Congress passed the Families First Coronavirus Response Act (the “Act”) to help employers and workers to address the challenges of the COVID-19 Outbreak. Because circumstances have changed so quickly with the introduction of government-ordered shelter-in-place directives to workers and employers, it is not clear how well all of its parts function together. We will focus here on the issues most relevant to employers: the Emergency Family and Medical Leave Expansion Act, the Emergency Paid Sick Leave Act, and the Tax Credits for Qualified Paid Sick Leave and Qualified Paid Family and Medical Leave, and indicate our best judgment of how the courts and regulatory authorities are apt to reconcile the various provisions. With the exception of certain aspects that still require action by the Department of Labor and IRS, employers may implement these changes immediately and must put them into place no later than April 2, 2020.
Emergency Family and Medical Leave Expansion Act
What does it cover?
The Emergency Family and Medical Leave Expansion Act (“EFMLA”) temporarily amends and expands Family and Medical Leave Act of 1993 (“FMLA”) coverage to cover employees unable to work (or telework) as the result of a need to care for minor children due to school closures or the unavailability of the childcare provider due to COVID-19. It does not apply to employees laid off due to a business’ closure or reduction in force resulting from the COVID-19 crisis. It also does not apply to employees who are off work due to their own illness or to care for a family member who is ill with COVID-19, though both of those events may qualify for ordinary FMLA leave.
What employees are covered?
Any employee who worked for an employer for 30 days prior to leave qualifies for this expanded EFMLA coverage. Basic FMLA coverage – i.e., that not necessitated by the employee’s need to care for a child under the age of 18 due to school or day-care closure – remains available only for employees who have been employed by the employer for at least 12 months and have met the minimum hours requirement under the FMLA.
What employers are covered?
Although the original FMLA coverage still applies only to employees with 50 or more employees (with certain distance factors determining which employees are included), this expanded EFMLA coverage applies to any employer with less than 500 employees. The Secretary of Labor can exempt small businesses with less than 50 employees if required leave would jeopardize the viability of the business. No exemption or method for obtaining an exemption has issued yet. FMLA regulations apply a multi-factor “common control” group analysis in determining whether different employers must be aggregated for purposes of determining coverage. It is not presently clear whether that same analysis applies in determining coverage under the EFMLA, but presumably, it does. Additionally, the Secretary of Labor has the authority to issue regulations to exempt certain health care providers and emergency responders, though no such regulations have issued yet. Regardless, employers with employees who are “health care provider[s]” or “emergency responder[s]” may choose to exclude such employees from the EFMLA. The exact mechanism for doing so is not specified in the Family and Medical Leave Act.
What is the nature of the new EFMLA financial benefit?
The first 10 days of this EFMLA leave may be unpaid, though the employee can elect to substitute any accrued vacation leave, personal leave, medical leave, or sick leave for those first 10 days of unpaid leave. This appears to include the leave granted under the Emergency Paid Sick Leave Act – discussed below. After the initial 10-day period, the employer generally must pay employees at least 2/3rds of their regular rate of pay for the number of hours the employee would otherwise be normally scheduled. If the employee’s schedule varies from week to week, the 2/3rds pay calculation is based upon the average number of hours the employee was scheduled to work over the 6-month period immediately prior to taking the leave. This includes hours the employee took as leave during those 6-months. If the employee did not work for the employer for a full 6-months prior to taking leave, the employer must use the reasonable expectation of the employee at the time of hiring of the average number of hours per day that the employee would be normally scheduled to work. Total pay pursuant to the EFMLA cannot exceed $200 per day and $10,000 in the aggregate.
What is the impact of a shutdown on EFMLA Leave?
We believe that if your business closes today due to the Governor’s Executive Order or some other a shelter-in-place or quarantining event, the EFMLA leave (and associated pay) terminates because the employee no longer requires the leave to care for the child – they are laid off, just like all the other employees. Because these total shelter-in-place orders were not part of the mix when the EFMLA was passed, this issue is one to watch. However, our best understanding at present is as outlined here.
What other benefits are associated with the EFMLA?
