COVID-19 Update #2 - Families First Coronavirus Response Act - Mandated Paid Sick Leave

On March 18, President Trump signed into law the Families First Coronavirus Response Act (the Act, PL 116-127), which eased the compliance burden on businesses desiring to maintain employees in the wake of an inability to continue normal operations.  The Act includes several tax credits and a tax exemption that may be applicable to nonprofit organizations as well as for-profit organizations.   Since tax credits and employment obligations are combined into the legislation, it is difficult to determine how they stand alone and how they interplay with each other.  The goal of this post, and future posts, is to start sorting through the legislation creating understandable guidance specific to nonprofit organizations and churches. 

Note:  The following provisions are effective for wages paid starting April 1, 2020

Required Sick Leave 

Applicable Employers:  The Act act applies to private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons.  (An administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy may be claimed.  However, at this time there is no guidance on how this administrative exemption may be claimed or determined.) Applicable employers include nonprofits and churches.  Therefore, if your nonprofit organization or church employees more than 50 people, full-time or part-time, this law applies to you.  If you have less than 50 full-time and part-time employees, the law may apply to you unless you claim that adhering to the law will place your church or ministry in jeopardy.  Failure to comply with the required paid sick leave provisions is a violation of the Fair Labor Standards Act (FLSA) and subjects the offending employer to the penalties.

To assist in the analysis, the sick leave provisions have been split into two categories.

Required Sick Leave Category 1:  Employers are required to provide up to 80 hours of paid sick time to qualifying employees (see below for nuances applicable to churches) their regular rate of pay, not to exceed $511 per day ($5,110 overall limit).  The provision applies to employees are unable to work, or telework for the following reasons.  

1. the employee is subject to a Federal, State or local quarantine or isolation order related to COVID-19;
2. the employee's health care provided has advised them to self-quarantine; or 
3. the employee is experiencing symptoms of COVID-19 and seeking medical assistance. 

Required Sick Leave Category 2:  Employers are required to provide up to 80 hours of paid sick time to qualifying employees (see below for nuances applicable to churches) their regular rate of pay, not to exceed $200 per day ($2,000 overall limit).  The provision applies to employees who  are unable to work, or telework for the following reasons.  

1. the employee is caring for an individual who is subject to a Federal, State or local quarantine or isolation order or has been advised to self-quarantine; 
2. the employee is caring for a son or a daughter, if the school or the child-care provider has been closed or become unavailable due to COVID-19 (this is a fairly restrictive category and does not include grandchildren); or
3. the employee is affected by COVID-19 in some way specified by the Secretary of Health & Human Services in consultation with the Department of Labor (best interpretation: if the federal government comes up with another reason to let this provision apply, it may do so).

Nuances Applicable to Churches:  The definition of an employee for the above provisions is based on the definition of an employee for FLSA.  The courts have ruled that the FLSA does not apply to employees qualifying for the ministerial exception.  Therefore, a case may be made that the above mandated leave requirements do no apply to any church employees meeting the ministerial exception.  

Notice Requirements:  The law requires each employer to post a notice in a conspicuous place available to employees.  The DOL has issued a model notice that applies to both the sick leave discussed above and the additions to the Family Medical Leave Act to be discussed in a separate blog.  The model notice may be located at https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf

Benefits to the Employer

Available Credit Against Payroll Taxes:  Coupled with the above mandated sick leave requirements, Congress has granted a corresponding tax credit based on the above wages payments. The credit is based on:

1. Wages paid due to the required sick leave provisions.  Wages taken into account cannot exceed the above described wage limits of $511/$5,110 and $200/$2,000 per-employee.  (In the event an employer continues an employee's regular pay rate in excess of these limits, the excess is not eligible for the credit.) Warning for churches and religious organizations:  The definition of wages, for purposes of this credit, is defined by IRC Section 3121(a).  Wages paid to ministers and wages paid to employees of a church electing out of the FICA/Medicare program are not eligible wages; 
2. The amount of certain expenses incurred in connection with a qualified health plan if the expenses are excluded from employee income and are allocated to the employees' required sick leave wages; and 
3. The employer's portion of the Medicare tax paid on the applicable wages.

The credit is applied to the employer's share of OASDI taxes (Social Security tax of 6.2%) with any excess credit being refundable.  At this time, it is anticipated that the credit will be allowed on the Form 941.  However, in order to allow immediate access to the funds, the IRS has indicated that an employer may determine the amount of the credit and apply it against the employer's required payroll tax deposit for all taxes. 

Additionally, any wages paid as a result of required paid sick leave are not wages for purposes of the calculation of the OASDI taxes (Social Security tax of 6.2%).  

Practical Application:  Employers must determine the employees that may qualify for the required leave and discuss the arrangements with them.  Remember, the provisions don't apply if the employee is still performing services for the employer.  When the applicable wages are paid, the employer will need to be able to delineate these wages from any other wages paid.  As the wages are paid, a tentative calculation of the credit should be determined to allow for a proper reduction in payroll tax deposits.  

As originally stated, the required paid sick leave becomes available for applicable wages paid between April 1, 2020 and December 31, 2020. 

Please be aware that guidance is being issued on a regular basis and may provide further clarification on the above information.  FAQs from the DOL are available at https://www.dol.gov/agencies/whd/pandemic/ffcra-questions. 
Other provisions of the legislation will be covered in other blog posts.