Expansion of FMLA and Employer Payroll Tax Credits Available under the Families First Coronavirus Response Act
The Families First Coronavirus Response Act was signed into law by President Trump on March 18, 2020, to provide tax relief for employers and employees as a result of the COVID-19 pandemic. Here is a summary of the newly signed act which expands and amends the Family and Medical Leave Act of 1993:
Emergency Family and Medical Leave Expansion Act (EFMLEA)
- Employers under 500 employees are required to provide eligible employees up to 12 weeks of job protected leave.
- Emergency Family and Medical Leave eligibility begins for employees after being employed for 30 days.
- EFMLEA pertains to any employee who can’t work or telework to care for a child under the age of 18 when the child’s school or day care is closed or the caregiver is unavailable due to the COVID-19 health emergency.
- The first 10 days of leave, employees may elect to use existing accrued paid leave, or it can be unpaid.
- After the initial 10 days of leave, employers are required to provide 10 weeks of paid leave.
- Leave is to be paid at a rate of two-thirds of
employee’s regular rate of pay.
- For part-time employees, the regular rate of pay is calculated at the average hours the employee works over a 2-week period.
- For a variable work schedule, the regular rate of pay is calculated as the average hours the employee was scheduled over the past six months.
Emergency Paid Sick Leave Act (EPSLA)
- Employers under 500 employees and government entities are required to provide all employees (regardless of how long they have been employed) with up to 10 days of paid sick leave.
- The Emergency Paid Sick Leave Act provides employees with paid sick leave when the employee cannot work for the following reasons:
- Employee is subject to quarantine or isolation
- Employee has been advised by health care provider to self-quarantine
- Employee is experiencing symptoms of COVID-19 and seeking medical diagnosis
Caring for Others:
- Employee is caring for person subject to
quarantine or local order or advised by health care provider to self-quarantine
- Employee is caring for their child whose school or day care is closed or childcare provider is unavailable due to the COVID-19 health emergency. The Secretary of Labor could exempt businesses with fewer than 50 employees from this requirement if it would jeopardize the viability of the business.
- Employee is experiencing other substantially similar condition specified by the Secretary of Health and Human Services, Secretary of the Treasury and/or the Department of Labor.
- For self reasons, leave is to be paid at the employee’s regular rate of pay up to $511 per day ($5,110 for 10 days).
- For caring for others reasons, leave is to be paid at two-thirds of the employee’s regular rate of pay up to $200 per day ($2,000 for 10 days).
- The same rules apply as listed under EFMLEA apply to calculate pay for a part-time or variable employee.
- Employers are required to return the employee to his/her position following the end of leave. Employers under 25 employees are exempted from this rule but only if the position no longer exists due to economic or operating conditions due to the COVID-19 emergency.
Payroll Tax Credits
- New tax credits are available for employers who must pay wages under the Emergency Family and Medical Leave and/or Emergency Paid Sick Leave as a result of COVID-19.
- Any wages required to be paid for the above two reasons would not be subject to the employer portion of Social Security Tax (6.2%).
- Additionally, a tax credit is available to
employers for wages, health expenses and Medicare Tax paid.
- The credit is equal to 100% of wages paid for qualified sick/family leave, subject to the daily cap limits previously listed.
- The credit is increased for qualified health plan expenses (i.e. employer paid health plan premiums) to the extent expenses are allocable to the qualified sick leave wages.
- The credit is also increased for employer Medicare Tax paid (1.45%) on qualified wages.
- Emergency Family and Medical Leave and Emergency Paid Sick Leave are effective 15 days after enactment of the new law.
- Employers must post a notice of these expanded FMLA requirements. The US Department of Labor will issue a model notice by March 25, 2020.
- Credits are available beginning April 2, 2020 and sunsets December 31, 2020.
Additional Guidance Coming Soon:
- Guidance is expected to be released next week to help employers cover the cost of paying the qualified sick and family leave wages. The IRS understands that it may be difficult for some employers to pay the qualified wages and wait several weeks or months for the tax credit to be received. The guidance is expected to allow employers to retain an amount of payroll taxes equal to the amount of qualifying wages that are paid, rather than depositing them with the IRS. This would mean that employers can reduce their 941 payment (federal income taxes and the employer and employee share of Social Security and Medicare Taxes) by the amount paid in qualifying wages during that period and only deposit the remainder with the IRS. If there are not sufficient payroll taxes to cover the costs of qualified sick and family leave paid, employers will be able to file a request for an accelerated payment from the IRS. The IRS hopes to process the requests in two weeks or less.
- The payroll tax credits will be reported on the quarterly Form 941. We are waiting on additional guidance from the IRS on how the payroll tax form will be modified to report the qualified wages and to calculate the tax credit.
- The Department of Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the new Act.
If you have questions, please reach out. We are here to assist you.