Families First Coronavirus Response Act: What Employers and Employees Need to Know

Summers Compton Wells LLC has been closely monitoring legislative and regulatory developments concerning the COVID-19 (coronavirus) pandemic to help employers and employees understand how to respond to the coronavirus pandemic.  The following paper is prepared in connection with these efforts. 

Families First Coronavirus Response Act: What Employers and Employees Need to Know

Updated March 20, 2020

On March 14, 2020, the United States House of Representatives overwhelmingly passed the Families First Coronavirus Response Act, H.R. 6201, in an effort to provide emergency relief to workers affected by the 2019 Novel Coronavirus (also referred to as COVID-19).  On March 18, 2020, the Senate passed the House bill and President Trump signed it into law.  The new law is expected to go into effect on April 2, 2020 (15 days after becoming law).     

We encourage employers and small business owners to familiarize themselves with the provisions of this new law, especially concerning the expansion of benefits under the Family and Medical Leave Act (“FMLA”) and required paid leave for certain individuals impacted by the coronavirus. The following provides a summary of these new requirements and benefits.  For more information, please contact one of our attorneys or the government agencies with oversight authority.            

The Emergency Family and Medical Leave Expansion Act

The Emergency Family and Medical Leave Expansion Act (the “Expansion Act”) amends the federal Family and Medical Leave Act “(FMLA”) to provide emergency leave to employees in response to coronavirus.     

• Covered Employers: Private employers with fewer than 500 employees and government employers will be required to provide the emergency leave contemplated in the Expansion Act.  This is a departure from the FMLA’s coverage threshold of greater than 50 employees for all other covered leaves.  While there is a provision in the Expansion Act that allows the Department of Labor (“DOL”) to exempt employers with fewer than 50 employees where the new requirements would “jeopardize the viability of the business as a going concern,” there is limited guidance as to how, whether or when the DOL will exercise this authority.   

• Eligible Employees: Employees who have been on the job for at least 30 calendar days (not the 12 month, 1,250-hours required under the FMLA) will be eligible, at the employee’s option, to take up to 12 weeks of leave under the FMLA if the employee is unable to work (or work remotely) in order to care for his or her son or daughter whose school or place of care has been closed, or the caregiver for the child is unavailable, due to coronavirus.  The Expansion Act does not expand the standard 12-week per 12-month FMLA entitlement.  If employees have used their leave for other FMLA-qualifying reasons, they will not be able to go beyond a cumulative 12 weeks.  

• Payment Amount: The first 10 days of any leave under the Expansion Act will be unpaid, unless the employee, not the employer, elects to substitute paid leave, including the paid leave provided for under the new Emergency Paid Sick Leave Act (discussed below).  After this 10-day exclusion period, employees must be paid at not less than 2/3 of their regular rate of pay.   Wages paid pursuant to this new law will not be considered wages under Internal Revenue Code Sections 3111(a) and 3111(b).  As a result, no additional Social Security or Medicare taxes will be collected on such wages, although they will likely remain subject to income tax withholding and the 0.9% additional Medicare tax for wages in excess of certain thresholds.

• Employer Refundable Tax Credit for Qualified Family Leave Wages: Employers are allowed to receive a refundable tax credit equal to 100% of qualified family medical leave wages paid each quarter under the Expansion Act.  The tax credit would be taken against the employer portion of Social Security and Medicare taxes for each calendar quarter. The amount of qualified family medical leave wages taken into account for each employee are capped at $200 per day (or portion thereof) and $10,000 in total for all calendar quarters.  The amount of the credit can be increased by the employer’s qualified health plan expenses that are allocable to the qualified family medical leave wages for which the credit is allowed.  The credit cannot exceed the employer’s tax liability under Code Section 3111(a) and 3111(b) for the applicable calendar quarter.  If the credit exceeds this limit, the employer can apply for a refund.  To prevent a double benefit, employers are not allowed to take income deductions for the amount of the credit and no credit can be claimed on wages for which a credit is allowed under Code Section 45S (employer credit for paid family and medical leave).  Employers who qualify for the credit under the Expansion Act and under Internal Revenue Code Section 45S should consider which credit is more beneficial.         

• Self-Employed Individuals: Individuals who are self-employed within the meaning of Internal Revenue Code Section 1402 will be entitled to receive a refundable tax credit equal to 100% of a qualified family leave equivalent amount.  The qualified family leave equivalent amount means an amount equal to the number of days (not to exceed 50) during the taxable year that the individual is unable to perform self-employed services for a reason that would entitle the individual to emergency family or medical leave under the Expansion Act if the individual was employed elsewhere, multiplied by the lesser of (1) 67% of the average daily self-employment income of the individual for the tax year, or (2) $200.  To avoid providing a double benefit, the qualified family leave equivalent amount will be reduced if the eligible self-employed individual also receives wages paid by an employer under the Expansion Act and the sum of the qualified family leave equivalent amount and the amount of the qualified family leave wages paid by the employer exceeds $10,000.         

• Expiration: The Expansion Act will expire on December 31, 2020.

The Emergency  Paid Sick Leave Act

The Emergency Paid Sick Leave Act (the “Sick Leave Act”) will in most cases work in tandem with the Emergency Family Medical Leave Expansion Act discussed above. 

