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The Families First Coronavirus Response Act, H.R. 6201 (the “Act”) passed by Congress on March 18, 2020, expands sick leave protection and unemployment benefits to workers, while also providing employers and self-employed individuals with certain tax credits to offset the related cost. The Act is effective within fifteen (15) days of passage and remains effective through December 31, 2020.
Paid Emergency Sick Leave and Family and Medical Leave Expansion
Among other things, the Act requires most small to midsized businesses (fewer than 500 employees) to provide 80 hours of paid sick leave to certain part-time and fulltime employees. For covered part-time employees, the sick leave is calculated based on average hours expected to work over a two-week period (i.e., if the employee works 20 hours per week, the required paid sick leave would be 40 hours (20 hours x 2 = 40 hours). Leave pay is generally computed based on the employee's normal rate of compensation, unless the employee is absent due to caring for a child or family member affected by COVID-19, in which case the leave pay will be calculated based on two-thirds of the employee’s normal compensation rate.
Employees subject to the following conditions will be covered by the Act:
- The employee or the employee’s child or family member is under government quarantine due to the virus or has been advised by a doctor to self-quarantine;
- The employee is caring for a son or daughter whose school or place of care has been closed;
- The employee is experiencing symptoms of the virus and seeking care; and / or
- The employee is experiencing any other substantially similar condition as specified by the Secretary of HHS in consultation with the Secretary of the Treasury and the Secretary of Labor.
The Act also provides for expanded family and medical leave provisions for individuals unable to work (onsite or remotely) due to their child’s school or day care being closed from COVID-19. Qualifying employees are entitled to 12 weeks of leave. The first two weeks of leave are unpaid, but for the remaining 10 weeks, eligible individuals are entitled to receive two-thirds of their average earnings. For each individual payment is capped at $200 per day and $10,000 in the aggregate.
Employers of healthcare providers and first responders may elect to exempt their employees from these provisions. Employers with less than 50 employees may also be exempt from complying with the Act by federal agencies if doing so would jeopardize the viability of the business or ability of the business to continue.
The provisions of the Act must be posted in a conspicuous place on each employer’s premises within seven days of the Act’s enactment. Employers who violate the provisions of the Act will be subject to significant penalties, including back pay and fines up to $10,000 for each occurrence.
Payroll Tax Credits for Sick Leave and Family and Medical Leave Payments
To help employers required to pay these benefits cover the related cost, the Act provides two tax benefits:
- Refundable credits against the employer’s portion of Old Age Survivors and Disability Tax (“Social Security”) or Railroad Retirement Tax Act (“RRTA”) taxes; and
- An exemption from Social Security and RRTA on sick leave or family leave payments made under the Act.
Employers may claim a quarterly refundable tax credit against their portion of Social Security or RRTA tax representing 100% on sick leave wages paid under the Act. The credit is capped at $511 per day for employees taking time off to care for themselves (i.e. self-quarantine or treatment) or $200 per day if the sick leave is to care for another person (i.e. child due to school closure or other family member due to quarantine). These credits are only eligible for a maximum of 10 days per employee. The credits are refundable if they exceed the employer’s total payroll tax liability.
For wages paid under the family and medical leave provision, a separate credit for each employee is available which is capped at $200 per day and $10,000 for all calendar quarters.
An employer’s credit may be increased for payments made to a group health plan to the extent those payments are 1) excluded from an employee’s gross income and 2) “properly allocable” to the sick or family leave wages paid under the Act. The exact allocation method will be provided by regulatory authorities at a later date.
The credits are also increased for the employer’s portion of Medicare taxes on wages paid under the Act. As noted earlier, the compensation payments are exempt from Social Security and RRTA taxes which means they are not considered wages for the purpose of calculating the employer’s portion of these taxes.
Employers can elect to have the credits not apply. To prevent employers from receiving a double benefit from these credits, no deduction will be allowed for the credit (i.e. the credit will be added to income) and no credits will be allowed for wages eligible for credits under the Family Medical and Leave Act (Section 45S).
Tax Credits for Self-Employed Individuals
Self-employed individuals are eligible to claim a credit against their regular income tax for missed work due to COVID-19. The credit covers 100% of daily self-employment income for individuals caring for themselves and 67% for those caring for a child due to school closure. The credit is limited to the lesser of the individual’s average daily self-employment income, or $511 per day (reduced to $200 if caring for a child). For family leave wages, the credit per day is calculated as the lesser of 67% of average daily self-employment income or $200. The number of eligible days is limited to 10 for sick leave and 50 for family and medical leave. At a later date guidance on the documentation required to claim these credits will be provided by the Treasury Department.
The provisions of the Act are temporary and will expire on December 31, 2020 unless extended.