When Your Employees Are Affected by COVID-19, What Do You Have to Do as an Employer?

In response to the COVID-19 outbreak that is spreading in the United States and disrupting the nation’s way of life, Congress and President Trump have enacted the Families First Coronavirus Response Act (“Act”) into law on March 18, 2020. This Act is scheduled to take effect on April 1, 2020, and it imposes various requirements on employers with regards to paid leave for its employees. The two relevant areas for paid leave revolve around emergency sick leave and emergency family leave for employees.

It is important to note that the employer requirements under this Act apply only to employers with fewer than 500 employees. Given that this applies to most small businesses, it is vital that these new requirements are reviewed for implementation. Nevertheless, with these new paid leave policies imposed on employers, the government has also included tax breaks and possible future exemptions to ease these new burdens. We have provided a summary of the relevant provisions below.

Is My Company Under the 500-employee Threshold?

For the purpose of determining whether an employer is under the 500-employee threshold, the employer must count its full-time and part-time employees within the United States as well as any Territory or possession of the United States. When making this determination, the employer should include employees on leave, temporary employees who are jointly employed by the employer and another employer (regardless of whether the jointly-employed employees are maintained on the employer or the other entity’s payroll), and day laborers who are supplied by a temporary agency. Workers who are independent contractors are not considered employees for the purposes of the 500-employee threshold.

Typically, a corporation (including its separate establishments or divisions) is considered to be a single employer and its employees must each be counted towards the 500-employee threshold. Where a corporation has an ownership interest in another corporation, the two corporations are separate employers unless they are joint employers under the FLSA with respect to certain employees.

Emergency Sick Leave

Eligibility

Employers with fewer than 500 employees are required to provide emergency sick leave for employees dealing with various COVID-19 related situations. These situations are:

i. an employee subject to a coronavirus quarantine or isolation order;

ii. an employee who has been advised by a health care provider to self-quarantine due to coronavirus concerns;

iii. an employee who is experiencing symptoms of coronavirus and is seeking a medical diagnosis;

iv. an employee caring for an individual described in (i) or (ii) above;

v. an employee caring for a child whose school or place of care is closed, or the child care provider of the child is unavailable, due to coronavirus precautions; or

vi. an employee who is experiencing any other substantially similar condition specified by HHS in consultation with the Treasury and Labor Departments.

• Full-time employees can receive up to 80 hours of sick leave, and part-time workers can receive leave equivalent to their average hours worked in a two-week period. Employers are required to grant this emergency sick leave for immediate use regardless of how long the employee has worked at the employer.

Paid sick time will not carry over from year to year. Employers of employees that are health care providers or emergency responders may choose to exclude those employees from the emergency sick leave provisions. Workers under collective bargaining agreements whose employers pay into pension plans will also have access to paid emergency leave.

When taking sick leave, an employee may only take up to the limit (either 80 hours or the part time worker average hours). The employee cannot use the limit for each category listed above. For example, an employee cannot take the maximum for self-quarantine and then get more sick leave for caring for an individual who is sick.

Amount of Paid Leave

The amount the employer is required to pay the employee depends on the reason they are taking leave. Workers taking leave for themselves (categories i to iii) will have to be paid at least their normal wage or the applicable federal, state, or local minimum wage, whichever is greater. Workers taking time off to care for family members (categories iv to vi) must be paid at two-thirds of the foregoing rate.

However, there is a limit to how much an employer is required to pay an employee for this emergency sick leave.

• Emergency sick leave is capped at $511 per day and $5,110 total for leave taken in categories (i) through (iii).

• Emergency sick leave is capped at $200 per day and $2,000 total for leave taken in categories (iv) through (vi).

• Furthermore, wages required to be paid under the emergency sick leave provisions will not be subject to the 6.2 percent social security payroll tax typically paid by employers on employees’ wages.

Employers with existing paid leave policies will be required to provide workers with the sick leave under this emergency program. Furthermore, an employer cannot require a worker to use any other available paid leave before using the sick time. Employers also cannot require workers to find replacements to cover their hours during time off. Most importantly, employers cannot discharge or discriminate against workers for requesting paid sick leave or filing a complaint against the employer related to this emergency sick leave.

As part of the new requirements, employers will be required to post a notice containing information regarding the emergency sick leave provisions. The Dept. of Labor will create a model notice no later than 7 days after the Act is enacted. Employers can use this model notice to post in their businesses.

