|SENATE ENACTS PREVIOUSLY-PASSED HOUSE BILL GOVERNING SICK PAY, FAMILY LEAVE DUE TO SCHOOL CLOSURES, AND EMPLOYER TAX CREDITS
On Wednesday afternoon, the U.S. Senate approved by a 90-8 margin the Families First Caronavirus Response Act, which was passed earlier in the week by the U.S. House of Representatives (HR 6201). The bill is expected to be signed into law by President Trump imminently. HR 6201 provides paid sick leave for certain employees, requires insurers and governmental payors to cover all costs of COVID-19 testing, and expands food assistance and unemployment benefits. This article will summarize the employment and tax provisions of HR 6201 because those areas are where we are receiving the most questions. These provisions include (1) expanded coverage under the Family and Medical Leave Act (“FMLA”), (2) sick leave provisions, and (3) employer tax credits.
Emergency Family and Medical Leave Expansion Act
HR 6201 includes the “Emergency Family and Medical Leave Expansion Act,” which provides enhanced benefits under FMLA for leave necessitated by COVID-19 school and day care closures. The Emergency FMLA Expansion Act shall take effect 15 days after the date of its enactment and will sunset December 31, 2020.
What has changed under the FMLA for COVID-19 related leave?
Thus, except under narrow exceptions, any employer with fewer than 500 employees must provide paid COVID-19 leave during 10 of the 12 weeks of FMLA leave to employees who are unable to work in order to care for a minor child of that employee whose elementary or secondary school has closed or whose child care provider is closed or unavailable due to COVID-19.
The House bill provides a formula for calculating the FMLA COVID-19-related benefits. The rate of pay must be at least two-thirds of the employee’s regular rate of pay, based upon the number of hours that the employee would otherwise be normally scheduled to work, subject, however, to the $200 daily maximum. The bill includes provisions for calculating leave benefits for employees with varying schedules.
The “technical corrections” to the bill establish exceptions for certain health care providers and emergency responders, and authorizes the Secretary of Labor to issue additional regulations clarifying the scope of these exceptions. Additionally, the Department of Labor has the authority to exempt small businesses with fewer than 50 employees from the COVID-19 leave requirements when those requirements would jeopardize the viability of the business as a going concern.
Emergency Paid Sick Leave Act
HR 6201 also addresses paid sick leave for both public-sector and private-sector employees. As with the expanded FMLA provisions, the sick leave provisions cover private-sector employers with less than 500 employees. This benefit also applies to public-sector employers, regardless of the number of individuals whom they employ. The “technical corrections” to the bill provide for up to two weeks of paid sick leave, at 100% of an employee’s rate of pay up to a daily maximum of $511 – substantially more than is provided by the FMLA provisions.
Unlike the FMLA provisions, there is no existing federal framework for sick leave. In recent years, several states and municipalities have enacted sick leave laws. Key provisions of HR 6201’s sick leave provisions include the following:
As with HR 6201’s FMLA provisions, the sick leave provisions contain express “opt-out” language applying to the employers of health care providers and emergency responders. In addition, the Secretary of Labor may exempt small businesses with fewer than 50 employees from invoking the provisions with respect to caring for children whose school or day care provider has been closed or otherwise rendered unavailable due to COVID-19 precautions, if such requirements would jeopardize the viability of the business as a going concern. This exemption does not apply with respect to the other bases for invoking paid sick leave.
Nothing in HR 6201 diminishes or undermines any rights or benefits conferred upon employees based on preexisting employer policies, collective bargaining agreements, or state and local laws (if applicable).
Tax Credits for Paid Sick and Paid Family and Medical Leave
The Act contains provisions that facilitate the reimbursement of an employer’s paid COVID-19 Sick Leave and paid COVID-19 FMLA leave. Since, for non-governmental employers, COVID-19 Sick Leave and COVID-19 FMLA are limited to employers with less than 500 employees, the credits are only available to private employers who have less than 500 employees. This reimbursement is accomplished by allowing employers to credit the COVID-19 Sick Leave payments and COVID-19 FMLA payments against the employer’s employment taxes, as follows:
The credit is allowed against an employer’s Code Section 3111(a) tax and Section 3111(b) tax. This Section 3111(a) tax is the 6.2 percent match of OASDI (Social Security taxes) paid by the employer. The Section 3111(b) tax is the 1.45 percent Hospital Insurance (Medicare) portion of the tax paid by the employer. The credit is equal to 100 percent of the qualified sick leave wages paid by the employer with respect to the quarter.
