Families First Coronavirus Response Act: Paid Leave & Tax Implications for Small Business Owners
On March 18th, with Americans experiencing the economic impact of the COVID-19 virus, President Trump signed into law the Families First Coronavirus Response Act in an effort to ease the financial strain being dealt to working people across the country. Two key provisions of the bill (HR 6201) are: 1) the Emergency Family and Medical Leave Expansion Act (EFMLEA) which amends the Family and Medical Leave Act (FMLA) to allow paid leave for employees whose child care has been disrupted due to COVID-19, and 2) the Emergency Paid Sick Leave Act (EPSLA) which increases the number of employees with access to paid medical sick leave. While this law brings some much-needed relief to some of the estimated 32 million US workers who, prior to its passage, had no access to paid leave, it also raises questions for employers regarding the new expense facing their business.
With an effective period beginning April 2, 2020 and ending December 31st, 2020, the Act encompasses all employers with fewer than 500 employees. However, there are exceptions for employers of health care providers, and employers with fewer than 50 employees. If the Department of Labor determines the viability of business would be in jeopardy by offering the benefits of the Act, said business shall be considered exempt from providing the following benefits. Please note that as of the time of this writing, the Secretary of Labor has not exercised the authority to exempt a small business with less than 50 employees. Further clarification is expected on this matter in the coming weeks.
| Emergency Family and Medical Leave Expansion Act (EFMLEA) | Emergency Paid Sick Leave Act (EPSLA) | |
|---|---|---|
| Eligible Employees: | All employees who have been employed 30 days or more are eligible for EFMLA benefits. | There is no work history requirement for an employee to be eligible for EPSLA benefits. |
| Maximum duration of leave (this sick leave must be made available in addition to any other preexisting sick leave provided by the employer): | Twelve weeks with the first 10 business days unpaid. An employee may opt to use vacation, or previously accrued sick leave during the initial 10 unpaid business days. | Two weeks |
| When can leave be taken: | When an employee is unable to work due to caring for a child whose school or provider is unavailable due to COVID-19. | When an employee is unable to work due to the following circumstances related to COVID-19:
|
| Rate of pay during leave: |
Two thirds of the employee’s regular pay, not to exceed $200 per day. Employer shall fund up to 10 weeks at maximum of $10,000 through the end of the year.
Example: 5 days at $200 per day = $1,000 per week 10 weeks at $1,000 per week = $10,000 |
For leave purposes one, two or three above: The higher of
For leave purposes four, five, or six: Two thirds of their regular rate. Not to exceed $200 per day or $2,000 in aggregate. |
It is noteworthy that while employers will bear the responsibility of paying these benefits initially, under the Families First Coronavirus Response Act, employers will be reimbursed for every dollar of leave paid to eligible employees in the form of a refundable federal employment tax credit, allowing employers to receive a full reimbursement for their expenses related to the paid leave, regardless of their actual employment tax liability. Employers will also not be required to pay Social Security taxes on leave paid for either EFMLEA or EPSLA purposes (while employees will still pay Social Security, Medicare, and income tax withholding on benefits received), but will be required to report Medicare tax. However, employer Medicare taxes paid also qualify for a dollar for dollar reimbursement in the form of the tax credit mentioned above.
At BA Harris, we will continue to digest the latest information coming out of Washington regarding the coronavirus pandemic and how it will affect your tax situation. It is important to keep in mind that many of these legislative remedies are still in flux, and are subject to potential change and reinterpretation as this situation evolves. If you have any questions please feel free to contact us.
Aaron Lavarias, CPA
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