What Businesses Need to Know about Families First Coronavirus Response Act and Unemployment under CARES
AAFCPAs has received many e-mails and phone calls in response to the CARES Act, and other legislative developments related to the coronavirus crisis. This pandemic is impacting our lives and businesses in a way that none of us have experienced before. Business leaders are forced to make difficult decisions related to employees.
AAFCPAs has provided the following guidance for your convenience on the following Acts to assist clients in making these critical workforce decisions, including what you need to know about:
- The Families First Coronavirus Response Act (FFCRA), signed into law on March 18, 2020.
- The Emergency Paid Sick Leave Act
- The Emergency Family & Medical Leave Expansion Act
- Employer Tax Credits, available for employers to cover wages paid to employees while they are taking time off under the bill’s sick leave and family leave provisions, March 31, 2021.
- Unemployment Benefits, Fair Labor Standards Act, and Special Unemployment Provisions outlined in the CARES Act
IMPORTANT NOTE: Layoffs, temporary workplace shutdowns, and payroll credits all have a potential impact on the amount of SBA loan you may qualify for and/or the amount that could be forgivable under the CARES Act. Learn more about SBA Loans. >> AAFCPAs advises clients to consult with your AAFCPAs Partner to discuss your circumstances.
Understanding FFCRA
The Families First Coronavirus Response Act (FFCRA) was signed into law on March 18, 2020. FFCRA creates an emergency paid leave program in response to the public health emergency caused by the coronavirus.
The Department of Labor (DOL) issued two fact sheets, one for employers and one for employees, along with a Q&A related to required leaves as described below. Notably, the Q&A indicates that the paid leave provisions are effective on April 1, 2020, and apply only to leave taken between April 1, 2020 and December 1, 2020.
Application of FFCRA
- Private sector employers with fewer than 500 workers at the time the leave is granted, and government entities must provide part-time and full-time employees who are unable to work (or Tele-work) due to COVID-19-related factors with paid sick leave and family leave. The definition of the 500-employee threshold is included in the DOL FAQs noted above.
- Eligible employees are defined as all employees for emergency sick leave and those employed for 30 days or more for emergency family leave. This includes business owners who are paid a salary and receive a W-2. The Act explicitly excludes a year-end carry over or payout at termination.
- The DOL is authorized to issue regulations to exclude healthcare providers and emergency responders from paid leave benefits and to exclude small businesses with fewer than 50 employees as well if it would jeopardize the viability of the business as a going concern.
Benefits of FFCRA
Paid Leave: This allows fulltime employees to receive up to 80 hours of paid sick leave and expanded paid childcare leave when employee’s children’s schools are closed, or childcare providers are unavailable.
Employers Reimbursed for 100% of Cost: Employers receive 100% reimbursement for paid leave pursuant to the maximum benefit outlined in the Act. This credit also includes qualified health plan expenses allocable to this leave, and there shall be no additional payroll tax liability on these payments.
Reimbursement to Employers: An immediate dollar-for-dollar tax offset against payroll taxes will be provided. As of March 30, 2020, the IRS has not issued guidance on how companies will get these refunds. Guidelines are anticipated shortly.
For example:
- If an eligible employer paid $5,000 in sick leave to an eligible employee and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 in taxes that it was going to deposit. The employer would only be required to deposit the remaining $3,000 on its next regular deposit date.
- If an eligible employer paid $10,000 in sick leave to an eligible employee 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.
The announcement states that where a refund is owed, i.e., where the employer’s leave payments exceed its taxes subject to credit, the IRS will issue the refund as quickly as possible. Appropriate guidelines will likely be issued to provide the practical guidance for eligible employers shortly.
Emergency Paid Sick Leave Act
Employers are required to provide employees who are unable to work with paid sick or leave time if:
- 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 healthcare provider to self-quarantine due to concerns related to COVID-19.
- The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis.
- The employee is caring for an individual who is subject to an order described in the first bullet point above or has been advised as described in the second bullet point above.
- The employee is caring for a child if the child’s school or place of care has been closed or is unavailable due to COVID-19 precautions.
- The employee is experiencing any 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.
When the leave is needed for the employee’s own condition or circumstance (the first 3 reasons above), the pay must equate to what the employee would otherwise be paid, capped at $511 per day and $5,110 in the aggregate. Full-time employees would receive 80 hours of sick leave under the new emergency leave program and part-time workers would be granted time off that is equivalent to their scheduled or normal work hours in a two-week period.
