The Families First Coronavirus Response Act

by Roberta Watson, Barry Salkin and Virginia Peabody

Effective no later than April 2, 2020, the Emergency Paid Sick Leave Act (the “Sick Leave Act”) and the Emergency Family and Medical Leave Expansion Act (the “FMLA Expansion Act”), two of the divisions of the Families First Coronavirus Response Act (the “Families First Act”), provide paid sick leave and paid family and medical leave to employees affected by the coronavirus.  They also provide tax credits for eligible employers.  The Families First Act also requires, effective on the date of enactment (March 18, 2020), that group health plans and health insurance issuers offering group insurance coverage, including grandfathered health plans under the Affordable Care Act, provide coverage of testing and diagnosis for COVID-19 without any cost sharing requirements.  The provisions described in this Alert expire on December 31, 2020.

I.  Emergency Paid Sick Leave Act

Employers with fewer than 500 employees and government employers must provide employees with paid sick leave.  Employees may take paid sick leave if the employee:

  1. Is subject to a Federal, state or local quarantine or isolation order;
  2. Has been advised by a healthcare provider to self-quarantine;
  3. Is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
  4. Is caring for an individual who is subject to a Federal, state or local quarantine or isolation order, or has been advised to self-quarantine by a healthcare provider;
  5. Is caring for a son or daughter whose school or day care has been closed or the regular child care provider is not available due to coronavirus; or
  6. Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.

A big exception:  Healthcare providers and emergency responders are not required to provide paid sick leave to employees. 

At present, employees, who are laid off before the paid sick leave requirements go into effect, will not be eligible for paid sick leave.  However, the paid sick leave requirements would appear to apply to employees who were furloughed or placed on paid or unpaid leave prior to enactment (i.e., they have not been terminated from employment and usually are thus not eligible for unemployment).  We are not certain, however, whether any guidance that is issued will agree with this interpretation.

The Department of Labor (the “DOL”) has the authority to exempt small businesses with fewer than 50 employees if the imposition of the paid sick leave requirements would jeopardize the viability of the business as a going concern.

Paid sick leave must be available to all employees of employers subject to the Sick Leave Act (those with fewer than 500 employees), regardless of their date of hire.  An employer may not require, as a condition of providing sick leave, that an employee search for and find a replacement employee to cover the hours during which the employee is using the paid sick leave.

Employers who maintain a paid sick leave policy must provide the emergency paid sick leave in addition to their current paid sick leave, and may not require employees to use other forms of paid leave (e.g., vacation leave) instead of the emergency paid sick leave.

Paid sick leave must be paid at the employee’s regular rate of pay if it is used because the employee is being quarantined, receives a diagnosis of coronavirus or needs preventative care for coronavirus.  Such paid sick leave shall not exceed $511 per day, or $5,110 in the aggregate, for any employee.

Employers must pay two-thirds of the employee’s regular rate of pay if the employee is on leave to care for a family member who has coronavirus or to care for a child whose school or day care has closed due to coronavirus.  Such paid sick leave shall not exceed $200 per day, or $2,000 in the aggregate, for any employee.

Full-time employees are entitled to 2 weeks (80 hours) of qualified paid sick leave and part-time employees are entitled to the typical number of hours that they work during a typical two-week period.  There is no carryover of this paid sick leave from one year to the next.  Paid sick leave ends on the first day of the employee’s next scheduled shift immediately following the termination of the need for paid sick leave.  The Sick Leave Act also contains an anti-retaliation provision, and further provides that an employer who fails to comply will be treated as having committed a minimum wage violation under the Fair Labor Standards Act.

Employers that contribute to multiemployer plans may fulfill their obligations under the Sick Leave Act (if consistent with the collective bargaining agreement) by making contributions to the multiemployer plan based on the paid leave that each of its employees is entitled to receive under the collective bargaining agreement.  Employees who work under a collective bargaining agreement may secure pay from the fund, plan or program based on the hours they have worked under the collective bargaining agreement.  

For employers that are required to provide the paid leave, there is a silver lining.  Employers are entitled to a refundable payroll  tax credit equal to 100% of qualified paid sick leave wages paid by an employer for each calendar quarter.  

