Families First Coronavirus Response Act Affects Small Business Owners
March 25, 2020
Small business owners are wondering how the recently passed Families First Coronavirus Response Act affects their businesses. Popularly called a “paid sick leave” law, this law makes many workers eligible for a combination of paid and unpaid leave during this coronavirus pandemic.
There are many parts to this new law, but three are particularly important to small businesses and their employees: The Emergency Paid Sick Leave Act, the expansion of the Family Medical Leave Act, and available Tax Credits.
Emergency Paid Sick Leave Act
This law affects only non-governmental employers with 500 or fewer employees. Both full-time and part-time employees are eligible for paid leave. Employees are eligible on the first date of hire. There is no waiting period.
Qualifying Events for Paid Leave:
There are six qualifying events.
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19 (coronavirus).
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID– 19.
- The employee is experiencing symptoms of COVID– 19 and seeking a medical diagnosis.
- The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).
- The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID–19 precautions.
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
Rate of Pay:
An employee’s pay rate depends upon the reason for the leave. Employees will receive two weeks of paid leave (at their regular rate of pay, subject to caps) if they experience a qualifying event.
- Employees eligible for leave due to reasons 1-3 (to care for themselves) will be paid their regular rate of pay up to a cap of $511 per day and $5,110 in the aggregate.
- Employees eligible for leave due to reasons 4-6 (to care for a family member) will be paid their regular rate of pay up to a cap of $200 per day and $2,000 in the aggregate.
Due to cap, higher wage earners will not receive their full pay under this new law. Of course, employees can choose to make up the difference. In addition, some employees may choose to use vacation or other available paid time off in lieu of the paid sick leave allowed under this law.
Impact on Pennsylvania Small Businesses.
- Since Pennsylvania closed schools for a minimum of four weeks, small business owners should prepare for handling these requests for paid leave. The law is not retroactive. This means absences due to the school closures from March 16th to March 31st are not eligible for paid sick leave. However, leave due to childcare responsibilities beginning April 1, 2020, are eligible.
- Employers cannot require the employee to find a replacement employee to cover the lost shifts
- Employers cannot require the employee to use other paid sick leave before using this new emergency paid sick leave.
- Employers cannot discriminate against or fire an employee for taking paid sick leave under this new law.
- This will be a costly law to small businesses. Congress provides some relief through tax credits (see Section III for more information). For many, though, this relief will not overcome the loss of revenue to the business, the ongoing property and maintenance costs the business continues to incur, nor the cost to replace employees should the business be an “essential business” and still open to customers.
Employers must post a notice regarding the requirements of this new law in physical work locations. The Department of Labor will post a model notice on its website by March 25, 2020. With most workplaces being closed, employers will have to determine how to reasonably notify off-site employees of their rights.
This new law is effective April 1, 2020, and ends on December 31, 2020, unless extended by Congress.
Other Important Information:
This new law seems simple, but it can be difficult to determine whether an employee is eligible for leave and the proper rate of pay. Common legal questions arises regarding:
- Joint employer status
- Pay rate for part-time employees
- Pay rate for employees who sometimes or usually earn overtime pay
- Pay rate when employee qualifies for both personal and family care responsibilities
If you have questions, contact an attorney, your local chamber of commerce, or your trade group. Do not risk fines or litigation due to non-compliance.
Emergency Family Medical Leave Expansion Act
The new Families First law also expands the Family Medical Leave Act (FMLA). If FMLA was not already a major headache for employers, the new Emergency Family Medical Leave Expansion Act adds more complexity.
Now, employees may request FMLA leave for a qualified “public health emergency”. The law allows leave when an employee is unable to work due to the need to care for child when the school or childcare provider is closed due to coronavirus.
Eligibility for this expanded FMLA leave is different from normal FMLA leave.
- The employee has been employed for at 30 calendar days
- The employer employs fewer than 500 employees
- Exception 1: The Secretary of Labor is permitted to exempt certain health care providers and emergency responders.
- Exception 2: The Secretary of Labor is permitted to exempt small businesses with fewer than 50 employees when the law would jeopardize the viability of the business. This is not an automatic exception and employers will have to apply for an exemption.
These changes are very significant. Usually, FMLA leave is available to employees who have been employed at least 1,250 hours during the prior 12-month period and the employer employs 50 or more employees. Not so for this law. Also, large employers (greater than 500 employees). Presumably, Congress expects these larger employers to have more generous paid leave benefits in place.
Leave is available when the employee is unable to work or telework due to a need to care for the son or daughter under 18 years of age if the school or place of child care has closed or if the child care provider is unavailable due to a public health emergency. The public health emergency must be related to COVID-19 and be declared by a federal, state, or local authority.
The first 10 days of leave may consist of unpaid leave. Most employees will likely elect to take first 10 days as the paid sick leave guaranteed by the Emergency Paid Sick Leave Act (if they have not already used this leave).
The employee may choose to substitute accrued paid vacation leave, personal leave, or medical leave.
After 10 days, the employee will be paid at a rate of not less than 2/3 of her regular rate of pay and for the hours she normally would have been scheduled to work. This pay is capped at $200 per day and $10,000 in the aggregate. This means many higher wage earners will see a steeper reduction in pay than lower-wage earners.
This expanded FMLA is available from April 1, 2020, through December 31, 2020, unless otherwise extended by Congress. It is not retroactive to periods before April 1, 2020.
Payroll Tax Credit
The third important change is a payroll tax credit for small businesses.
Small business are already wondering how they will pay for the leave granted by the new laws. Many small businesses, especially in the service and tourism industries, run on thin margins.
Emergency Paid Sick Leave Tax Credit.
Employers will receive a tax credit equal to 100% of the qualified family leave wages, subject to these limitations:
- $511 per day for paid sick leave for employees to care for themselves (events 1-3 of the Emergency Paid Sick Leave Act)
- $200 per day for paid sick leave for employees to care for family members (events 4-6 of the Emergency Paid Sick Leave Act).
- Employer contributions to a qualified group health care plan are included if the contributions are properly allocated to the qualified family leave wage.
Expanded Family Medical Leave Tax Credit
In addition to the paid sick leave credit (above), employers will receive a tax credit for wages paid to an employee is unable to work because the employee must care for a child whose school or child care provider is unable due to coronavirus. This credit is equal to 2/3 of the regular pay rate and capped at $200 per day, $10,000 in the aggregate.
Payroll Tax Credit.
Employers will be receive a refundable tax credit against the employer portion of Social Security Taxes. It is important to keep careful records of employee leave periods so your accountant can apply the credit to your business’s tax return. This will save you the 6.2% social security tax for applicable wages.
Self-Employed Individual Tax Credit.
The law provides a similar tax credit for self-employed individuals. The value of the credit is the lesser of 67% of the taxpayer’s average daily self-employment income or $511 (for leave to care for yourself) or $200 (for leave to care for your family). It is applied against your federal tax income and is refundable.
The IRS will be issuing guidance on how employers may claim the tax credits.
There are many other employee labor laws affecting your small business. Consider consulting an attorney to guide you through these new changes. You can be certain the plaintiff attorneys will be stepping up their marketing to generate lawsuits from employees who believe they were not fairly paid or faced discrimination for taking leave. The fee for legal advice will definitely be less than the cost to correct a labor law mistake.
Attorney Christine Jarzab Kuntz of Concerto Law gratuitously provides this information to assist small businesses during this difficult and unprecedented time. She specializes in counseling small businesses and nonprofit organizations. Christine would love to talk with you about your concerns and questions. Contact Concerto Law today.