Employers with similar existing paid leave policies are required to provide workers with the emergency paid sick time (MA Paid Sick Time Law). An employer cannot require a worker to use any other available paid leave before using the sick time.
Employers are prohibited from:
- Requiring a worker to find a replacement to cover his/her hours during time off.
- Discharging or discriminating against workers for requesting paid sick leave or filing a complaint against the employer.
An employer could be subject to civil penalties for a violation of paid sick leave requirements. Workers under a multi-employer collective bargaining agreement and whose employers pay into a pension plan will have access to paid emergency leave. Employers should establish a separate tracking code or form to properly document employees’ use of emergency leave time.
The DOL advises that employees must support leave requests with appropriate information, including the employee’s name, qualifying reason for leave, a statement that the employee is unable to work or telework for that reason, and leave date(s).
Employees must provide documentation supporting the absence, e.g., a copy of the quarantine or isolation order, or written documentation from a health care provider advising self-quarantine. The DOL recommends that employers keep this documentation if they will seek tax credits for providing paid leave. The DOL points employers to consult Internal Revenue Service (IRS) applicable forms, instructions, and information for the process they will need to follow to claim this tax credit, including any necessary supporting documentation.
Requirements of Sick Pay
If an employee is currently working, work is available for the employee to perform, and the employee asks for time off for the following specific reasons, then the chart below provides the requirements of sick pay:
|
Reason for Leave |
Leave Entitlement |
Daily Pay Rate Cap |
Total Pay Cap |
|
Employee is experiencing COVID-19 symptoms and seeking medical diagnosis Personal quarantine or isolation order Advised by health care provider to self-quarantine due to COVID-19 concerns OR, Employee is subject to federal, state or local quarantine order
|
All employees No waiting period No requirement to use other paid sick time first FT Employees: 80 hrs. PT Employees: Avg. of 2-week period Variable Schedule: Avg. 6-month lookback |
Regular pay rate up to $511 per day |
$5,110 |
Emergency Family & Medical Leave Expansion Act
When the leave is needed to care for a child or other individual, or due to a “substantially similar condition” (the last 3 reasons above), the required payment is 2/3 of the employee’s pay, capped at $200 per day and $2,000 in the aggregate. The employee is eligible for up to 12 weeks leave (10 of which are paid) if: an employee is unable to work or telework due to the need to care for the employee’s son or daughter under the age of 18 (or an adult son or daughter over the age of 18 who has a mental or physical disability and is incapable of self-care), if the school or place of care has been closed, or childcare provider is unavailable due to a public health emergency. Employees may take intermittent leave, provided it is approved by the employer, to supplement teleworking.
Employees must provide documentation supporting the absence. For employees using leave to care for a child, examples of supporting documentation include a notice posted on a government, school, or day care website, or published in a newspaper, or an email from an employee or official of the school, place of care, or childcare provider. This will be required when requesting tax credit.
If an employee is currently working, has been employed at least 30 days, work is available for the employee to perform, and the employee asks for time off for the following specific reasons, then the chart below provides the requirements of leave pay:
|
Reason for Leave |
Leave Entitlement |
Daily Pay Rate Cap |
Total Pay Cap |
|
Care for family member affected by COVID-19, or subject to government quarantine or isolation order, advised by health care provider to self-quarantine due to concerns related to COVID-19 |
30 days of employment No waiting period No requirement to use other paid sick time first FT Employees: 80 hrs. PT Employees: Avg. of 2-week period Variable Schedule: Avg. 6-month lookback |
2/3 of regular pay up to $200 per day |
$2,000 |
|
Care for son or daughter under the age of 18 whose school or daycare is closed due to COVID-19 or an adult son or daughter over the age of 18 who has a mental or physical disability and is incapable of self-care |
30 days of employment No waiting period Up to 12 weeks |
First 10 days unpaid, but employee can use accrued paid time off and employer can require use of accrued vacation/PTO After 10 days, 2/3 of regular pay up to $200 per day |
$10,000 |
Employer Tax Credit
The FFCRA provides payroll tax credits to employers to cover wages paid to employees while they are taking time off under the bill’s sick leave and family leave provisions, through March 31, 2021.
Note that, given the effective date of April 1, 2020, paid leave mandated by the FFCRA for any day prior to that will not qualify to be claimed as an employer payroll tax credit. The tax credits would equal 100% of qualified wages paid, subject to the maximum limitations noted above. The credit base also includes “qualified health plan expenses” defined as “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 the gross income of employees…” which are allocable to the qualified sick and/or family leave wages. In addition, wages paid by reason of these sick leave and family leave provisions would not be subject to the employer’s share of FICA and Medicare taxes (i.e., these payments would not be considered wages for this purpose).
