Families First Coronavirus Response Act (FFCRA) – Paid Leave Provisions

Payroll Retention Credits, Delay of Payroll Taxes, and Employee Leave Credits

March 30, 2020

FFCRA will take effect on April 1, 2020 by giving American businesses including tax-exempt organizations with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. Employers will receive 100% reimbursement for applicable paid leave through an immediate dollar-for-dollar tax offset against payroll taxes and/or by requesting an accelerated payment from the IRS.

Under the FFCRA, an employee qualifies for paid sick time if unable to work (or unable to telework) due to a need for leave because the employee:

1. is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
2. has been advised by a health care provider to self-quarantine related to COVID-19;
3. is experiencing COVID-19 symptoms and seeking a medical diagnosis;
4. is caring for an individual subject to an order described in 1) or self-quarantined as described in 2);
5. is caring for a child whose school or place of care is closed or unavailable for reasons related to COVID-19; or
6. is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

The Act generally allows for:

• Up to 80 hours of paid sick leave at an employee’s regular rate of pay if the employee needs leave because of 1), 2), 3), or 6) above; or
• Up to 80 hours of paid sick leave at 2/3 an employee’s regular rate of pay if the employee needs leave because of 4) or 5) above; and
• Up to an additional 10 weeks of paid expanded family and medical leave at 2/3 an employee’s regular rate of pay if the employee has been employed for at least 30 calendar days and the employee needs leave because of 5) above.

Part-time employees are entitled to leave at their average number of work hours in a two-week period.

Paid leave calculations

• Employees needing leave because of 1), 2), or 3) above are entitled to pay at either their regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 in the aggregate (over a 2-week period).
• Employees needing leave because of 4) or 6) above are entitled to pay at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in the aggregate (over a 2-week period).
• Employees needing leave because of 5) above are entitled to pay at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $12,000 in the aggregate (over a 12-week period).

The paid sick leave and expanded family and medical leave provisions of the FFCRA apply to certain public employers, and private employers with fewer than 500 employees. Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern. More guidance on documenting the threat to business viability is expected to be issued. An employer of a “health care provider” or “emergency responder” may also exclude that employee from FFCRA paid leave requirements.

Employers are entitled to receive full reimbursement for leave paid from April 1, 2020 to December 31, 2020 in accordance with FFCRA, including health insurance costs paid during the leave period. To claim leave credits, employers will retain an amount of payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS. The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request for an accelerated payment from the IRS. The details for requesting an accelerated payment are yet to come. Employers may also receive an advance of FFCRA payroll credits to help cover the expense of providing the required paid leave, but more guidance is yet to be issued on this.

Employers should begin documenting and tracking which employees fall under these leave provisions. It will also be important for employers to track health insurance costs for eligible employees during the leave period. Third-party payroll providers appear to be establishing pay codes to be used to capture leave paid under FFCRA as of April 1, 2020. HBE will be reaching out to payroll service clients soon to ensure leave is appropriately tracked and paid and reimbursement credits are filed.

The Department of Labor website is an excellent resource for answers to frequently asked questions.

Coronavirus Aid, Relief, and Economic Security Act (CARES) – Employee Retention Credit

The CARES Act provides a refundable payroll tax credit for 50% of qualified wages paid by eligible employers to certain employees during the COVID-19 crisis. The employee retention credit gives employers incentive to keep employees on the payroll.

Employers including tax-exempt organizations are eligible if:

1. Business was carried on during 2020, AND
2. Business operations have been fully or partially suspended during any calendar quarter as a result of a COVID-19 government order limiting commerce, travel, or group meetings, or
3. The business remained open, but experienced a greater than 50% reduction in quarterly receipts as compared to the same quarter in 2019. The employer will be entitled to a credit for each quarter the reduction is experienced until the business has a quarter where its receipts exceed 80% of its receipts for the same quarter in 2019.

Employers receiving a Small Business Interruption Loan (Payroll Protection Loan) are not eligible for the credit.

Qualified wages:

• For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed.
• For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit.
• Qualified include “qualified health plan expenses” paid or incurred by the employer to provide and maintain a group health plan to the extent the amounts are excluded from gross income of the employees.
• Qualified wages are capped at $10,000 for each employee for ALL quarters.

The credit is not available:

• for wages to an employee for any period for which the employer is allowed a Work Opportunity Credit with respect to the employee,
• for wages taken into account for the employer credit for paid family and medical leave (IRC Section 45S), or
• for wages taken into account for purposes of the payroll credits for required paid leave under FFCRA. An employer that claims both credits must apply the paid leave credit first, followed by the employer retention credit.

The credit applies to wages paid after March 12, 2020 and before January 1, 2021.

The credit for 50% of qualified wages is claimed against the employer’s 6.2% share of Social Security payroll taxes for each calendar quarter for which the employer is eligible and qualified wages are paid. If the credit exceeds the business’s liability for payroll taxes, the credit is refundable.

Coronavirus Aid, Relief, and Economic Security Act (CARES) – Delay of Payment of Employer Payroll Taxes

As an additional form of relief to cash flow burdens during the COVID-19 crisis, the CARES Act also allows employers to defer paying the employer’s 6.2% share of Social Security taxes due from date of enactment of the Act through the end of 2020. Any amounts deferred will be payable 50% by December 31, 2021 and 50% by December 31, 2022.

This provision would apply to any remaining amounts due after applying the previously discussed credits.

Employers receiving a Small Business Interruption Loan (Payroll Protection Loan) are not eligible for the deferral.