As with any leave under the FMLA, there is generally a right to be restored to the employee’s prior position upon returning from an EFMLA leave. There are exceptions to that requirement that have been fleshed out in regulations and case law. The EFMLA adds a proviso for employers with less than 25 employees, permitting the employer to deny reinstatement if: (1) the employee took leave under the EFMLA; (2) the position held by the employee when the leave commenced no longer exists due to economic conditions or other changes in operating conditions of the employer that affect employment and are caused by a public health emergency during the period of leave; (3) the employer makes reasonable efforts to restore the employee to a position equivalent to the position the employee held when the leave commenced with equivalent employment benefits, pay, and other terms and conditions of employment; and (4) the employer contacts the employee if an equivalent position becomes available in the 1-year period beginning on the earlier of: (a) the date on which the qualifying need concludes; or (b) the date that is 12 weeks after the date on which the employee’s leave commences.
Emergency Paid Sick Leave Act
The Emergency Paid Sick Leave Act (the “Paid Sick Leave Act”) allows an eligible employee to take paid sick leave if the employee needs leave because the employee is:
- Subject to a federal, state or local quarantine or isolation order related to COVID-19;
- Advised by a health care provider to self-quarantine due to COVID-19 concerns;
- Experiencing COVID-19 symptoms and seeking medical diagnosis;
- Caring for an individual subject to a federal, state or local quarantine or isolation order or advised by a health care provider to self-quarantine due to COVID-19 concerns;
- Caring for the employee’s minor child if the child’s school or place of care is closed or the child’s care provider is unavailable due to public health emergency; or
- Experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
We believe that Governor Whitmer’s new Executive Order directing all workers to shelter-in-place is a “state . . quarantine or isolation order related to COVID-19.” But it is questionable whether the benefits of the Paid Sick Leave Act are available to the thousands of workers who are now out of work as a result of that Order. The Act appears to only provide benefits to employees who are “unable to work (or telework)” because of the “need for leave” because they are subject to the Order. The Order not only requires individuals to stay home (with a few exceptions) – a directive that certainly triggers the need for leave – but also and to the same extent prohibits employers from engaging in operations that require such employees to leave home. This latter aspect, in effect, will compel many employers to lay off those workers – a circumstance that obviates the employee’s need for “leave.” Since the Act need not be deemed in effect by employers until April 2, those workers who are laid off by employers before then as a result of the Order (or otherwise) are not eligible for the paid sick leave benefit. Could they be if the employer elects to adhere to the requirements of the Act before April 2? Maybe, but there is no clear indication that this is the case or that employers granting workers Paid Sick Leave Act benefits who are thrown out of work by the Executive Order will be eligible for the federal tax credits associated with the benefit. However, the CARES Act that has been before the Senate since last week contains certain forgivable loan provisions for small businesses that do not layoff their employees during this crisis. Whether those remain in the bill once passed and signed and, if so, in what form is obviously uncertain. We continue to monitor this issue.
The Paid Sick Leave Act requires employers with fewer than 500 employees to provide full-time employees with 80 hours of paid sick leave. Part-time employees are to receive paid sick leave equal to the number of hours that employee works on average over a 2-week period. Employees taking sick leave pursuant to the Paid Sick Leave Act for the qualifying reasons listed above in the first three bulleted paragraphs must be paid their regular rate of pay. Employees taking sick leave for the other qualifying reasons must be paid 2/3rds their regular rate of pay. The total mandated paid sick leave under the Paid Sick Leave Act is limited to $511 per day up to $5,110 total per employee for qualifying reasons related to their own care (the first three bullets) and to $200 per day up to $2,000 total for qualifying reasons related to care for others and any substantially similar condition (the other bulleted paragraphs).
At the employee’s request, a business employing fewer than 500 employees is required to pay a full-time employee for 80 hours of mandated emergency paid sick leave instead of the initial 10 days of unpaid leave permitted by the Family and Medical Leave Act.
An employee may first use the paid sick time provided under the Paid Sick Leave Act before other paid leave provided by the employer. This appears to include any paid sick leave mandated under Michigan’s Paid Medical Leave Act. The paid sick leave cannot carry over into the following year and maybe in addition to any paid sick leave currently provided by employers.
Employers cannot require an employee to be involved in the search for a replacement to cover their hours in order to use paid sick leave pursuant to the Paid Sick Leave Act. Paid sick leave is available for immediate use by employees for qualifying purposes regardless of how long they have worked for the employer.
Paid sick leave provided to an employee pursuant to the Paid Sick Leave Act ends beginning with the employee’s next scheduled work shift after the reason for the need for paid sick leave terminates. This means if the reason for an employee’s paid sick leave ends on the seventh day of leave, the employee is entitled to seven days of paid sick leave, not the full two weeks.