Under the FFCRA, the credit that can be claimed is technically only for the employer portion of FICA. However, Information Release 2020-57, issued Friday, March 20, 2020, allows eligible employers that pay qualifying sick or child care leave to retain an amount of payroll taxes equal to the amount of qualifying sick and child care leave they pay, rather than depositing them with the IRS. The payroll taxes eligible for retention by the employer include employees’ federal income tax withholding, the employee share of Social Security and Medicare taxes, and the employee share of Social Security and Medicare taxes with respect to all employees. The credit will be claimed on employer quarterly payroll tax returns (Form 941 series). The provisions contained in Information Release 2020-57 should allow employers to recoup the cost of emergency and sick leave significantly faster than what was legislated as part of the FFCRA. The sick leave credit for each employee will be for wages of as much as $511 per day while the employee is receiving paid sick leave to care for themselves, or $200 if the sick leave is to care for a family member or child if their school is closed. The limit in a given quarter will be 10 days per employee less the aggregate number of days taken into account for all preceding calendar quarters.
The family leave credit for each employee will be for wages of as much as $200 per day while the employee is receiving paid leave, or an aggregate of $10,000.
The credit will be refundable if it exceeds the amount the employer owed in employment taxes on a quarterly payroll tax filing. The Department of the Treasury and IRS are in the process of preparing guidance for how to claim this refund, which they intend to issue this week. The IRS expects that it will be able to issue any such refund requests within two weeks or less. Any credit claimed on a quarterly or refundable filing will increase the taxable income of the employer.
Employers could not receive the credit if they are also receiving a credit for paid family and medical leave established by the 2017 tax overhaul (Public Law 115-97). In addition, state and local governments are not eligible to claim these credits.
The Department of the Treasury will need to issue regulations or guidance to ensure employers don’t manipulate the credit, to minimize compliance and recordkeeping burdens, to waive penalties for underpayments in anticipation of the credit, and to establish a process to recapture credits when there’s an adjustment.
The measure provides a similar refundable credit against self-employment tax. It would cover 100% of self-employed individuals’ sick-leave equivalent or 67% if they were taking care of a sick family member or child if their school was closed.
Their sick-leave equivalent amount will be capped at $511 per day if caring for themselves or $200 if caring for a family member. It would be available for 10 days. Self-employed individuals could receive a family leave credit for as many as 50 days for the lesser of $200 or their average daily self-employment income.
Self-employed individuals will have to submit documentation, as required by The Department of the Treasury. The measure will establish alternate requirements for self-employed individuals who also receive sick leave pay from an employer. It will also establish rules for the credit to be provided in U.S. territories
Required Notice to Employees:
The FFCRA Poster must be provided to employees on April 1st, 2020 via posting in the workplace, mailed to employees’ homes or posted on the company’s employee portal where regular announcements are displayed.
FFCRA Notice Poster:
https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf
FAQs:
https://www.dol.gov/agencies/whd/pandemic/ffcra-poster-questions
Unemployment Benefits Summary
Employers who are faced with workplace shutdowns due to the impact of COVID-19 will need to assess the best approach for their business situations: a temporary layoff or a formal end of employment. Read AAFCPAs’ Current Unemployment Benefits Summary. >>
If you have any questions, please contact your AAFCPAs partner.
AAFCPAs’ CARES Act Task Force Mobilized to Assist
AAFCPAs has formed a Task Force dedicated to studying and advising clients on the business implications of the Coronavirus Aid, Relief and Economic Stimulus (CARES) Act legislation, signed by President Trump on Friday, March 27th, 2020. Our CARES Task Force includes senior leadership and advisors from diverse segments of our organization, bringing the necessary talent together to best advise on the changing dynamics caused by the Coronavirus.
The benefits provided under CARES require thoughtful planning and will vary depending on your Company’s situation. We can help you understand what is available and how and what to apply for, including the calculation needed to determine which loan program may be most beneficial.
Resources have been mobilized in the following areas:
- Tax law changes
- Business Impact Diagnostic Assessment
- SBA Loan Assistance
- Debt Forgiveness Reporting
- Financial forecasts and cash flow projections
- HR Consulting: Understanding the Families First Coronavirus Response Act (FFCRA) & Unemployment
The Task Force will continue to issue written guidance as appropriate. Please reach out to your AAFCPAs’ partner with any questions.
We are here for you! Together, we will make it through this difficult time of change.