March 27, 2020

On March 18, Congress passed the Families First Coronavirus Response Act, which becomes effective April 1, 2020. The Act imposes obligations for any business employing fewer than five hundred employees. Below is a summary of the Act. Because every employer and situation is different, this is intended as general information about the Act and is not specific legal advice. Please call or email with any questions.

In the not so distant future, we also expect the coronavirus stimulus relief bill to become law, which (at least in its current form) contains provisions for forgivable small business loans for employers who continue to pay employees. We’ll keep you updated.

Summary: Families First Coronavirus Response Act: Effective April 1, 2020

The Act has three significant implications for Montana employers:

(1) An expansion of FMLA

(2) Emergency paid sick leave requirements

(3) A tax credit to help offset the cost

First, the Emergency Family and Medical Leave Expansion Act. The federal Family Medical Leave Act gives eligible employees of covered employers the right to take an unpaid leave of absence from work for medical or family obligations without jeopardizing their employment. For most purposes, FMLA leave extends up to 12 weeks during an employer-specified, 12-month period. FMLA previously applied to employers with fifty or more employees.

The Families First Act expands FMLA obligations to additional employers for Covid-19 related circumstances. It requires that any employer with fewer than 500 employees must provide FMLA leave for any employee who has been employed for at least thirty days if the employee requests leave because the employee is unable to work (or telework) due to a need to care for a minor child if the child’s school, place of care, or child provider is unavailable due to Covid-19. The first ten days of leave may be unpaid (or the employee may elect to take paid time off, vacation time, or other similar leave benefits if they are available through your other policies), with the following days paid by the employer at two-thirds the employee’s regular pay (capped at $200 / day and $10K in the aggregate for each employee).

Generally, employers with twenty-five or more employees must return any employee who has taken leave to the same or equivalent position upon the return to work. Employers with fewer than twenty-five employees are excluded from this requirement if (a) the employee’s position no longer exists following the leave due to an economic downtown or other circumstances caused by Covid-19 during the leave; (b) the employer makes an effort to restore the employee to an equivalent position; and (c) the employer makes efforts to restore the employee to an equivalent position should one become available in the year following the leave or the end of the Covid-19 emergency, whichever is first. The Act is effective April 1 and sunsets December 31, 2020. Employers with fewer than fifty employees may petition the Secretary of Labor for an exemption “when the imposition of such requirements would jeopardize the viability of the business as a going concern.”

Second, Emergency Paid Sick Leave Act. Under the Act, an employer employing fewer than 500 employees must provide each employee with paid sick time to the extent the employee is unable to work because:

1. The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19.

2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19.

3. The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis.

4. The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).

5. The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID–19 precautions; or

6. The employee is experiencing 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.

Full-time employees are entitled to eighty hours of leave. Part-time employees are entitled to the average number of hours the employee works in two weeks. The amount of pay is based on the reason for leave and is capped based on the reason for leave both by the day and aggregate. The employer is required to pay up to 80 hours of paid sick leave at its regular rate of pay for current FTE for reasons 1-3 above, but only up to a maximum of $511/day (capped at $5,110 total) for each employee. Employees taking leave for reasons 4-6 must be compensated at two-thirds their regular rate of pay and current FTE, but only up to a maximum of $200/day (capped at $2,000 total) for each employee. You cannot require the employees to use other types of paid leave they may have under your current policies before letting them use the paid sick time under this new law. The employee, however, may choose to do so at their own option.  

Employers must post sick leave notices to be provided by the Secretary of Labor. On March 25, the Secretary of Labor released the poster. However, this version may contain an error. This version states that employers must generally provide employees with “up to 10 weeks more of paid sick leave and expanded family and medical leave paid at 2/3 for qualifying reason #5 below for up to $200 daily and $12,000 total.” However, under the statute, the aggregate total for the 10 weeks of paid FMLA is $10,000. The $12,000 figure would be correct if an employee received the first 10 days of a leave through paid under the Emergency Paid Sick Leave, which has a $2,000 cap, before taking Emergency FMLA time, which has a $10,000 cap. I suggest waiting to supply the poster until the Secretary releases another (do not wait longer than April 1, however).

Employers may not discharge, discipline, or discriminate against employees for taking leave. Employers with fewer than fifty employees may petition the Secretary of Labor for an exemption “when the imposition of such requirements would jeopardize the viability of the business as a going concern.”

Third, employers providing FMLA leave or emergency sick leave are entitled to a tax credit (and refund if applicable) for 100% of paid wages for leave (subject to dollar and time limitations). The amount an employer pays for leave is credited against the employer’s share of Medicare and Social Security taxes. If the credit exceeds the taxes normally imposed, the IRS will refund such amounts. Even to the extent some of the cost may be reimbursed, this law requires the employer to front the cost of paying for the leave required.

The current IRS guidelines provide that:

  • Reimbursement will be quick and easy to obtain. An immediate dollar-for-dollar tax offset against payroll taxes will be provided. Where a refund is owed, the IRS will send the refund as quickly as possible.
  • To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts 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.
  • The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.

For paid sick leave, the amount of wages credited are capped at either $511 per day or $200 per day per employee based on the reason for leave. These caps match the caps an employer is required to pay for leave. The credit is capped at 10 days of paid leave.  

However, health insurance costs are also included in the credit. Additionally, employers will pay no payroll tax liability for leave wages.

Self-employed persons are also entitled to similar credits.

For FMLA leave, the amount of wages credited are capped at $200 per day and $10,000 aggregate per employee. These caps match the caps an employer is required to pay for leave. The credit is capped at ten weeks of FMLA leave. However, costs to maintain health insurance coverage for the employee are also credited. 

The current draft of the coronavirus stimulus relief bill provides that a certain amount of credit under these provisions may be advanced by the IRS according to its forthcoming instructions, regulations, and forms.

Please consult your CPA about this credit and the details.

If you fail to pay employees as required, you may be exposing yourself to potential wage claims and other claims. The Department of Labor has given the following notice:

  • Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the 30-day period.

Other legal issues may arise as a result of Covid-19. For example, some clients have already contacted us regarding questions about contractual obligations, business interruption insurance coverage issues, estate planning questions (including medical directives), employment and labor issues, as well as litigation issues. In addition, there are potentially going to be SBA loans available to help you fund your payroll. If you have any questions regarding any of these issues (or any other legal issues), please feel free to contact any of the attorneys at Worden Thane P.C. If we cannot help you with a specific issue, we can put you in contact with someone who can. We understand that this is a stressful situation and we will do everything we can to help you through this.

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