Congress has passed and the President has signed the first of several bills to come, covering the Federal Government’s response to the COVID-19 emergency. The law, which has an effective date of no later than 15 days from its signature (April 3) and expires December 31, 2020, contains the following three areas that most directly impact employees and their employers. A brief summary of the law is below, but there are many details and unanswered questions that need to be addressed as the law is rolled out.
The provisions apply to all Covered Employers, defined as private sector employers with fewer than 500 workers as well as to governmental agencies.
Emergency Sick Leave
Covered Employers will have to provide employees who cannot work (on site or remotely) with paid sick time off (as described below) if an employee falls into one of the following categories:
Full time employees are to receive 80 hours of sick leave and part timers are to receive leave equivalent to their average number of hours worked in a two-week period. This leave must be made available for immediate use regardless of the employee’s tenure with the employer.
Workers taking leave in the first three categories will have to be paid their normal wages or the applicable minimum wage, whichever is greater and is capped at $511 per day and $5,110 in total. Workers taking time off for family reasons (the fourth through sixth categories) must receive two thirds of their wages or minimum wage, and is capped at $200 per day and $2,000 in total.
Emergency Family Leave
Covered Employers must allow up to 12 weeks of Family Medical Leave Act leave for any employee who has been with the employer for at least 30 days and are unable to work because their minor child’s school or place of care has been closed or the regular child care provider is not available due to coronavirus precautions.
The first two weeks of such leave can be unpaid (although an employee could opt to use PTO). After that time, the employee will receive at least two thirds of their wages, with the daily benefit after that capped at $200 per day and $10,000 in total.
Generally speaking, the employee on leave must be restored to his or her prior position; however, this requirement does not apply to employers with fewer than 25 employees if the position held by the employee on leave no longer exists due to economic conditions or other changes in the employer’s operating conditions caused by the coronavirus pandemic, and the employer makes reasonable efforts to restore the employee to an equivalent position.
Employees under a collective bargaining agreement and whose employers pay into a pension plan are eligible for the paid emergency leave.
The Labor Department will issue regulations excluding certain healthcare providers and first responders and employers who have less than 50 workers, if these requirements would jeopardize the viability of the business as a going concern.
Employer Tax Credit Provisions
Wages paid under either of these leave requirements will not be subject to the 6.2% social security payroll tax paid by employers. The law is silent on the Medicare tax so it will continue to be imposed.
For sick leave wages, the credit is limited to $511 per day if the employee is on leave for categories one to three above and limited to $200 per day for leave under categories four through six above. The credit is limited to 10 days of wages.
For family leave wages, a separate credit limitation applies and the limitation is $200 per day, up to an aggregate of $10,000.
For self-employed people, the credit is allowed against regular income tax. The limit on sick leave is determine by multiplying the number of days (subject to limitation) that a self-employed person is unable to perform services under categories one to three above, by the lesser of 100% of their average daily self-employment income or $511. The limitation is reduced to the lesser of 67% of their average daily self-employment income or $200, if they can’t render services under categories four through six above. There is a similar credit computation for family leave, wherein the number of days (limited to 50) that a self-employed person is unable to perform services is multiplied by the lesser of 67% of their average daily self-employment income or $200.
Employers will receive refundable credits against their Social Security Tax liability to cover wages paid to employees under both these programs.
Any credits granted in this program will be treated as taxable income to avoid a double tax benefit since the payment of the wages is a deductible expense.
We will continue to monitor the ever changing landscape caused by the virus and will keep you up to date. As always, reach out to your Citrin Cooperman advisor if you have questions.