COVID-19 Relief Act affects all businesses by mandating emergency paid sick leave to employees affected by COVID-19 and expansion of family and medical leave.
On March 18, 2020, President Donald Trump approved phase two of coronavirus-related registration which is the H.R. 6201, dubbed as the Families First Coronavirus Response Act, or COVID-19 Relief Act.
COVID-19 Relief Act requires the following:
- private insurance coverage for provision of COVID-19 diagnostic testing;
- provision of employers for emergency paid sick leave to workers affected by COVID-19 and expansion of the family and medical leave; and
- provision of increased funding for state unemployment insurance programs, food stamp and nutritional programs and others meant to expand safeguards for economically disadvantaged individuals.
This article focuses on the following impact of COVID-19 Relief Act, particularly for small businesses:
- amendments in the Expanded Family and Medical Leave to extend job-protected leave up to 12 weeks, including first 2 weeks of paid sick leave, for affected employees;
- provisions for employers to give paid sick leave for the first 14 days (10 working days).
The law affects certain employers and workers through December 31, 2020, and includes a prohibition on retaliating against any employee who takes leave in accordance with the new law.
Generally, the Act provides that the failure to pay required sick leave will be treated as a failure to pay minimum wages in violation of the Fair Labor Standards.
EMERGENCY FAMILY AND MEDICAL LEAVE EXPANSION
Effective 15 days after enactment and ending December 31, 2020, (i.e., April 2, 2020), the Act will temporarily expand coverage and eligibility under the federal Family and Medical Leave Act (FMLA) for reasons relating to the COVID-19 pandemic.
Pay Benefits Under Expanded FMLA
The first 10 working days (2 weeks) of this expanded FMLA leave will be unpaid, although employees can use paid time off or sick time to cover some, or all of the initial unpaid period. Following the 10 working days, the eligible employer will be obliged to pay full-time employees two-thirds of the respective regular rate of pay for the employee’s regular weekly hours for up to 10 weeks. Part-time employees or those with irregular schedules will be paid at 2/3 of their regular rate for the average number of hours worked over the prior 6 months of employment.
Family and medical leave payments will be capped at $200 per day ($10,000 in the aggregate) for employees who take leave for any of the qualifying reasons set forth below:
Eligible reasons for Job-Protected FMLA Leave
The Act identifies a new reason for eligible employees to take job-protected FMLA leave. Specifically, eligible employees who are unable to work (including telework) may take leave for the purpose of:
- the employee is caring for an individual who is subject to an order of Federal, Local, or State quarantine or isolation, or has been advised to take self-quarantine by a healthcare provider due to concerns related to COVID-19.
- 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.
- 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.
Tax Effect
The Act helps employers subject to the provisions by allowing them to take a tax credit against their share of Social Security taxes for full amount of the qualified family leave wages they pay each quarter.
Any excess credit over its Social Security tax liability is refundable to the employer. No deduction is allowed for the amount of the credit, and no credit is allowed for wages that are subject to the existing Section 45S business tax credit for paid family and medical leave. Employers has the option not to apply the credit.
The full refundable family leave credit is also available for self-employed individuals applicable against income taxes. Self-employed people who would be entitled to paid leave under the expanded FMLA if they were employees of a business are eligible.
The qualified leave amount is capped at the lesser of $200 per day or the average daily self-employment income for the taxable year per day. These individuals can count only those days they’re unable to work for reasons covered by the expanded FMLA.
Coverage and Exemptions
The Act amends the Family and Medical Leave Act (FMLA) eligibility for employees who:
- work for employers with fewer than 500 employees (in the previous FMLA, no capping of employee headcount is provided)
- are employed for at least 30 calendar days (as opposed to working at least 12 months, and at least 1,250 of compensable work)
This includes those who work under a multiemployer collective agreement and whose employers pay into a multiemployer plan.
The Act also provides power to the US Secretary of Labor to issue regulations that exempt small businesses with fewer than 50 employees from this expansion if it would jeopardize the viability of the business. Moreover, it is important to reiterate that the expansion does not apply to employers with 500 or more employees.
PAID SICK LEAVE
The emergency paid sick time component of the Act mandates employers with fewer than 500 employees to provide full-time employees with 80 hours (pro-rated for part time employees) of paid sick time. This paid sick time is in addition to any paid sick leave already provided by the employer but will not carry over to the following year (as reiterated, employers are not allowed to modify existing policies to avoid the paid sick time obligations of the Act).
Upon the request of an employee, the employer must permit the employee to use the paid sick time to cover the initial 10-day working period of unpaid leave under the FMLA, as discussed above. Reasons are:
- the employee is subject to a Federal, State, or local quarantine, or isolation order related to COVID-19;
- the employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
- the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
Pay Benefits under the sick leave
The Act requires employers to provide two weeks of paid sick leave, at the employee’s regular rate, for main reasons stated above.
If the employee must take leave to care for a family member for such purposes (e.g. reasons for the job-protected expansion of family and medical leave), or to care for a child whose school has closed or childcare provider isn’t available, these employers must provide leave paid at two-thirds of the employee’s regular rate.
The Act then distinguishes the benefits received by the employee under the Act as follows:
- For paid sick leave reasons stated above, amount of wages taken into account per employee is capped at $511 per day;
- For job-protected expansion of family and medical leave reasons, amount of wages taken into account per employee is capped at $200 per day.
Tax Effect
Similar with the expansion of FMLA, covered employers can claim an elective refundable 100% tax credit for qualified paid sick leave wages against Social Security taxes. Any excess credit over its Social Security tax liability is refundable, no deduction is allowed for the amount of the credit, and no credit is allowed for wages that are subject to the Section 45S business tax credit.
The self-employed are similarly eligible for the refundable credit at differing amounts—100% for paid leaves for personal purposes, and two-thirds of the amount to care for a family member or child. The amount of wages is capped at $511 per day or the average daily self-employment income for the taxable year per day.
IN OTHER NEWS
As part of national emergency declaration, President Trump waived interest payments on federal student loans “until further notice.” This allows borrowers to pause payments without penalty.
Similarly, for updates on relief on filing and payment of taxes, we are issuing other articles in the Scrubbed FASTalk’s advisory bulletin as regulations related to COVID-19 relief are being passed.
WE’D LOVE TO HELP.
We will continuously update you regarding evolving news surrounding legislative and administrative issuances dedicated to relieve the general public of the effects of COVID-19. Stay tuned with the advisory bulletin. For immediate clarifications, please contact us at [email protected] or discuss it with your Scrubbed professional.
Disclaimer
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. It is not intended to be relied upon as accounting*, tax, or other professional service. Please refer to your advisors for specific advice. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
