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Understanding Coronavirus Medical Leave and Tax Credits

Extended medical leave for employees and offsetting tax credits to pay for it are the focus of bipartisan legislation signed into law by President Trump on March 18, 2020.

The “Families First Coronavirus Response Act” addresses the coronavirus outbreak by providing paid sick leave, free coronavirus testing, food assistance and enhanced unemployment benefits. Many of these programs will be funded by supplemental appropriations to the Department of Agriculture, but financial responsibility for the emergency medical leave and sick pay provisions falls on employers, with an offset provided by payroll tax credits.

Payroll Tax Credits for Employers

Congress did not want the paid leave mandates to overburden employers, so the legislation gives affected employers a generous payroll tax credit. The credit is equal to 100% of the wages paid for family medical and sick leave and is used against the employer’s quarterly social security tax (OASDI) obligations. The credit is increased by the employer’s contribution to Medicare taxes imposed on an employee’s leave wages and is also increased by health plan expenses allocable to sick leave wages.

The credits are refundable, meaning that employers can get a check from the government for excess amounts if the credits zero out their tax liability. The credit will increase an employer’s gross income, and no credit is allowed for wages used to claim a Sec. 45S family and medical leave credit. These provisions prevent double benefits for the same wages.

Self-employed persons also are eligible for a refundable credit against income tax.

The credit is available for wages paid starting on a date to be designated by the Treasury Secretary through December 31, 2020.

Emergency Family and Medical Leave, Sick Pay

In an attempt to keep sick employees from exposing co-workers and others, the Act expands the Family and Medical Leave Act (FMLA) and the rules for sick pay for companies that have fewer than 500 employees, with some relief for businesses with less than 50 employees.

Businesses employing 500 or more workers are not subject to the new rules, which expire at the end of 2020. The large employers remain subject to the existing FMLA rules.

Family and Medical Leave Expansion:

  • Requires employers to give up to 12 weeks of leave for a “qualifying need related to a public health emergency,” in addition to the eligibility criteria already covered by the FMLA.
  • “Qualifying need” means that the employee is unable to work (or telework) because he/she must care for a minor child whose school or child-care facility is closed due to a public health emergency.
  • Leave requirements cover employees who have been on the payroll for 30 calendar days.
  • The first 10 days of leave can be unpaid. An employee may elect to substitute any accrued vacation leave, personal leave or medical or sick leave for unpaid leave.
  • The remainder of the leave is paid at 2/3 of the employee’s regular rate of pay for the number of hours usually worked, up to $200 per day and $10,000 in the aggregate.
  • The existing requirement under FMLA that an employer must restore employees to their prior positions, or an equivalent of their position, will not apply to employers with less than 25 employees if the employee’s position no longer exists due to economics or changes in operations related to the public health emergency.

Exemptions:

Employers can decline to give leave to healthcare workers and emergency responders. Also, businesses with fewer than 50 employees can be exempted from these requirements by the Secretary of Labor if the leave requirements would “jeopardize the viability of the business as a going concern.”

New Paid Sick Leave Requirements:

  • Employers must give two-weeks of paid sick leave to employees who are unable to work or telework due to having symptoms of COVID-19 or due to quarantine or isolation related to COVID-19.
  • Sick leave also is required for employees who are unable to work or telework because the employee is caring for someone who is in quarantine or isolation or is caring for a child whose school or childcare facility is closed due to COVID-19.
  • An employee’s eligibility starts on date of hire.
  • Full-time employees are entitled to 80 hours of paid sick leave and part-time employees get leave for the number of hours they usually work over a two-week period. Leave is paid at the employee’s regular rate of pay but not less than the minimum wage.
  • The sick pay is limited to $511 per day and $5,100 in the aggregate if the employee is sick or quarantined. The limit is $200 per day and $2,000 in the aggregate if the employee is caring for others.
  • An employer may not require an employee to use other paid leave before the employee can take the mandated paid sick leave.
  • Employers may not require an employee to find a replacement to cover for the employee as a condition of getting sick leave.
  • Employers may not discriminate against or discharge an employee for taking paid sick leave.
  • Sick leave paid under the new rules will not carryover to the next year.
  • Violations of the new rules will be considered violations of the minimum wage requirements of the Fair Labor Standards Act.

Exemptions:

Employees who are healthcare providers or emergency responders can be excluded. Also, the Secretary of Labor can exempt small businesses with fewer than 50 employees through regulations.

The Secretary of Labor has 15 days from enactment (around April 2) to issue guidelines for the computation of emergency sick leave. The provisions for family and medical leave and sick pay expire at the end of 2020.

Unemployment Compensation

The Act expands unemployment benefits and provides grants to states for processing and paying claims.

Free Tests, OSHA Protection for Healthcare Workers

The legislation establishes requirements for providing coronavirus diagnostic testing at no cost to consumers. Group health plans, veteran care, Medicare and Medicare Advantage plans must waive any co-pay. For uninsured Americans, the federal government will fund testing.

In addition, the bill requires the Occupational Safety and Health Administration (OSHA) to issue an emergency temporary standard that requires employers to implement a comprehensive infectious disease exposure control plan to protect healthcare workers.

Conclusion

These emergency leave provisions expire at the end of December. Let’s hope Congress does not have to extend them. It also is important to note that the Families First Coronavirus Response Act does not provide cash payments to Americans or emergency aid for affected industries. That $1 trillion plus legislation is still under development. Frazier & Deeter will keep you posted.

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