The federal governmental response to the COVID-19 pandemic ramped up on March 18 as President Trump signed into law the Families First Coronavirus Response Act (the Act). Among other things (such as appropriations provisions), the Act mandates paid leave for many employees, requires that many healthcare plans cover COVID-19 testing, and provides tax credits for employers required to pay wages for COVID-19-related sick leave. The Act has serious implications that employers will need to understand promptly. This Sidley Update provides an overview of certain key provisions of the Act in the areas of employment, benefits and tax law. In addition, California employers may be affected by partial suspension of the California Worker Adjustment and Retraining Notification (WARN) Act, described below.
Significant Provisions of the Families First Coronavirus Response Act
Employment Law: Paid Leave
Paid Sick Leave. The Act creates a new requirement that employers with fewer than 500 employees provide each employee with two weeks’ paid sick leave to address COVID-19-related absences. For full-time employees, employers must provide 80 hours of paid leave, and for part-time employees, employers must provide leave equivalent to the average number of hours worked in a two-week period. Paid sick leave must be provided if:
- the employee is subject to a quarantine or isolation order or has been advised by a healthcare provider to self-quarantine due to COVID-19;
- the employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
- the employee is caring for an individual who is quarantined due to concerns related to COVID-19; or
- the employee is caring for a son or daughter whose school is closed or whose child-care provider is unavailable due to COVID-19 precautions.
If the employee uses paid sick leave due to his or her own quarantine or symptoms, the employee must be paid the greater of the employee’s regular rate of pay or minimum wage, with a daily maximum of $511 per day and an aggregate maximum of $5,110. If the employee takes paid sick leave to care for another individual, the required pay rate is two-thirds of the greater of the employee’s ordinary pay rate or minimum wage, with a daily maximum of $200 and an aggregate maximum of $2,000.
Unlike under the Family and Medical Leave Act (FMLA), there is no minimum required time an employee must be employed before using paid sick leave under the Act, and employers may not require that employees use other paid leaves before paid sick leave under the Act.
FMLA Paid Leave. In addition, the Act amends the FMLA, creating a new paid leave requirement for certain employees caring for a son or daughter if the child’s school has been closed or child care is unavailable due to COVID-19. If an employee (1) is employed by an employer with fewer than 500 employees, and (2) has been on the job for at least 30 days, the employee is entitled to this new category of FMLA leave. For the first 10 days of such leave, the employee is entitled to paid sick leave as described above. For the next 10 weeks of FMLA leave, the employer must provide paid leave of at least two-thirds the employee’s normal rate of pay for the number of hours the employee would ordinarily be scheduled to work. This requirement is subject to a daily maximum of $200 and an aggregate maximum of $10,000.
The Act authorizes the Secretary of Labor to exempt small businesses with fewer than 50 employees from these paid sick leave and paid FMLA leave requirements when those requirements would jeopardize the viability of the business as a going concern. The Act also exempts employers of fewer than 50 employees from civil actions by employees for FMLA violations.
The above provisions expire at the end of 2020.
Benefits: COVID-19 Testing
The Act requires group health plans and health insurers offering group or individual health coverage (including grandfathered plans within the meaning of the Affordable Care Act) to provide coverage, with no deductibles, copayments, coinsurance or pre-authorization for (a) approved in vitro diagnostic products (and administration of those products) for the detection or diagnosis of COVID-19, and (b) items and services furnished during office, telehealth, urgent care center or emergency room visits that result in the diagnostic testing described above (or an order for such testing), to the extent those items and services are related to diagnostic testing for COVID-19, or an evaluation of the individual to determine whether such diagnostic testing is necessary.
The Act also generally requires coverage for certain COVID-19 testing and waives cost sharing for the testing (and related provider visits) for specified governmental arrangements, such as Medicare Part B, a Medicare Advantage plan, Medicaid, the Children’s Health Insurance Program and TRICARE, and as related to coverage for veterans, federal civil service workers, and American Indians and Alaskan Natives receiving coverage through the Indian Health Service.
Employers sponsoring group health plans should consider notifying participants of the availability of the above-described COVID-19 diagnostic testing without cost sharing.