Under the Act, the Dept. of Labor is also authorized to issue regulations relating to providing exemptions for small businesses with fewer than 50 employees from the paid leave requirements when the imposition of such requirements would “jeopardize the viability of the business as a going concern.” The DOL has stated that to elect this small business exception, the employer should be prepared to document why the business meets the criteria set forth by the Dept. of Labor for the exemption. At the time this memorandum was written, the Dept. of Labor has not released its criteria for this particular small business exemption. However, it is expected to be released soon after the enactment of the Act.

As previously mentioned, the above provisions will take effect on April 1, 2020 and is scheduled to expire on December 31, 2020.

Emergency Family Leave

Eligibility

The Act also requires employers with fewer than 500 employees to provide employees with up to 12 weeks of leave for an employee is unable to work (or telework) because the employee needs leave to care for a child under the age of 18 whose school or place of care has closed because of an emergency with respect to COVID-19 declared by a federal, state or local authority.

Only employees who have been on the job for at least 30 days are eligible for this emergency family leave. An employer of an employee who is a health care provider or an emergency responder may elect to exclude the employee from the emergency family leave provisions. Workers under collective bargaining agreements whose employers pay into pension plans will have access to paid emergency leave.

Amount of Paid Leave

The first 10 days of leave can be unpaid, but an employee could opt to use accrued vacation days or other available paid leave for those days. For subsequent days of leave, employees will receive a benefit from their employers equal to at least two-thirds of their normal pay rate. There is also a maximum cap to the emergency paid leave. It is set at $200 per day and $10,000 total per employee.

Generally, upon return, the employee on leave must be restored to his or her prior position. However, this requirement does not apply to employers with fewer than 25 employees if the position held by the employee on leave no longer exists due to economic conditions or other changes in the employer’s operating conditions caused by the coronavirus pandemic, and the employer makes reasonable efforts to restore the employee to an equivalent position.

Again, wages required to be paid under the emergency family leave provisions will not be subject to the 6.2 percent social security payroll tax typically paid by employers on employees’ wages.

The Department of Labor has been authorized to issue regulations to exempt small businesses with fewer than 50 employees from the paid leave requirements when the imposition of such requirements would “jeopardize the viability of the business as a going concern.” Again, at the time this memorandum was written, the Dept. of Labor has not released its emergency regulations for this particular small business exemption. However, it is expected to be released soon after the enactment of the Act.

As previously mentioned, the above provisions will take effect on April 1, 2020 and is scheduled to expire on December 31, 2020.

Government Support for Employers

There is no question that these new requirements will put a tremendous financial responsibility on employers, particularly small businesses. To ease these new burdens, the Internal Revenue Service, the Department of Labor, and the U.S. Treasury Department have announced that they are implementing tax credits that will provide relief.

The Dept. of Labor is expected to release a regulation for exemptions for employers with fewer than 50 employees in cases where the viability of the business is threatened. The Dept. of Labor will also be issuing a temporary non-enforcement policy that provides a 30-day period for employers to come into compliance with the requirements of the Act. Under this policy, the Dept. of 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.

Tax Credits

· The sick leave employer tax credit for each employee will be for wages of up to $511 per day while the employee is receiving paid sick leave to care for himself or herself, or $200 if caring for a family member or child whose school has closed. The credit will be limited to 10 days per employee per quarter. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

· The family leave credit for each employee will be for wages (including qualified health plan expenses relating to those wages) of as much as $200 per employee per day, and $10,000 in total for all calendar quarters. Eligible employers are also entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

To further explain the process, when employers pay their employees, they are normally required to withhold federal income taxes and the employees’ share of Social Security and Medicare taxes from their employees’ paychecks. The employers are then normally required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns with the IRS.

Now, with these new tax credits, eligible employers who pay qualifying sick or child-care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child-care leave that they paid, rather than deposit them with the IRS. 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 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 soon be announced by the IRS.

Examples

As an example, if an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date. If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments, and file a request for an accelerated credit for the remaining $2,000.

Equivalent child-care leave and sick leave credit amounts are also available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.

With these tax credits and the future small business exceptions that Dept. of Labor will soon announce, the government has implemented a support system that will hopefully assist employers with these new financial burdens. With these actions, the government hopes that it will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.