Attention Employers with Less than 500 Employees: Your Questions Answered re "Families First Coronavirus Response Act"

As we blogged about here, President Trump signed into law the Families First Coronavirus Response Act (the Act). The new law requires small employers with fewer than 500 employees to provide certain paid-leave benefits to employees who are negatively affected by the novel coronavirus emergency. Applicable employers are given new tax credits and federal payroll-tax relief to pay for the new mandatory benefits.

Here are answers to frequently asked questions we are receiving from employers with fewer than 500 employees:

Can my employees take Paid Sick Leave and Paid FMLA Leave if I am allowing them to work-from-home?

The Act requires that applicable employers provide emergency Paid Sick Leave and partially paid FMLA leave to eligible employees who cannot work or telework due to a covered reason (see below). If the employee tells the employer they cannot work from home due to a covered reason (described below), the employer will likely have to take the employee's word for it. We are awaiting additional guidance from the Department of Labor (DOL) about what proof employers can require.

How much could the Paid Sick Leave and Partially Paid Expanded FMLA Leave cost my business?

The employer's worst case scenario is $15,110 per employee who qualifies for the maximum amount of paid leave under the new provisions. Employees are able to utilize any available employer-provided PTO (Vacation, Sick, etc.) in addition to the paid leave under the Act.

Paid Sick Leave is limited to $511 per day for up to 10 days (up to $5,110 in total per employee) for an eligible employee: (1) in COVID-19 quarantine (i.e., employee is ill with COVID-19 or advised to quarantine due to COVID-19) or (2) actively seeking a COVID-19 diagnosis. Paid Sick Leave is limited to $200 per day for up to 10 days (up to $2,000 in total per employee) to care for a quarantined family member, to care for a child whose school or child-care location has been closed due to the pandemic, or because the employee is experiencing any other "substantially similar condition," which will be defined by the anticipated Rules.

The Act also expands the Family and Medical Leave Act (FMLA) to provide job-protected, partially paid leave to employees "unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency." In this circumstance, the employer must pay 2/3 of the employee's usual pay, up to a maximum of $200 per day, subject to an overall per-employee maximum of $10,000 total per employee.

Can I suspend PTO/Vacation accrual during the COVID-19 emergency?

In general, yes. Unlike the original House bill, the final version of the Act does not prohibit employers from changing their PTO/Vacation policies and accruals on a go-forward basis. Any policy changes will need to be provided to employees in writing. Please note that applicable state and local sick leave laws will still require sick leave accrual during the COVID-19 emergency.

How do I obtain the tax credits for providing Paid Sick Leave and Partially Paid Expanded FMLA Leave to my employees?

The Act grants a new tax credit to employers with less than 500 employees to cover the now-required payments to employees who take time off under the new law's emergency sick-leave and family-leave provisions. A small employer can collect a tax credit equal to 100% of qualified emergency sick-leave and family-leave payments made by the employer pursuant to the Act. This tax credits will be available beginning in Q2 2020 (since the effective date of the Act is April 2, 2020) and ending December 31, 2020.

The new credit is first used to offset the Social Security tax component of the employer's federal payroll-tax bill. Any excess credit is refundable, meaning the government will issue a payment to the employer for the excess. Please note: The credit is not available to employers that are already receiving the pre-existing credit for paid family and medical leave under Internal Revenue Code Section 45S.

Do I continue group benefits during Paid Sick Leave and Expanded FMLA Leave?

Yes. Employers should deduct the employee-portion of benefits premiums from Paid Sick Leave and Paid FMLA Leave pay.

How long can I allow employees to remain on group benefits while on unpaid, non-protected leave or furlough?

Speak with your insurance broker regarding the time period your company is permitted or required to continue group health benefits during an unpaid, non-protected leave, including a furlough. If providing group benefits to employees on unpaid leave or furlough, you must-after receiving appropriate guidance from your broker and carriers-provide clear instructions to employees regarding: (1) how to self-pay the employee-portion of benefits premiums, (2) how long the employee on unpaid leave or furlough can continue on group benefits while self-paying the employee-portion, and (3) the consequences of failure to self-pay the employee portion once the premiums are 30 days late.

Do I get a tax credit for the employer's qualified health-plan expenses allocable to emergency Sick Leave and FMLA wages?

The tax credit is increased to cover a portion of an employer's qualified health-plan expenses that are allocable to emergency Sick Leave and FMLA wages.

Do I take normal deductions from Sick Leave and FMLA wages?

Sick Leave and FMLA payments mandated by the Act are exempt from the 6.2% Social Security tax component of the employer's federal payroll tax that normally applies to wages. Employers must pay the 1.45% Medicare tax component of the federal payroll tax, but they can claim a credit for that outlay.

Am I allowed to terminate employees during the COVID-19 emergency?

Employers can still terminate employees due to lack of work and for other legitimate, nondiscriminatory reasons. However, go slowly because many of your employees may fall into protected categories under traditional FMLA (i.e., sick or family member sick with a serious medical condition), various sick leave and state leave entitlement laws, and the expanded FMLA protections for employees who cannot work due to school closures. The Act contains strict anti-discrimination and anti-retaliation provisions. If you are implementing a furlough or layoff, please consult with your attorney to ensure compliance with all applicable laws.

I must reduce my workforce during the COVID-19 emergency. Should I layoff or furlough?

This is the most difficult question to answer. In lawyer speak: it depends.

Furlough.

A furlough is a leave of absence due to lack of work.
The impacted individuals remain employed and available to return to work.
A furlough is generally considered more employee-friendly because many furloughed employees will be able to continue group benefits plans for at least some period of time so long as: (1) the plan documents allow it (speak with your broker!), and (2) the employees self-pay the employee-portion of benefits.
Furloughed employees are able to apply for Unemployment Insurance (UI) Benefits.
It is unclear from the Act whether employees who are already furloughed will be able to seek Paid Sick Leave and Partially Paid expanded FMLA leave from their employer. In general, if someone is furloughed and has already applied for (or is already receiving) UI Benefits, that individual will not be able to "double dip" by also seeking Paid Sick Leave and Partially Paid FMLA leave from the employer. Stay tuned for more information on this topic once the Act's rules are published by the DOL.

Layoff.

A layoff is a termination of employment.
The terminated individuals will not necessarily be available when/if the employer would like to rehire.
The terminated individuals will be able to apply for UI Benefits.
Many employers will be required to pay out PTO/Vacation with final pay to laid off individuals.
Group layoffs trigger the federal WARN Act when 50+ employees are terminated at a single site with no expectation of reinstatement within 6 months. Certain state mini-WARN Acts (e.g., NY) are triggered when 25 employees are laid off at a single site with no expectation of reinstatement within 6 months. (*Note that a furlough can also trigger WARN and mini-WARN requirements if the furlough extends 6 months or more).
Under almost all group benefits plans, termination of employment will result in termination of the employee's group benefits plans (generally at the end of the month of termination; COBRA rights apply).
Layoffs can unwittingly trigger ERISA severance pay requirements for many employers with a past "practice" of providing severance pay to laid off workers.