• Covered Employers: Private employers with fewer than 500 employees and government employers will be required to provide emergency paid leave under the new Sick Leave Act.  Employers that employ health care workers and emergency responders can elect to exclude those employees from the new paid sick leave requirements. While there is a provision in the Suck Leave Act that allows the DOL to exempt employers with fewer than 50 employees where the requirements would “jeopardize the viability of the business as a going concern,” there is limited guidance as to how, whether or when the DOL will exercise this authority

• Eligible Employees: An employee will be eligible to take emergency paid sick leave under the Sick Leave Act for the following reasons: (a) the employee has been advised by a health care provider to self-quarantine due to the coronavirus; (b) the employee is experiencing symptoms of coronavirus and is seeking a medical diagnosis; (c) the employee is subject to a government order or directive to quarantine or isolate as a result of coronavirus; (d) the employee is caring for an individual who is subject to a government order or directive to quarantine or isolate as a result of coronavirus or who has been advised by a health care provider to self-quarantine due to the coronavirus; (e) the employee is caring for his or her son or daughter whose school or place of care has been closed, or the caregiver for the child is unavailable, due to coronavirus; or (f) the employee is experiencing substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.     

Paid leave under the Sick Leave Act is available regardless of how long the employee has been employed and is in addition to any paid leave the employee might have accrued under the employer’s existing policies. For purposes of this summary, the circumstances described in categories (a) to (c) above are referred to as “self-care” and the circumstances described in categories (d) to (f) are referred to as “care for others.” 

• Duration of the Paid Leave: Full-time employees are entitled to 2 weeks (80 hours) of paid sick leave and part-time employees are entitled to the typical number of hours that they work in a typical 2-week period.  The paid sick leave must be made available to all employees immediately.  Employees can elect to use existing sick or vacation time in lieu of or prior to using the sick leave provided under the Sick Leave Act but cannot be required to do so by the employer.   

• Payment Amounts: For leave as a result of self-care, paid leave will be at the employee’s regular rate of pay, capped at $511 per day and $5,111 in total.  For leave to care for others, paid leave will be at 2/3 of the employee’s regular rate of pay, capped at  $200 per day and $2,000 in total.   Wages paid pursuant to the Sick Leave Act will not be considered wages under Internal Revenue Code Sections 3111(a) and 3111(b).  As a result, no additional Social Security or Medicare tax will be collected on such wages, although they will likely remain subject to income tax withholding and the 0.9% additional Medicare tax for wages in excess of certain thresholds.

• Employer Refundable Tax Credit for Qualified Sick Leave Wages: Employers are allowed to receive a refundable tax credit equal to 100% of the qualified sick leave wages paid each quarter under the Sick Leave Act.  The tax credit is against the employer portion of Social Security and Medicare taxes for each calendar quarter.  The amount of the credit can be increased by the employer’s qualified health plan expenses that are allocable to the qualified sick leave wages for which the credit is allowed. For amounts paid to employees as a result of self-care, the amount of qualified sick leave wages taken into account for each employee is capped at $511 per day.  For amounts paid to employees who care for others, the amount of qualified sick leave wages taken into account for each employee is capped at $200 per day.  The credit is only available for up to 10 days of qualified sick leave wages per employee, which means the credit is capped at $5,110 if the employee takes sick leave for self-care or $2,000 if the employee takes sick leave to care for others.  In addition, the credit cannot exceed the employer’s tax liability under Internal Revenue Code Section 3111(a) and 3111(b) for the applicable calendar quarter.  If the credit exceeds this limit, the employer can apply for a refund.  To prevent a double benefit, no employer income deduction is allowed for the amount of the credit and no credit can be claimed on wages for which a credit is allowed under Code Section 45S (employer credit for paid family and medical leave). 

• Self-Employed Individuals: Individuals who are self-employed within the meaning of Internal Revenue Code Section 1402 will be entitled to receive a refundable tax credit equal to 100% of a qualified sick leave equivalent amount if they must self-care.  Self-employed individuals will be entitled to receive a refundable tax credit equal to 67% of a qualified sick leave equivalent amount if they must care for others.   The qualified sick leave equivalent amount means an amount equal to the number of days during the taxable year that the individual is unable to perform self-employed services for a reason that would entitle the individual to emergency sick leave under the Sick Leave Act if the individual was employed elsewhere, multiplied by the lesser of (1) $511 per day if the self-employed individual is taking sick leave for self-care or $200 per day if the individual is taking sick leave to care for others, or (2) the average daily self-employment income of the individual for the tax year. To avoid providing a double benefit, the qualified sick leave equivalent amount is reduced if the eligible self-employed individual also receives paid sick leave wages under the Sick Leave Act to the extent such wages exceed $5,110 for sick leave for self-care or $2,000 for sick leave to care for others.        

• Expiration: The Sick Leave Act will expire on December 31, 2020.

The Emergency Unemployment Insurance Stabilization and Access Act of 2020

The Emergency Unemployment Insurance Stabilization and Access Act of 2020  makes the following modifications to state unemployment insurance (“UI”) benefits and benefit administration. 

• Total Funding: Congress will provide $1 billion in 2020 for emergency grants to states for activities related to processing and paying UI benefits under certain conditions.

• Immediate Funding Portion: Half of this appropriation will be available immediately to states that ensure access to earned UI benefits for eligible workers by doing the following: (a) requiring employers to provide notification of potential UI eligibility to laid-off workers; (b) ensuring that workers have at least 2 ways (for example, online and phone) to apply for benefits; and (c) notifying applicants when an application is received and being processed and, if the application cannot be processed, provide information to the applicant about how to ensure successful processing.

• Emergency Funding Reserve: The other half of this appropriation will be reserved for emergency grants to states which experience at least a 10% increase in unemployment.  States will have access to this additional funding if they ease UI eligibility requirements, including work search requirements, required waiting periods, and requirements to increase employer UI taxes if they have high layoff rates.  This additional federal funding will be 100%, not the normal 50% limit.      

It is important to note that the law is subject to regulations promulgated by the DOL.  Those regulations and other developments may impact the foregoing requirements. 

* * * *