March 18, 2020

Earlier today, the Senate took up and passed the revised H.R. 6201, the “Families First Coronavirus Response Act” (FFCRA).  The bill now goes to the White House where President Trump has signaled he will sign it into law.  This legislation is the second coronavirus-related package – it follows the $8.3 billion funding package that was signed into law on March 6^th to fund prevention efforts and research.  Work is already underway in the Senate on a third, much more significant, piece of legislation intended to provide more direct and targeted relief to employers and workers.  

The below summary is based on a review of the final text of H.R. 6201 as approved by the House and Senate, along with analysis provided by the Congressional Research Service (CRS) and the bicameral Joint Committee on Taxation of relevant provisions. Among the revisions that were passed by the House on Monday and approved by the Senate today were changes to the paid leave and employer tax credit provisions.  Generally speaking, these provisions are scheduled to take effect within 15 days after the bill is signed into law. Please note, however, that the scope and reach of these provisions are likely to be further clarified by regulatory actions the Department of Labor (for the leave provisions) and the Department of the Treasury (for the tax-related provisions) are directed to undertake to effectuate the legislation. 

In addition, Senate Majority Leader Mitch McConnell (R-KY) has declared that the Senate is already well along in developing a third coronavirus response bill that will be the largest public assistance bill ever enacted.  At this time, there is a very real possibility that this “Phase 3” bill will include additional changes to the paid leave provisions that were just approved by Congress and that it will be completed before the paid leave requirements of H.R. 6201 take full effect.  Thus, some of the details of these tax and leave provisions discussed below are still subject to change, and this information could quickly become obsolete as a result of these ongoing legislative efforts to respond to the unprecedented crisis that the coronavirus pandemic has generated. 

Overview of H.R. 6201, the “Families First Coronavirus Response Act” (FFCRA)

The FFCRA  is a wide-ranging bill that includes provisions intended to bolster many elements of the medical response to the coronavirus, expand food assistance to low income families, expand unemployment benefits, and provide emergency funding for programs that assist the elderly. 

Of particular relevance to SWACCA members, this legislation also includes a significant expansion of paid sick leave and family leave under the FMLA.  It would also create new tax credits for employers of fewer than 500 individuals to cover the costs associated with providing such leave to their workers.  Our analysis focuses specifically on these changes to current law.

Paid Leave Provisions of H.R. 6201

H.R. 6201 contains two paid leave programs: the Emergency Family and Medical Leave Expansion Act (Division C of H.R. 6201), and the Emergency Paid Sick Leave Act (Division E).  Each of these is summarized below.

Expansion of Family and Emergency Leave

First, H.R. 6201 would expand the Family and Medical Leave Act (FMLA) to create “public health emergency leave” for employees of any private sector employer with fewer than 500 total employees.  This program is to be in effect from 15 days following enactment of the law until December 31, 2020 because of a “qualifying need related to a public health emergency.”  A summary of key provisions follows:

- For purposes of the bill, an “eligible employee” is someone who has been employed for at least 30 calendar days by an employer from whom the emergency leave is requested.

- A “qualifying need” means the employee is unable to work or telework due to a need for leave to care for a son or daughter under 18 years of age whose school, daycare, or place of care has been closed as a result of the coronavirus.

- It would allow, but not require, that the first 10 days of this leave to be unpaid leave and would allow an employee to elect to substitute any accrued vacation, personal, or medical or sick leave for unpaid leave during the first 10 days. The employer would then be required to provide paid leave for any leave beyond these first 10 days. 

- Paid leave is to be calculated for an employee based on (1) an amount that is not less than two-thirds of an employee’s “regular rate” of pay under the FLSA; and (2) the number of hours the employee would otherwise be normally scheduled to work. In no event, however, would this paid leave exceed $200 per day and $10,000 in the aggregate.

- In the case of an employee whose work schedule varies from week to week, to the extent an employer cannot determine with certainty the number of hours the employee would have worked had they not taken leave, the employer is required to provide a number equal to the average number of hours that the employee was scheduled to work per day over the 6-month period ending on the start date of the employee’s leave, including hours for which the employee took leave of any type. If the employee did not work over that period, the number shifts to the “reasonable expectation of the employee at the time of hiring of the average number of hours per day that the employee would normally be scheduled to work.” This vague phrase will obviously have to be clarified by regulators during implementation.

