On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (“FFCRA”), which takes effect today April 1, 2020 and expires on December 31, 2020. Of note for small businesses, the law creates a Federal paid sick leave structure and expands provisions of the Family and Medical Leave Act (“FMLA”). FFCRA’s salient provisions apply to employers with fewer than 500 employees. Small businesses may be able to recoup some of the expenses associated with the law’s provisions through tax credits against federal payroll taxes (FICA and Medicare taxes). Be on the lookout for additional guidance on the interplay between the FFCRA and the Coronavirus Aid, Relief and Economic Security Act (“CARES”) in the near future.
Emergency Paid Sick Leave Provisions
Under the FFCRA, private employers with fewer than 500 employees and all public employers must provide full-time employees with 10 days (80 hours) of paid leave when they need to miss work or are unable to telework because:
- They are subject to a government quarantine or isolation order related to COVID-19;
- They have been advised by healthcare providers to self-quarantine due to COVID-19;
- They are experiencing symptoms of COVID-19 and are seeking a medical diagnosis;
- They are caring for an individual subject to a quarantine order or self-quarantine;
- They are caring for children under the age of 18 without school or childcare because of the COVID-19 pandemic; or
- They are 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.
Part-time employees are also entitled to paid sick leave under the above circumstances based upon the number of hours they work, on average, over a two-week period.
Eligibility and Exemptions
All employees, regardless of the length of employment are eligible for this leave. However, employers of healthcare providers or emergency responders may elect to exclude such employees from paid leave eligibility. Importantly, the Department of Labor (“DOL”) is empowered to exempt small businesses with fewer than 50 employees when the imposition of the paid sick leave requirements would “jeopardize the viability of the business as a going concern or the employee seeking leave has specialized skills or responsibilities such that his or her absence would entail a substantial risk to the financial health or operational capabilities of the business, or there are not sufficient workers available for the business to operate a minimal capacity. While additional guidance is expected, last week the DOL directed small businesses to “document why your business with fewer than 50 employees meets the criteria set forth by the [DOL], which will be addressed in more detail in forthcoming regulations.” The DOL has requested that businesses do not send materials to the DOL seeking a small business exemption until future regulations are promulgated. Further, the DOL has indicated that it will not enforce the provisions of FFCRA for the first 30 days (i.e., from April 1, 2020 to May 1, 2020) as long as the employer has acted reasonably and in good faith to comply with the Act. A showing of “good faith” would require that any employee improperly denied leave is made whole and the employer agrees to comply in the future.
Rate of Pay
This mandatory paid leave is in addition to any other paid leave already provided to such employees. Payments are capped at a maximum of $511/day where the employee is quarantined or ill from COVID-19 and a maximum of $200/day where the leave is necessary for the employee to care for a family member or for a child who is unable to attend school or other place of care due to COVID-19 precautions. The CARES Act clarified that this leave pay is capped at an aggregate of 10 days. An employer may not require an employee to use other paid leave before the employee uses the paid sick time under the FFCRA.
Employers are prohibited from discharging, disciplining, or discriminating against any employee who takes leave in accordance with the Act or has filed any complaint or instituted or caused to be instituted any proceeding under or related to the FFCRA or has testified or is about to testify in any such proceeding.
Employers who fail to pay the mandated sick leave are considered to have failed to pay minimum wages in violation of the Fair Labor Standards Act (FLSA) and will be subject to the same penalties provided for in the FLSA. In addition, employers who unlawfully terminate an employee in violation of FFCRA’s anti-retaliation provision are considered to be in violation of the FLSA and will be subject to the same penalties provided for in the FLSA.
Employers are required to post and keep posted this notice of the requirements of FFCRA. The notice must be posted in a conspicuous place on the premises of the employer where employee notices are customarily posted. For those businesses that have closed their physical offices, the notice should be emailed to all employees.
Employers who pay qualifying sick or child-care leave will receive a credit against their payroll taxes, which include withheld federal income taxes from all employees, and the employer and employee shares of Social Security and Medicare taxes. If the payroll taxes are not enough to cover what was paid out in leave, employers will be able to file a request for an accelerated payment from the IRS for the remainder.
As an example: If an eligible employer paid $8,000 in sick leave and was required to deposit $6,000 in payroll taxes, the employer could retain the entire $6,000 in payroll taxes instead of depositing them with the IRS and file a request for the remaining $2,000.
Similarly, self-employed individuals may be eligible for credits against their self-employment tax to the extent they require paid sick leave due to COVID-19 conditions.
Employers must claim the credits as income on their tax return.
Family and Medical Leave Provisions
The FFCRA dramatically expands the FMLA by providing, on a temporary basis, 12 weeks of job-protected paid leave to employees who are unable to work (or telework) due to a need for leave to care for their child if the school or daycare has been closed or the childcare provider of the child is unavailable due to a public health emergency related to COVID-19.
Eligibility and Exemptions
To be eligible for this FMLA, an employee only has to have been employed for 30 calendar days, as opposed to the usual 12-month employment requirement. Again, this expansion of the FMLA applies to employers with fewer than 500 employees but, just as with emergency paid sick leave, exempts employers of healthcare providers or emergency responders. Furthermore, the DOL also is permitted to exempt small businesses with fewer than 50 employees when the imposition of the Act’s requirements would “jeopardize the viability of the business as a going concern”, where the employee requesting leave has special skills necessary to the viability of the company or where there are not sufficient workers to keep the company operating a minimal capacity.
Rate of Pay
After 10 days, employees are to be paid at a rate of at least 2/3 of the employee’s usual rate of pay for the number of hours they would usually be scheduled to work, capped at $200/day or $10,000 total per employee. The first 10 days of FMLA leave may be unpaid, but the employee can elect to use their accrued personal or sick leave during the first 10 days.
Generally, employers will be required to reinstate employees in the same manner as if they took traditional FMLA. For employers with 25 or fewer employees, however, the employer may not have to reinstate the employee who takes leave if the position held by the employee no longer exists due to economic conditions or other changes that were caused by the public health emergency. In this scenario, the employer must make reasonable efforts to restore the employee to an equivalent position with equal pay and benefits, and, if that is not possible, the employer must contact the employee over the following year if an equivalent position becomes available.
Similar to the tax credit for qualifying sick or child-care leave, employers will receive a tax credit against their payroll taxes for 100% of the amount paid out to employees using the expanded FMLA. If the payroll taxes do not cover the full amount, employees will be issued a check for the remainder from the IRS. Self-employed business owners may also obtain credits against their self-employment tax obligations for COVID-19 required leave. The CARES Act makes clear that employers may retain money that would have been deposited for payroll taxes in anticipation of funds for paid sick leave and paid FMLA lease benefits provided to employees under FFCRA.