On March 20, 2020, the U.S. Department of Labor announced the Families First Coronavirus Response Act (FFCRA). This act requires some employers to provide paid sick leave or paid family and medical leave to employees, and is meant to help close the gap for employees who wouldn’t have paid sick leave otherwise. For employers who are required to give this paid leave, the IRS will provide payroll tax incentives to fully cover the cost.
Here’s how it works.
What is the Families First Coronavirus Response Act (FFCRA)?
The FFCRA is an act that covers paid sick leave and expanded family and medical leave for employees as well as provides reimbursement for the costs to employers, amongst other provisions. This blog post will cover how this will impact paid sick leave for employees and reimbursement for employers. This act requires that qualified employers give employees up to two weeks of paid sick leave and give employees that need to take care of a family member up to 12 weeks of family medical leave for reasons related to COVID-19. This requirement applies to leave requests that take place between April 1, 2020, and December 31, 2020. Square Payroll enables employers to process FFCRA leave and will automatically apply a portion of the FFCRA tax credit when the “Emergency Leave Pay” run is processed.
Who is a qualified employer?
All businesses with fewer than 500 employees need to comply with the FFCRA. These employers will be reimbursed for the sick leave and family and medical leave that they provide.
Are any employers exempt?
If you have fewer than 50 employees and providing paid sick leave or extended family medical leave to an employee would jeopardize your business financially, you can apply for an exemption.
You’ll need to document the reasons why providing paid leave would jeopardize your business. The Department of Labor hasn’t released any information on how to apply for this exemption yet, but has stated that guidance is forthcoming.
Who is a qualified employee?
Employees qualify to receive paid leave under the Act if:
- They’re subject to a federal, state, or local quarantine or isolation order related to COVID-19.
- They’ve been advised by a healthcare provider to self-quarantine related to COVID-19.
- They’re experiencing COVID-19 symptoms and are waiting on a diagnosis.
- They’re caring for someone who is subject to reasons 1 or 2.
- They’re caring for a child whose school, summer camp, or care facility is closed for reasons related to COVID-19.
- They’re experiencing similar conditions that have been specified by the U.S. Department of Health and Human Services.
How much paid leave are employees entitled to?
This depends on the reason the employee is out (reference the list above).
For reasons 1–4 and 6, a full-time employee can receive up to 80 hours, or two weeks, of paid sick leave. For part-time employees, the number of hours should be based on the average number of hours the employee typically works over a two-week period.
For reason 5, full-time employees can receive up to 12 weeks of paid leave. For part-time employees, the number of hours should be based on the average number of hours the employee typically works over a 12-week period.
How much will they get paid?
This also depends on the reason the employee is taking leave (reference the list above again).
For reasons 1, 2, or 3, an employee will be paid their regular rate of pay or the minimum wage for their local jurisdiction, whichever is higher. The maximum is $511 per day and a total of $5,110 (over the two-week period).
For reasons 4 or 6, an employee will be paid two-thirds of their regular pay or two-thirds of minimum wage for their local jurisdiction, whichever is higher. The maximum is $200 per day and a total of $2,000 (over the two-week period).
For reason 5, an employee will be paid two-thirds of their regular pay or two-thirds of minimum wage for their local jurisdiction, whichever is higher. The maximum is $200 per day and a total of $12,000 (over a 12-week period).
How will employers be reimbursed for the paid leave they provide?
Providing this leave can be difficult for small businesses. To provide relief to employers, the U.S. government is allowing employers to hold on to the money they would have paid in payroll taxes to the IRS. They will then use those funds to pay for paid sick and family medical leave for their employees. Square Payroll makes it easy to provide leave and also get your tax credits back. A portion of the FFCRA tax credit is automatically applied when the “Emergency Leave Pay” run is processed. The remaining amount will be credited back to you after Form 941 is reconciled by the IRS (typically 6 - 10 weeks after the end of the quarter).
If the amount doesn’t cover the sick leave you need to pay, you’ll need to file a request for an accelerated payment from the IRS. To do this you’d file the Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Here’s an example of how this works if the amount you pay in sick leave doesn’t exceed what you owe in payroll taxes.
A qualified employer paid $5,000 in sick leave and owes $8,000 in payroll taxes to the IRS. The employer would use $5,000 of the $8,000 to pay for sick leave. Then the employer would only owe the IRS $3,000 in payroll taxes.
Here’s an example of how this works if the amount you pay in sick leave does exceed what you owe in payroll taxes.
A qualified employer paid $10,000 in sick leave and owes $8,000 in payroll taxes to the IRS. The employer would use the $8,000 they owe in taxes to pay for sick leave. They would then file a request for accelerated payment from the IRS for the remaining $2,000. The IRS expects to process these requests in two weeks or less.
There are more changes coming from the Federal Government as well as the state and local level. To stay up to date with regulatory changes in your area, check out this blog post. To get more guidance and tools to support your small business during this time, check here for support.