The bill also includes an exemption from Section 104(a)(1) of the FMLA (“restoration to position” following leave) for emergency family leave taken as a result of the coronavirus emergency.  Specifically, it provides that Section 104(a)(1) does not apply to employers who employ fewer than 25 employees if:  (1) the employee takes public health emergency leave; (2)  the position held by the employee when leave commenced does not exist due to economic conditions or other changes in the employer’s operating conditions affecting employment caused by the coronavirus public health emergency; (3) the employer makes reasonable efforts to restore the employee to an equivalent position, with equivalent employment benefits, pay, and other terms and conditions of employment; and (4) if the reasonable efforts of the employer to restore the employee to an equivalent position fail, the employer makes reasonable efforts up to 1 year after the emergency leave concludes to contact the employee if such an equivalent position becomes available. 

Effect on Employees under a Multiemployer CBA

The bill further provides that an employer that is signatory to a multiemployer collective  bargaining agreement may, consistent with the CBA, fulfill its obligation to provide public health emergency leave by making contributions to a multiemployer fund, plan, or program based on the paid leave each of its employees is entitled to, provided that the fund, plan, or     program enables employees to secure pay based on hours they have worked under the multiemployer CBA for such public health emergency paid leave.

DOL Regulatory Authority

The bill also grants DOL the authority to issue regulations for “good cause” to exclude certain small businesses with fewer than 50 employees when the imposition of these requirements would jeopardize the viability of the business as a going concern.

Emergency Paid Sick Leave Act

Second, the bill creates an obligation for employers to provide paid sick time to any employee unable to work or telework due to the coronavirus pandemic.  This requirement would apply to any employer that employs fewer than 500 employees and includes any person acting directly or indirectly in the interest of an employer (as defined under 29 USC 203(d)) and any successor in interest of an employer.  After the first workday (or portion thereof) that an employee receives paid sick time under this provision, an employer may require the employee to follow reasonable notice procedures in order to continue receiving such paid sick time.

The bill defines “paid sick time” as an increment of compensated leave that is provided by an employer for use during a coronavirus-related leave of absence and is calculated based on the employee’s required compensation and the number of hours the employee would otherwise be normally scheduled to work.  This is to be provided by an employer in cases where the employee: 

- is subject to a federal, state, or local government quarantine or isolation;

- has been advised by a health care provider to self-quarantine due to concerns related to coronavirus;

- is experiencing symptoms of coronavirus and is seeking a medical diagnosis;

- is caring for an individual under a government quarantine or isolation order or has been advised to self-quarantine;

- is caring for a son or daughter if the child’s school or place of care is unavailable; or

- is experiencing any other substantially similar condition specified by the Department of Health and Human Services (in consultation with the Departments of Treasury and Labor).

Under this provision, an employee would be entitled to paid sick time of 80 hours if they are a full-time employee and, if part-time, for a number of hours equal to the work hours the employee averages over a 2-week period. Any paid sick time taken by an employee under this provision cannot carry over from one year to the next, and any paid sick time provided to an employee would cease beginning with the “employee’s next scheduled workshift” immediately following the end of the need for paid sick time.

This provision also includes limits on the amount of compensation that can be received by an employee claiming emergency paid sick time.

- Specifically, paid sick time cannot exceed $511 per day and $5,110 in the aggregate for leave related to (1), (2), or (3) above (a government quarantine order, self-quarantine, or symptoms of coronavirus experienced by the employee who is also seeking a medical diagnosis).

- With respect to clauses (4), (5) and (6), paid leave cannot exceed $200 per day and $2,000 in the aggregate to care for another individual under a government quarantine order, to care for a son or daughter whose school or daycare is unavailable, or is experiencing symptoms of another health condition similar to coronavirus.

The compensation that would be due to an employee under this new paid sick time requirement is not to be less than the greater of: (1) the employee’s “regular rate” of pay as determined under the FLSA; (2) the minimum wage rate in effect under the FLSA; or (3) the minimum wage rate in effect for such employee in the applicable state or locality if higher than the FLSA minimum wage.  For employees requesting sick leave to care for family members, the employee’s required compensation would be two-thirds of the above amount. For part time employees whose schedule varies from week to week, this calculation would be based on a number equal to the average number of hours that the employee was scheduled to work per day over the 6-month period ending on the date on which the employee takes the paid sick time, including hours for which the employee took leave of any type.

This paid sick time is to be available for immediate use by the employee, regardless of how long the employee has been employed by an employer.  The employee may also first use paid sick time before claiming emergency paid sick leave, but an employer may not require them to do so. 

Effect on Employers and Employees Operating Under a Multiemployer CBA

The bill also provides that employers who are signatory to a multiemployer CBA may choose to fulfill their obligations to provide emergency paid sick leave by making contributions to a multiemployer fund, plan, or program based on the hours of paid sick time each of its employees is entitled to while working under the CBA if the fund or plan enables employees to secure pay based on hours they have worked for paid sick leave.  