Tax: Employment Tax Credits
The Act provides employers required to pay wages pursuant to the Act’s paid sick leave and FMLA provisions with tax credits for amounts paid pursuant to those provisions and, in some cases, for a portion of amounts paid or incurred to provide group health coverage to their employees.
The credit for wages paid to an employee under the Act’s paid sick leave provisions is capped at the $511/$200 per day maximums and $5,110/$2,000 aggregate maximums described above. The credit for wages paid to an employee pursuant to the Act’s FMLA paid leave amendments is capped at the $200 per day maximum and the $10,000 aggregate maximum described above.
Each of the foregoing credits is increased by amounts paid or incurred by the employer to provide and maintain a group health plan (to the extent that such amounts are excluded from the employees’ gross income) as are properly allocable to the paid sick leave or FMLA paid leave payments. The Treasury is authorized to prescribe an allocation methodology and, unless otherwise provided by the Treasury, the allocation may be made pro rata among covered employees and pro rata based on periods of coverage. Based on the language of the statute, it is not entirely clear whether the caps on the baseline credit amounts noted above apply to the incremental credits for group health plan expenses.1
From an employment tax perspective, wages paid by an employer pursuant to the Act are treated differently for purposes of the 6.2% employer’s share of Social Security payroll tax and for purposes of the 1.45% employer share of the hospital insurance/Medicare payroll tax. In the case of the 6.2% Social Security tax, wages paid (whether above or below the credit caps described above) are excluded from the base to which the tax applies. In the case of the 1.45% hospital insurance/Medicare tax, while wages paid are counted as wages to which the tax applies, the credits described above are increased by the hospital insurance/Medicare taxes paid in respect of those wages.
Each credit generally is taken against the employer’s 6.2% portion of the Social Security payroll taxes and, to the extent the credit exceeds the employer’s liability for such taxes in a particular quarter, the employer will be entitled to a refund of the excess. Employers must include the amount of these credits in their gross income, effectively making the credit-eligible wages, the corresponding 1.45% hospital insurance/Medicare tax, and the portion of the group health plan expenses giving rise to incremental credits non-deductible.
Analogous credits are provided to self-employed taxpayers who would have been entitled to paid leave if they had been employees covered by the Act’s paid sick leave and FMLA provisions. In the case of self-employed taxpayers, the credits are taken against the taxpayer’s income tax and are refundable to the extent they exceed the taxpayer’s tax liability.
The credits apply to wages paid in respect of periods beginning after the Act’s enactment and ending on or before December 31, 2020. The Secretary of the Treasury is directed to promulgate regulations necessary to carry out the purposes of the credit provisions.
Partial Suspension of the California WARN Act
On March 17, the Governor of California signed an Executive Order to suspend portions of the California WARN Act. Specifically, the Order suspends the usual 60-day notice requirement for mass layoffs and plant closures that would otherwise be covered by the state WARN Act. Instead, employers must provide WARN notice as soon as practicable to employees and the requisite government officials. The notice must briefly state the basis for reducing the notification period, i.e., COVID-19, and provide information about Unemployment Insurance Benefits available to employees in California. The Executive Order is particularly important for employers with California operations because, unlike the federal and other state WARN Acts, California’s Act is triggered by temporary layoffs as well as those lasting over six months.
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The government response to COVID-19 is rapidly evolving, and we will continue to provide updates as new actions are taken.
1 In each of the relevant sections of the Act, the baseline credit amount is generally described in subsection (a), the applicable caps on the credit amount are described in subsection (b) and the incremental credits for group health plan expenses are described in subsection (d). In each case, subsection (d) provides that the “amount of the credit under clause (a)” is increased by the allowed portion of the group health plan expenses. This suggests that the incremental credit amount would be subject to the caps in the same way as the baseline credit amount. At the same time, however, the caps described in subsection (b) are caps on “wages” taken into account under subsection (a). Because nothing in the statute suggests that the group health plan expenses described in subsection (d) are treated as “wages” for purposes of subsection (a), this supports the view that the cap does not apply to the incremental credit amount.
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