Qualified sick leave wages are wages required to be paid under the Emergency Paid Sick Leave portion of the Act.
The creditable portion of emergency sick leave payments per employee is limited to $511/day ($5,110 aggregate) if the paid sick leave is for an employee,
1. who is subject to a federal, state, or local isolation order related to COVID-19,
2. has been advised by a health care provider to self-quarantine due to concerns related to COVID-19, or
3. who is experiencing symptoms of COVID-19 and is seeking medical diagnosis.
The creditable portion of the sick leave payments per employee is limited to $200/day ($2,000 aggregate) if the emergency paid sick leave is for any other reason, i.e., (i) to care for or assist an individual who is subject to one of the conditions (1) or (2) above, or (ii) to care for a son or daughter of the employee if the child’s school or place of care has been closed, or the child care provider of the child is unavailable due to coronavirus.
An employer may take into account up to 10 emergency paid sick leave days of an employee in the calendar year. The credit is allowed against the employer’s employment tax liability on the wages paid to all employees of the employer for such quarter. Additionally, there are special provisions for refund if the credit exceeds the employer’s employment tax liability.
For provisions of federal income tax, the employer’s gross income for the taxable year which includes the last day of any calendar quarter for which a credit is allowed, is increased by the amount of the credit. Further, an employer may elect not to have the credit apply.
The credit provision will apply only to wages paid with respect to a period beginning on the date that is selected by the Secretary of the Treasury (which date must be within 15 days of the enactment of the Act) and ending on December 31, 2020.
The Secretary also is given authority to prescribe regulations or other guidance that provide for waiver of penalties for failure to deposit amounts in anticipation of the allowance of the special credit.
Self – Employed Individuals
A similar credit is also provided to eligible self-employed individuals to offset against their income tax liability. This credit applies to up to 10 days of qualified sick pay equivalent amount. The credit amount available to a self-employed individual is reduced by an amount which, when combined with the aggregate amount such individual receives as COVID-19 Sick Leave payments from an employer, causes the combined amount to exceed $2,000, or $5,110 in case of any day which is paid COVID-19 Sick Leave under provisions (1) – (3) above.
An employer is allowed a credit against the employer’s employment taxes in an amount equal to 100 percent of the qualified family leave wages paid by the employer with respect to such quarter.
The amount of qualified family leave wages taken into account with respect to any individual employee is limited to (1) $200/day for which the individual is paid qualified family leave wages, and (2) an aggregate amount of $10,000 with respect to all calendar quarters.
Qualified family leave wages are wages which are required to be paid by reason of the Emergency Family and Medical Leave provisions of the Act.
The credit is available only for wages paid with respect to a period beginning on the date selected by the Secretary of the Treasury (which is within 15 days after enactment of the Act) and ending on December 31, 2020.
Self – Employed Individuals
With respect to an eligible self-employed individual, a credit is allowed against federal income tax in an amount equal to 100 percent of the qualified family leave equivalent amount for that individual. This is an amount equal to the product of
1. the number of days (not to exceed 50) during the taxable year that the individual is unable to provide services in his/her trade or business for a reason with respect to which such individual would be entitled to receive COVID-19 FMLA, multiplied by
2. the lesser of (i) the average daily self-employment income of the individual for the taxable year, or (ii) $200.
The credit is reduced by an amount which, when combined with the aggregate amount such individual receives as COVID-19 FMLA payments from an employer, causes the combined amount to exceed $10,000.
 Before technical amendments, the Act allowed the credit only against the Section 3111(a) tax.
 Under the technical amendments, the limits on the per-employee creditable amount is increased by qualified health plan expenses properly allocable to the qualified sick leave wages for which the credit is allowed. Qualified health plan expense means amounts paid or incurred by the employer to provide and maintain a group health plan, but only to the extent that such amounts are excluded from gross income of employees by reason of Code Section 106(a).