For purposes of the tax credit, the amount of qualified paid sick leave taken into account for each employee who must self-quarantine, obtain a diagnosis or comply with a self-isolation recommendation or requirement, is capped at $511 per day.  For amounts paid to employees caring for a family member or a child whose school or day care center has closed, the credit is capped at $200 per day.  The aggregate number of days taken into account for a calendar quarter may not exceed the excess of 10 over the aggregate number of days taken into account for this purpose for all preceding quarters (e.g., if an employee had received pay sick leave for 6 days in the first quarter of the year, then only 4 days would be available in the second quarter).  The amount of the credit is increased by so much of the employer’s qualified health plan expenses as are properly allocable to the qualified sick leave wages for which the credit was allowed.  Qualified health plan expenses means amounts paid or incurred by an employer to provide and maintain a group health plan, to the extent such amounts are excludible from gross income under the Code.  Treasury is directed to issue allocation rules but, unless such rules are to the contrary, an allocation will be treated as proper if made on a pro rata basis among covered employees and pro rata based upon the period of coverage.  If the tax credit exceeds the employer’s total liability under the employer portion of the Social Security tax for all employees for any calendar quarter, the excess credit is refundable to the employer.  Employers may elect to not have the credit apply.  No deduction is allowed for the amount of the tax credit, and no credit is allowed with respect to wages for which a credit is allowed under Internal Revenue Code section 45S, which provides a tax credit for certain paid family and medical leave.

For self-employed individuals, there is a refundable tax credit equal to 100 percent of a qualified sick leave equivalent amount for eligible self-employed individuals who must self-quarantine, obtain a diagnosis or comply with a recommendation to self-quarantine.  For eligible self-employed individuals caring for a family member or a child whose school or day care has been closed due to coronavirus, the refundable tax credit is equal to 67 percent of the qualified sick leave amount.  The tax credit is allowed against income taxes and is refundable.  The credit is capped at $511 per day for the amount paid to self-employed individuals who must self-quarantine, obtain a diagnosis or comply with a self-isolation recommendation or requirement.  For amounts paid to employees caring for a family member or a child whose school or day care center has closed, the credit is capped at $200 per day.  The aggregate number of days in a period cannot exceed 10, reduced by the number of days previously used.  To calculate the qualified sick leave equivalent amount, an eligible self-employed individual may only take into account those days that the individual is unable to work and is eligible for emergency paid sick leave.  Self-employed individuals must maintain documentation to establish their eligibility for the tax credit.  The qualified sick leave equivalent is  reduced to the extent that the qualified sick leave equivalent, plus the qualified sick leave wages from an employer, exceeds $5,110 or $2,000, as applicable (depending upon the basis for the sick leave).

II.  Emergency Family and Medical Leave Expansion Act

Employers with fewer than 500 employees, and government employers, must provide each employee who has been employed for at least thirty days with twelve weeks of mostly paid family and medical leave if he or she is unable to work or telework because the employee needs to care for his or her son or daughter, who is under the age of 18, if the child’s school or place of care has been closed, or the child-care provider is unavailable, due to a coronavirus declared emergency.  That is, it appears that if a parent is at home to take care of a child who is at home because of a coronavirus emergency, and the parent is able to work remotely from home, the parent will not be entitled to the leave.  Monitoring an employee’s ability to telework could be difficult.

Employees may take paid family and medical leave after they take the emergency paid sick leave described above.  The first 10 days for which an employee takes leave under the FMLA Expansion Act may consist of unpaid leave, but if the employee qualifies for the emergency paid sick leave, the employee may get paid for those 10 days under the Sick Leave Act.  An employee may elect to substitute any accrued vacation leave, personal leave, or medical or sick leave for unpaid leave.

Healthcare providers and emergency responders are not required to provide paid family leave to employees.  Also, employers with fewer than 50 employees are exempt from the paid family and medical leave requirements if the provision of the paid family and medical leave would jeopardize the business as a going concern.  Employers seeking an exemption should carefully document how paid family and medical leave would jeopardize the business.  Employers who would not otherwise be employers under the FMLA are excluded from civil enforcement actions by employees.

At present, employees who are laid off before the paid family and medical leave requirements go into effect, will not be eligible for paid family and medical leave.  However, the paid family and medical leave requirements would appear to apply to employees who are furloughed or on paid or unpaid leave (i.e., they have not been terminated from employment and thus are usually not eligible for unemployment).  We are not certain, however, whether any guidance that is issued will agree with this interpretation.

After the first 10 days of expanded family and medical leave, employees must receive a benefit from their employers equal to two-thirds of the employee’s regular rate of pay times the number of hours the employee would otherwise be normally scheduled to work, with special rules for making this calculation for employees with a variable hourly schedule.  Benefits shall not exceed $200 per day, or $10,000 in the aggregate, per employee. 

