How the Families First Coronavirus Response Act affects Small and Mid-Size Companies

Karyn Finkelson, CPA​ •

In response to our country’s current state of emergency, the President has signed the “Families First Coronavirus Response Act” which includes some important provisions that will directly affect employers with fewer than 500 workers, particularly in regards to emergency sick leave. These provisions will take effect no later than April 2, 2020.
 
Emergency Sick Leave Act (EPSLA) key points:
​

• Employers must provide employees who cannot work (including at home) with paid sick time if employee is:
  • Subject to coronavirus quarantine
  • Advised by a health care provider to self-quarantine
  • Experiencing symptoms of coronavirus and is seeking a medical diagnosis
  • Caring for a child whose school of day care is closed due to coronavirus precautions
• Full time employees are to receive 80 hours of sick leave at their regular rate
• Part time employees are to receive the equivalent to their average hours worked in a two-week period, regardless of how long they have been employed
• Employers cannot require an employee to use any other available paid leave before using this sick leave
• These wages will not be subject to the 6.2% social security payroll tax paid by employers

 
Emergency Family Leave key points:

• Employers will have to provide up to 12 weeks of FMLA (Family Medical Leave Act) leave for employees who:
  • Been employed for at least 30 days
  • Unable to work (including at home) because they have to care for a child whose school or day care is closed due to coronavirus precautions
• First 10 days of leave can be unpaid (or worker can use their earned time off). For any subsequent days of leave workers must receive wages equal to at least two-thirds their normal pay rate.
  • Paid leave is capped at $200/day and $10,000 in total per employee
• These wages will not be subject to the 6.2% social security payroll tax paid by employers
• Employee on leave must be restored to his/her position, unless the employer has fewer than 25 employees.  If position no longer exists due to change in operations or economic conditions, employer must make an effort to find an equivalent position.

  
In addition to protecting employees, the Act has created tax credits for employers to cover these above costs. 

• 100% refundable credit for employer portion of  the Social Security tax (6.2%) of sick and family leave wages paid
• Sick leave credit:
  • Wages paid to employees up to $511 per day, or $200 per day if caring for a family member or child per each employee
  • Limited to 10 days per employee per quarter
• Family leave credit:
  • Wages paid to employees up to $200 per employee per day with a maximum of $10,000
  • Any wages used to determine this credit will reduce any paid family and medical leave credit available to employer
• Any of the above credits received must be reported as income by the employer
• How the credit will be reported and claimed is still yet to be determined

 
Self-employed individuals are also covered under the Act by allowing a 100% credit of the self-employed individual’s sick-leave equivalent amount, or 67% if they are caring for a sick family member or caring for a child due to school closing for up to 10 days.  The sick-leave equivalent is the lesser of:

• Average daily self-employment income or
• $511/day for sick time, or $200/day to care for another individual

Self-employed individuals can also receive a credit for as many as 50 days multiplied by the lessor of $200/day of 67% of their average self-employed income. The Act has directed the Treasury department to provide guidance on what documentation will be needed in order to claim the credit.
 
All companies with less than 500 employees are required to provide these benefits to their employees, however the Secretary of Labor can exempt businesses with fewer than 50 employees if these requirements would “jeopardize the viability of the business as a going concern.”  It has not been made clear how he will determine this exclusion.  If you have any questions regarding these new provisions, please contact your tax advisor.