DOL Enforcement and Regulatory Authority

Any employer that violates the requirement to provide emergency paid sick time shall be: (1) considered to have failed to pay minimum wages under the FLSA; and (2) subject to the penalties under the FLSA with respect to such violations. For employers, the bill provides that they may not require, as a condition of providing paid sick time, that the employee search for or find a replacement worker to cover the hours during which they are using paid sick time.

The bill also provides that within 7 days from enactment, DOL is required to make publicly available a model notice describing employees’ rights to emergency paid sick leave, which each employer would be required to post in a conspicuous place on the employer’s premises.  It would also be unlawful for any employer to discharge, discipline, or in any other manner discriminate against any employee who takes emergency paid sick leave and has filed any complaint or instituted any proceeding relating to emergency paid sick leave, or has testified or is about to testify in any such proceeding.  An employer who willfully violates this provision by discharging, disciplining, or in any other manner discriminating against an employee who takes emergency paid sick leave would also be considered to be in violation of the FLSA.

This section further provides that DOL is to issue guidelines to assist employers in calculating the amount of paid sick time available to workers within 15 days of the bill becoming law.  DOL is also granted the authority to issue regulations to exempt small businesses with fewer than 50 employees from these paid sick leave requirements “when the imposition of such requirements would jeopardize the viability of the business as a going concern.”

Effective Date

Much like the prior section, the requirement to provide paid emergency sick leave would begin 15 days after the bill is signed into law, but would sunset on December 31, 2020.

Tax Credits for Employers for Providing Emergency Paid Sick, Family Leave

To help offset the increased costs to businesses of providing the paid sick and emergency family leave described above, H.R. 6201 also includes provisions for employer tax credits up to certain amounts and under certain circumstances.  This includes payroll tax credits, credits for sick and emergency family leave for certain self-employed individuals, and a special rule related to tax on employers, each of which would apply starting 15 days from enactment and last until December 31, 2020.   Each of these credits is discussed in detail below.

Payroll Tax Credit for Required Paid Sick Leave, Emergency Family Leave

In general, the employer payroll tax credit is computed using wages paid and claimed against the employer’s share of the Social Security tax (Old-Age, Survivors, and Disability Insurance, or “OASDI”) in each calendar quarter.  This tax credit is refundable in cases where the employer’s tax credits exceed its payroll tax liability, which can be received as a payment from the Treasury.  Employers that claim this credit would be required to include the amount claimed in gross income for tax purposes, offsetting the reduction in gross income from deducting wages paid.  These credits may be increased by certain health plan expenses of the employer.

Payroll Tax Credit for Required Paid Sick Leave (Section 7001)

Under this provision, an employer would be provided a credit against the OASDI tax for each calendar quarter that is equal to 100 percent of the emergency paid sick leave wages paid by the employer in that calendar quarter.  This credit is increased by so much of the employer’s “qualified health plan expenses” as are properly allocable to the emergency paid sick leave wages.  For purposes of this section, qualified health plan expenses are the amounts paid or incurred by the employer to provide and maintain a group health plan, but only to the extent such amounts are excluded from the employees’ income as coverage under an accident or health plan.  While this provision leaves it up to the Treasury Department to determine the exact manner in which qualified health plan expenses are allocated to paid sick leave under H.R. 6201, such allocations would be treated as properly made if they are made on the basis of being pro rata among covered employees and pro rata on the basis of periods of coverage relative to the time periods of leave to which such wages relate.  If an employer claims a credit under this section, the amount claimed would be included in gross income for tax purposes.  As such, the credit is not taken into account for purposes of determining any amount allowable as a payroll tax deduction, deduction for qualified sick leave wages, or deduction for health plan expenses.

Finally, this section grants authority to the Treasury Department to issue such regulations or guidance that is necessary to carry out the purpose of this provision, including: (1) to prevent the avoidance of the purposes of the limitations under this provision; (2) to minimize compliance and record-keeping burdens; (3) providing for waiver of penalties for failure to deposit amounts in anticipation of the allowance of the credit; (4) for recapturing the benefit of credits determined under this provision in cases where there is a subsequent adjustment to the credit; and (5) to ensure that the wages taken into account under this provision conform with the paid sick time required to be provided under the Emergency Paid Sick Leave Act. 