Employers that contribute to multiemployer plans may fulfill their obligations under the Sick Leave Act (if consistent with the collective bargaining agreement) by making contributions to the multiemployer plan based on the paid leave that each of its employees is entitled to receive under the collective bargaining agreement.  Employees who work under a collective bargaining agreement may secure pay from the fund, plan or program based on the hours they have worked under the collective bargaining agreement. 

In general, an employee must be restored to his or her same job on returning to work at the end of the emergency paid leave.  For employers with fewer than 25 employees, there is relief provided if an employee taking the emergency paid leave holds a position when the leave began that does not exist when the leave ends, as a result of economic conditions or other changes in operating conditions that affect employment and are caused by a public health emergency during the period of leave.  The employer must make reasonable efforts to restore the employee to his or her position.

There is a tax credit equal to 100 percent of qualified family leave wages paid by an employer for each quarter.  The tax credit is allowed against the employer portion of the Social Security taxes.  Qualified family leave wages are wages required to be paid by the FMLA Expansion Act.  The amount of the qualified family leave wages taken into account for each employee is capped at $200 per day and $10,000 for all calendar quarters.  The amount of the credit is increased by the amount  of the employer’s qualified health plan expenses that are allocable to the qualified family leave wages for which a credit is allowed.  Qualified health plan expenses are amounts paid or incurred by the employer to provide and maintain a group health plan, to the extent such amounts are excluded from gross income.  Treasury is directed to issue guidance as to the manner in which qualified health plan expenses are to be allocated to qualified family leave wages.  However, unless Treasury provides guidance to the contrary, such allocation is treated as properly made if made on a pro rata basis among covered employees and pro rata on the basis of periods of coverage.

If the credit exceeds the employer’s total liability under the employer’s portion of the Social Security tax for all employees for any calendar quarter, the excess credit is refundable to the employer.  Employers may elect to not have the credit apply.  No deduction is allowed for the amount of the tax credit.  No tax credit is allowed with respect to wages for which a credit is allowed under section 45S, which  provides a tax credit for certain paid family and medical leave.

There is a tax credit equal to 100 percent of the qualified family leave equivalent amount for self-employed individuals.  The tax credit is allowed against income taxes and is refundable.  Eligible employees are individuals who are entitled to receive paid leave under the FMLA Expansion Act determined as if the individual were an employee of an employer (other than himself or herself).  The qualified family leave equivalent amount is capped at $200 per day or the individual’s average daily self-employment income for the taxable year per day.  An eligible self-employed individual may only take into account those days that the individual is unable to work for reasons that would entitle the individual to receive paid leave under the FMLA Expansion Act.  Self-employed individuals must maintain documentation to establish their eligibility for the tax credit.  The qualified family leave equivalent is reduced to the extent that the qualified family leave equivalent plus the qualified family leave wages received from an employer exceed $10,000. 

III.  Requirements for Group Health Plans

Group health plans and insurers offering health insurance coverage must cover, may not impose any cost sharing requirements (e.g., deductibles, copayments and co-insurance) for, and may not impose any prior authorization or other medical management requirements on, the following items and services:

  1. FDA-approved products used to test for COVID-19 and the administration of such products; and
  2. Items and services furnished to an individual during visits to a health care (including telehealth), urgent care center, or emergency room that result in COVID-19 testing.

These provisions are effective on the date of enactment and expire when the Secretary of Health and Human Services determines that the emergency has ended.

IV.  Conclusion

Paid sick leave and paid family and medical leave will be available to eligible employees within 15 days of the bill’s enactment (April 2, 2020).  Any wages required to be paid under the Sick Leave Act and the FMLA Expansion Act will not be considered wages for purposes of the employer’s portion of the Social Security tax.  However, the tax credits described above (other than the tax credits available for self employed individuals) are increased by the Medicare surtax on qualified sick leave wages and qualified family medical leave wages, subject to the no double benefit rule, as described above, precluding taking a tax deduction for such amount.

At present, there are a number of questions regarding these leaves and the tax credits, which hopefully will be addressed in guidance very soon.  One important question will be how the 500-employee thresholds are determined for purposes of identifying employers required to provide the emergency paid leave.

Additional guidance regarding paid sick leave and paid family and medical leave is expected.  Such additional guidance will include advice from the Department of Labor, which will be providing a notice that must be posted in a conspicuous location (e.g., with other labor law posters).