulation § 826.40(b) (above). The employer should not send such documentation to the DOL, but rather retain the records in its files.

·      If an employer denies an employee’s request for leave pursuant to the small business exemption, the employer must document its authorized officer’s determination that the prerequisite criteria for that exemption are satisfied and retain such documentation for four years. 

·     The tax credits provided under the FCCRA cover 100 percent of up to ten days of the qualified sick leave wages and up to ten weeks of the qualified family leave wages (and any qualified health plan expenses allocable to those wages) that an Eligible Employer paid during a calendar quarter, plus the amount of the Eligible Employer’s share of Medicare taxes imposed on those wages.

o   Example: An Eligible Employer pays $10,000 in qualified sick leave wages and qualified family leave wages in Q2 2020.  It does not owe the employer’s share of social security tax on the $10,000, but it will owe $145 for the employer’s share of Medicare tax.  Its credits equal $10,145, which include the $10,000 in qualified leave wages plus $145 for the Eligible Employer’s share of Medicare tax (this example does not include any qualified health plan expenses allocable to the qualified leave wages). This amount may be applied against any federal employment taxes that Eligible Employer is liable for on any wages paid in Q2 2020.  Any excess over the federal employment tax liabilities is refunded in accord with normal procedures. Eligible Employer must still withhold the employee’s share of social security and Medicare taxes on the qualified leave wages paid.

Conclusion

The DOL’s temporary rule and regulations provide the objective criteria for small businesses to claim an exemption from paying sick leave to its employees due to COVID-19. Employers should pay careful attention to the self-certification and recordkeeping requirement in connection with claiming this exemption. For employers who are covering the cost of paid sick leave under the FCCRA, the IRS’s guidance helps explain the intricacies on how employers may claim tax credits to help cover the cost of COVID-19 related sick leave.

Please do not hesitate to contact Simon Whiting directly at (214) 740-3119, if you need any assistance complying with the FCCRA or have any questions on how the FCCRA may impact your business.