On Wednesday March 18, 2020, the Senate passed H.R. 6201, referred to as the Families First Coronavirus Response Act (the “Act”). The President signed the legislation into law shortly thereafter. The enacted version of H.R. 6201 is the version as passed by the House of Representatives with technical corrections. For a more tailed analysis of key provisions of the law that affect employers, including required employee compensation and respective payroll tax credits, please see this previous FGMK Tax Alert (Click Here).
Pursuant to the Act, it shall take effect no later than 15 days after the date of its enactment. As a result, the Act will take effect no later than Thursday, April 2, 2020. The provisions governing employee compensation are set to end on December 31, 2020.
The Act applies to private entities with fewer than 500 employees. However, the Act provides the Secretary of Labor (the “Secretary”) with authority to exempt small businesses with fewer than 50 employees with regard to the need to provide paid leave to those who need to care for a child when the imposition of such requirements would jeopardize the viability of the business as a going concern. Additionally, the Secretary may issue regulations that exclude certain health care providers and emergency responders from the definition of eligible employee.
It is critical to remember that the Act contains two components of compensation:
An employer signatory to a multiemployer collective bargaining agreement may fulfill its requirements under the Act by making contributions to a multiemployer fund, plan, or program based on the paid leave for which its employees are entitled, as long as such fund, plan, or program enables eligible employees to secure permitted pay. The employer’s contributions would be eligible for the associated payroll tax credits.
Compensation Reasons & Limits
Payment under the EPSLA is capped per employee at different rates depending on the reason for leave (six potential reasons).
Following the paid sick leave period, an employee may receive compensation under the EFMLEA for up to 10 weeks at a rate of pay that is at least two-thirds of the rate of such employee’s regular compensation. However, this compensation is also capped at a rate of no more than $200 per day per employee and has an overall per employee cap of $10,000.
The ONLY reason that qualifies for leave under the EFMLEA is if an employee is unable to work (or telework) due to a need to care for a son or daughter under 18 years of age if the school or place of care has been closed, or the child care provider is unavailable due to an emergency with respect to COVID-19 declared by a Federal, State, or local authority.
While the EPSLA compensation provisions apply to an employee despite the amount of tenure with the employer, the EFMLEA compensation provisions (as well as job protection provisions) only apply to an employee who has been employed at least 30 calendar days by the employer.
Documentation & Tax Credits
Employers would be advised to develop and maintain documentation with regard to reasons for employees’ leave.
Employers will receive refundable payroll tax credits that align with the amount of paid leave under the EPSLA and EFMLEA. Currently, such credits would be claimed upon the filing of payroll tax returns each quarter, and thus a likely timing difference exists between the compensation payment and the employer’s recovery of the cost through the payroll tax credit. Congress may revisit this timing issue during the next phase of coronavirus legislation.
As detailed in prior alerts, self-employed individuals will also be eligible for tax credits against self-employment tax if unable to perform services in the individual’s trade or business.
Many questions remain concerning the Act, including:
FGMK recognizes the impact that this law will have on employers and employees. We will continue to seek answers to these and other critical questions. As we learn more, we will share this knowledge with our clients and interested parties.
The summary information in this document is being provided for education purposes only. Recipients may not rely on this summary other than for the purpose intended, and the contents should not be construed as accounting, tax, investment, or legal advice. We encourage any recipients to contact the authors for any inquiries regarding the contents. FGMK (and its related entities and partners) shall not be responsible for any loss incurred by any person that relies on this publication.
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