Payroll Tax Credit for Required Paid Family Leave (Section 7003)

The employer tax credit for the paid family leave is a credit against the OASDI tax for each calendar quarter, up to 100 percent of the qualified emergency family leave wages paid by the employer, subject to certain limitations.  The maximum amount of qualified family leave wages eligible for the credit is $200 per day, and $10,000 per employee; but the credit is not allowed with respect to any claimed unpaid leave.  As noted above, the first 10 days of emergency family leave may consist of unpaid leave, after which paid leave is required, up to a maximum of 10 weeks.

As with the credit for paid sick leave, the tax credit for family leave is increased by so much of the employer’s qualified health plan expenses as are properly allocable to the qualified family leave wages for which the credit is allowed. That is, the amounts paid or incurred by the employer to provide and maintain a group health plan, but only to the extent such amounts are excluded from the employee’s income as coverage under an accident or health plan.  While this provision leaves it up to the Treasury Department to determine the exact manner in which qualified health plan expenses are allocated to paid family leave under H.R. 6201, such allocations would be treated as properly made if they are made on the basis of being pro rata among covered employees and pro rata on the basis of periods of coverage relative to the time periods of leave to which such wages relate.  If an employer claims a credit under this section, the amount claimed would be included in gross income for tax purposes.  As such, the credit is not taken into account for purposes of determining any amount allowable as a payroll tax deduction, deduction for qualified family leave wages, or deduction for health plan expenses.

Finally, this section directs the Treasury Department to prescribe such regulations or other guidance as is necessary to carry out the purposes of the provision, including regulations or other guidance: (1) to prevent the avoidance of the purposes of the limitations under the provision; (2) to minimize compliance and record-keeping burdens; (3) providing for waiver of penalties for failure to deposit amounts in anticipation of the allowance of the credit; (4) for recapturing the benefit of credits determined under the provision in cases where there is a subsequent adjustment to the credit; and (5) to ensure that the wages taken into account under the provision conform with the paid family leave required to be provided under the Emergency Family and Medical Leave Expansion Act.

Credit for Sick and Family Leave for Certain Self-Employed Individuals

H.R. 6201 also contains two provisions that would apply the employer tax credits for paid sick and emergency family leave to certain self-employed individuals (including gig workers). A self-employed individual eligible for these credits is defined as an individual who regularly carries on any trade or business and would be entitled to receive paid emergency paid sick or family leave under H.R. 6201 if they were an employee of an employer that is otherwise subject to the requirements of the Act. 

With respect to paid sick leave, eligible individuals are allowed an income tax credit for any taxable year for a “qualified sick leave equivalent amount.”  The “qualified sick leave equivalent amount” is an amount equal to the number of days during the taxable year that the self-employed individual cannot perform services for which that individual would have been entitled to emergency paid sick leave if they were an employee.  This is calculated by multiplying the number of days by the lesser of two amounts:  (1) up to $511, depending on the reason the leave is taken under the Emergency Paid Sick Leave Act; or (2) up to 100 percent of the average daily self-employment income of the individual, again depending on the reason the leave is taken under the Emergency Paid Sick Leave Act.  The number of days taken into account in determining the qualified sick leave equivalent amount cannot exceed 10 days.  An additional rule provides that if an eligible self-employed individual receives qualified sick leave wages, the individual’s qualified sick leave equivalent amount is reduced to the extent that the sum of the qualified sick leave equivalent amount and the qualified sick leave wages received exceeds $2,000 (or $5,110), depending on the reason for which emergency paid sick leave is taken.

The family leave credit for self-employed individuals is an amount equal to the number of days, up to a maximum of 50 days, during the taxable year that the individual is taking leave in order to care for a minor child whose school or care provider is closed as a result of the coronavirus pandemic.  The amount of the credit is calculated by multiplying the number of days by the lesser of one of two amounts:  (1) 67 percent of the average daily self-employment income (equal to the individual’s net earnings from self-employment divided by 260) for that taxable year; or (2) $200.

These provisions also direct the Treasury Department to prescribe such regulations or other guidance as necessary, including to effectuate the purposes of this section and to minimize compliance and record-keeping burdens.

Notably, the only days that may be taken into account in determining the qualified sick leave equivalent amount or the qualified family leave equivalent amount are days occurring between a date selected by the Treasury Department that is within 15 days after enactment and December 31, 2020.

Special Rule Related to Tax on Employers

Section 7005 of H.R. 6201 provides that any wages or compensation required to be paid to employees by reason of the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act are not considered wages of the employer for purposes of FICA tax.  As a result, no federal employment taxes would be collected on such amounts from employers or employees to be contributed to the OASDI program. 

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