An employer must post a notice concerning employee rights under this Act in a conspicuous place where notices to employees are customarily posted. The Secretary of Labor will make publicly available a model notice within 7 days of the enactment of this Act. If a business is shut-down by the Executive Order, be sure to make the required posting as soon as it re-opens.
An employer is prohibited from discharging, disciplining, or otherwise discriminating against any employee who takes leave in accordance with this Act and has filed any complaint or instituted any proceeding under or related to this Act or has testified or is about to testify in any such proceeding. Violating this Act may result in liability pursuant to the FMLA resulting in substantial damages including but not limited to attorney fees.
Employers do not need to reimburse employees for any unused paid sick leave under this Act upon the employee’s termination, resignation, retirement, or other separation from employment. This Act expires on December 31, 2020.
Employers with employees who are “health care provider[s]” or “emergency responder[s]” may choose to exclude such employees from the Paid Sick Leave Act. The exact mechanism for doing so is not specified in the Paid Sick Leave Act.
Tax Credits for Paid Sick and Paid Family and Medical Leave
Employers who pay Qualified Sick Leave Wages are entitled to a payroll tax credit that can be claimed on a quarterly basis equal to 100% of the amount of Qualified Sick Leave Wages paid. The credit is limited to $511 per day if an employee is taking time off to care for themselves (items 1 through 3 noted above) or $200 per day if the sick leave is to care for someone else or for a substantially similar disease (items 4 through 6 above). The credit is refundable if it exceeds the amount the employer owes in payroll tax.
The Act provides that the aggregate number of days taken into account per calendar quarter may not exceed 10 over the aggregate number of days taken into account for all preceding calendar quarters. Additionally, employers only receive this tax credit for Qualified Sick Leave Wages paid on or after April 2, 2020.
The Act also provides a credit against an employer’s payroll taxes equal to 100% of the Qualified Family Leave Wages paid. The credit per employee may not exceed $200 per day or $10,000, in the aggregate. Similar to the credit for Qualified Sick Leave Wages, this credit is refundable if it exceeds the amount the employer owes for employment taxes.
Importantly, to prevent a double benefit, employers must increase their gross income for the taxable year by the amount of the payroll tax credit received. Any wages considered in determining the payroll credit cannot be used in determining the amount of credit under Internal Revenue Code Section 45S related to paid family and medical leave. Employers can choose to opt-out of the provisions of the Act related to tax credits.
The tax credit allowed to an employer under the Act is increased by the employer’s qualified health plan expenses that are “properly allocable” to the Qualified Family Leave Wages and Qualified Sick Leave Wages for which the tax credit is allowed. Specifically, qualified health plan expenses are amounts paid or incurred by an employer to provide and maintain a group health plan, but only to the extent that such amounts are excluded from the income of employees by reason of section 106(a) of the code.
Self-employed workers, including independent contractors, can also claim a credit against their regular income taxes related to leave taken pursuant to the Family and Medical Leave Act or the Paid Sick Leave Act. To qualify, the self-employed worker must regularly carry out a trade or business that is subject to the self-employment tax. Furthermore, the self-employed worker must show he or she would be entitled to receive Qualified Sick Leave Wages or Qualified Family Leave Wages if the individual was an employee. For Qualified Sick Leave, The credit is the lesser of $200 per day ($511 per day if the reason for the sick time is described in items 1 through 3 above) or 67% (100% if the reason for the sick leave is described in items 1 through 3 above) of the daily average self-employment income. No more than 10 days can be taken into account for this purpose. For Qualified Family Leave, the credit is limited to the lesser of $200 per day or 67% of the daily average self-employment income. No more than 50 days can be taken into account for this purpose. These credits are subject to double-benefit rules. The Department of Treasury will provide guidance on the type of documentation necessary to submit a claim for the credit.
Any wages paid by reason of the Emergency Paid Sick Leave Act or the Emergency Family and Medical Leave Expansion Act will not be considered “wages” or “compensation” for purposes of determining the employer’s FICA tax liability.
Rhoades McKee is continually monitoring legal developments related to COVID-19 and will keep you updated. In the meantime, should you have any questions about this Executive Order or other issues, please do not hesitate to contact a member of the Rhoades McKee COVID-19 Legal Response Team.