PRESIDENT TRUMP SIGNS FAMILIES FIRST CORONAVIRUS RESPONSE ACT

On March 18, 2020 President Trump signed into law the Families First Coronavirus Response Act. Much of the Act remained unchanged from what we previously reported, but there were portions which did change. Below are the final provisions related to the paid sick time, the emergency leave, and the tax credits which were included in the final bill. While the President has signed the bill into law, the effective date is unknown as these provisions are effective no more than 15 days after date of enactment. Therefore, we must await further guidance as to the effective date, which will be no later than April 2, 2020.

Emergency Family and Medical Leave Expansion Act

The Act requires companies with less than 500 employees to provide up to 12 weeks of leave for those employees that have been employed for 30 days and are:

Unable to work (or telework) due to the need to care for a son or daughter under the age of 18 years old, if the school or place of care has been closed due to a public health emergency with respect to COVID-19 declared by a Federal, State or local authority.

The first 10 days may consist of unpaid leave. However, the employee may elect to use any accrued vacation, personal, medial or sick leave in lieu of unpaid leave. After 10 days, the amount required to be paid will generally be based on 2/3 of the employee’s regular rate of pay times the number of hours that that the employee would otherwise normally be scheduled to work. For part time employees with varying schedules, the number of hours will be based on average number of hours the employee had over the previous 6-month period. However, the amount to be paid to an employee shall not exceed $200 per day and not exceed $10,000 in total.

The Act authorizes the Secretary of Labor to issue regulations to exempt small businesses with less than 50 employees from the above requirements if these rules would jeopardize the viability of the business as a going concern. In addition, the Secretary can exclude certain health care providers and emergency responders from the above requirements.

Emergency Paid Sick Leave Act

The Act requires companies with less than 500 employees to provide paid sick time for all employees, regardless of how long employed by the employer, that:

Are subject to a Federal, State or local quarantine or isolation order related to COVID-19
Has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
Obtaining medical diagnosis or care for experiencing symptoms of COVID-19
Are caring for an individual subject to 1 or 2 above
Are caring for a son or daughter if the school or place of care has been closed or is unavailable due to COVID-19 precautions.
Experiencing any other substantially similar conditions specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

The amount of required paid sick time will generally be based on the employee’s regular rate of pay times the number of hours that that the employee would otherwise normally be scheduled to work. For part time employees with varying schedules, the number of hours will be based on average number of hours the employee had over the previous 6-month period.

For employees with paid sick time under situations 1, 2 or 3 above the required amount to be paid will be 100% of their hours times their rate but shall not exceed $511 per day and $5,110 in total. For employees with paid sick time under situations 4, 5, or 6 above, the required amount to be paid will be their hours times 2/3 of their rate but shall not exceed $200 per day and $2,000 in total.

Payroll Taxes on Payments

The amounts that are paid pursuant to the above two Acts are not considered wages for FICA taxes. Therefore, the wages are exempt from the 6.2% portion of the payroll taxes for both the employee and employer. However, the Hospital Insurance tax of 1.45% will still apply to the wages paid.

Tax Credits for Paid Sick and Paid Family Medical Leave

The bill provides a payroll tax credit to help employers cover the cost of the wages required to be paid as outlined above. If the amount of the credit exceeds the payroll taxes for the quarter, the excess amount is refundable. There are in essence three components to the credit:

Wages – Generally, 100% of the wages paid under the Emergency Paid Sick Leave Act and the Emergency Family Medical Leave Expansion Act is eligible for the credit.
Hospital Insurance Tax – The credit is increased by the amount of the Hospital Insurance Tax paid on eligible wages.
Health Plan Expenses – The credit is increased by the health plan expenses allocable to the employee during the period of leave. Health plan expenses are amounts incurred to provide and maintain a group health plan, but only to the extent they are excludible from the employee wages.

For self-employed individuals, there would be a similar credit allowed against their income tax for their average daily self-employment income. The same dollar limitations on the amount of daily self-employment income ($511 or $200) would apply as outlined in the previous sections, except the amount of self-employment income to be used for purposes of calculating the credit equivalent for situations 4, 5, 6 of the Emergency Paid Sick Leave Act above or the Emergency Family Medical Leave Expansion Act would be the lesser of $200 or 67% of the individuals average daily self-employment income.

The above provisions are effective though December 31, 2020.

There are other items that Congress, Treasury and the White House have been discussing, some of which you may have seen in the press. We will continue to monitor these items and provide updates when necessary.