DOL Guidelines & FFCRA Tax Credits

Through the COVID-19 chaos and daily updates of the guidelines, we know you are receiving an overwhelming amount of information to digest. Cokinos | Young is here to help. We have broken it down to the highlights that employers should be aware of below. If you need any help applying these new COVID-19 related requirements for your business, whether it be related to furloughs, work stoppage orders, leave, tax credits or other critical business decisions, please reach out to our team members, who are following these developments closely.

DOL Guidelines

The DOL has issued its first two sets of guidance for employers and employees regarding some of the details of the paid sick leave and expanded FMLA leave passed into law last week under the FFCRA.  The DOL posted on its website the following helpful materials: (1) Model Workplace Poster for FFCRA compliance; (2) FFCRA Fact Sheet for Employers; (3) FFCRA Fact Sheet for Employees; and (4) FFCRA Q&As.  DOL indicated that additional guidance may be forthcoming, and is continuing to solicit public feedback as it develops regulations.

The highlights of this DOL guidance that employers should be aware of:

  • FFCRA leave goes into effect April 1, 2020 (this is a change from the previously-thought date of April 2, 2020).
  • DOL will observe a temporary non-enforcement period for the first 30 days of the FFCRA for employers who act reasonably and in good faith in their attempts to comply, and who remedy any violations identified from that 30 days as soon as practicable along with  written commitment to future compliance.
  • To take leave under FFCRA, an employee must be unable to work in the office or remotely (telework); while the guidance does not specify, this does strongly suggest that if an employee is able to telecommute while caring for a minor child whose school, daycare, etc., is closed, the employer can reasonably expect him or her to telecommute rather than seek paid sick leave/FMLA.  This may be an issue where more guidance is issued soon or during the non-enforcement period.
  • Employees who take paid sick leave and also paid FMLA to care for a minor child whose school, daycare, etc., is closed will have the paid sick leave paid and capped at the same rate as the paid FMLA (2/3 of regular rate to a maximum of $200/day).
  • Workers who are properly classified as independent contractors do not count toward the FFCRA employee thresholds.
  • DOL will be providing more details on seeking the small business exemption (fewer than 50) in forthcoming regulations, but employers are advised to “document why your business … meets the criteria” for the exemption; DOL indicated that it does not expect employers to have to send any materials to DOL to seek the exemption, but that is subject to change.
  • Paid sick leave/FMLA is not to be paid with any overtime premium.
  • Paid sick leave/FMLA is to be based on the number of hours the employee would normally have been scheduled to work even if that number is more than 40 hours in a workweek; however, for the paid sick leave requirement, the number of paid sick leave hours iscapped at 80 over a two-week period.
  • FFCRA leave is not retroactive.
  • FFCRA imposes a new leave requirement on employers independent from any prior paid sick leave provided to an employee.
  • Employers who pay leave under FFCRA qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the Act plus the cost of the employer portion of the leave-taker’s health insurance premium during the leave period, but DOL refers all questions about the tax credits to the Department of the Treasury’s website for now.
  • Employees are not eligible for paid sick leave/FMLA during furloughs or temporary layoffs.
  • Employers can require employees to submit appropriate documentation to verify their need for paid sick leave/FMLA, which can include quarantine or isolation orders, doctor’s recommendations, or a notice of the closure of a school or place of child care.
  • DOL advises employers to retain the documentation if they intend to claim a tax credit under the FFCRA for the paid leave.
  • Paid sick leave/FMLA generally must be taken in full-day increments.
  • Paid sick leave/FMLA may only be used intermittently for child care reasons and with employer consent.
  • DOL has not specifically addressed how paid sick leave/FMLA works with “stay at home” orders, but the guidance in the Q&As appears to strongly indicate that if an employee is unable to work because work is unavailable due to a “stay at home” order then the employee is not eligible for paid sick leave/FMLA but may be eligible for unemployment benefits.

 

FFCRA Tax Credits

A few more details about the employer tax credits to pay for paid sick leave/FMLA have also been released, with more guidance to come next week:

  • Complete Coverage
    Employers receive 100% reimbursement for paid leave pursuant to the act.

    • Health insurance costs are also included in the credit.
    • Employers face no payroll tax liability.
    • Self-employed individuals receive an equivalent credit.
  • Fast Funds
    Reimbursement will be quick and easy to obtain.

    • An immediate dollar-for-dollar tax offset against payroll taxes will be provided
    • Where a refund is owed, the IRS will send the refund as quickly as possible.
  • Small Business Protection
    Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed or child care is unavailable in cases where the viability of the business is threatened.

To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

Prompt Payment for the Cost of Providing Leave

When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.

Under guidance that will be released next week, eligible employers who pay qualifying sick or child-care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child-care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes and the employer share of Social Security and Medicare taxes with respect to all employees.

If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.

Examples

If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments, and file a request for an accelerated credit for the remaining $2,000.

Equivalent child-care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.

Small Business Exemption

Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. The Department of Labor will provide emergency guidance and rulemaking to clearly articulate this standard.

For More Information

For more information about these credits and other relief, visit Coronavirus Tax Relief  on IRS.gov. Information regarding the process to receive an advance payment of the credit will be posted next week.