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DOL and IRS Issue Guidance and Temporary Rule on Paid Leave Under New COVID-19 Legislation

April 3, 2020


On April, 1, 2020, the U.S. Department of Labor Wage and Hour Division (“WHD”) posted a temporary rule issuing regulations implementing the Families First Coronavirus Response Act (“FFCRA”). This Rule provides timely guidance to employers on how to implement and calculate the new FFCRA paid leave entitlements. The Rule is effective from April 1, 2020 through December 31, 2020. The WHD also announced that it will post a recorded webinar on its website, “to provide interested parties a more in-depth description and help them learn more about the FFCRA.”

This week, the IRS also released further guidance and FAQs regarding refundable tax credits for small and midsize employers who pay qualified sick leave wages and qualified family leave wages under the FFCRA between April 1, 2020 and December 31, 2020. This article summarizes the key points that employers need to know from the latest WHD and IRS guidance.

New Guidance on the Emergency Paid Sick Leave Act (“EPSLA”)

The Rule reiterates much of the information covered in its FAQs and other publications, such as which employers are covered (private-sector employers with fewer than 500 employees and public employers), which employees should be included in the calculation (all full-time and part-time employees, employees on leave, temporary employees who are jointly employed by the employer and another employer, and temporary workers from staffing or placement agencies), and the exemption available to employers with fewer than 50 employees when providing the paid leave would “jeopardize the viability of the business as a going concern.” The Rule provides additional guidance on a number of issues related to the leave entitlements.

Critically, the Rule clarifies that an employee only qualifies for paid sick leave if the employee is unable to work or telework due to one of the six reasons related to COVID-19 outlined in the FFCRA. This guidance reminds employers to fully evaluate whether employees can perform any of their job duties remotely or from home during the current pandemic. The Rule defines “teleworking” as:

work the Employer permits or allows an Employee to perform while the Employee is at home or at a location other than the Employee’s normal workplace. An Employee is able to Telework if: His or her Employer has work for the Employee; the Employer permits the Employee to work from the Employee’s location; and there are no extenuating circumstances (such as serious COVID-19 symptoms) that prevent the Employee from performing that work. Telework may be performed during normal hours or at other times agreed by the Employer and Employee.

The Rule also defines a part-time employee as an employee who is normally scheduled to work fewer than 40 hours each workweek or—if the employee lacks a normal weekly schedule—who is scheduled to work, on average, fewer than 40 hours each workweek.

Additionally, the Rule directs that for variable hour employees, an employer should use the average number of hours that the employee was scheduled per day over a 6-month period ending on the date on which the employee takes the paid sick time. The WHD further clarifies that part-time employees whose weekly schedule varies should be compensated with paid sick leave equal to fourteen times the number of hours that the employee was scheduled per calendar day averaged over the six-month period.

Finally, the Rule directs that an employee must provide his or her employer documentation in support of paid sick leave or expanded family and medical leave showing: (1) the employee’s name; (2) the date(s) for which leave is requested; (3) the COVID-19 qualifying reason for leave; and (4) a statement representing that the employee is unable to work or telework because of the COVID-19 qualifying reason. If the leave request is based on a quarantine order or self-quarantine advice, the statement should include the name of the governmental entity or the name of the health care professional advising self-quarantine. If the person subject to quarantine or advised to self-quarantine is not the employee, the statement should include that person’s name and relation to the employee.

New Guidance on the Emergency Family and Medical Leave Expansion Act

The Rule largely confirms prior guidance on the EMFLEA, such as that it applies to private employers with less than 500 employees and certain public agencies. The Rule defines these public agencies as the government of the United States or a State, all federal agencies, political subdivisions of a State, and any interstate governmental agency. Only employers of employees covered by Title I of the FMLA are subject to the requirements of the EFMLEA, not those subject to Title II.

As with the EPSLA, only employees who are unable to work or telework due to the qualifying reason are eligible for the expanded leave. The same definition of telework applies to the EMFLEA, which needs to be evaluated for each individual employee’s leave eligibility.

The Rule also provides additional clarity regarding the availability of intermittent leave under the EFMELA, indicating it may only be taken by clear agreement. It is recommended – but not required – that employers and employees have a written understanding of any agreed upon intermittent leave, including specific days and times if applicable. For example, if an employee can telework two days per week, but due to childcare issues relating to COVID-19, cannot telework the other three days per week, then intermittent leave is available for the time during which an employee cannot telework. When no telework is available, the WHD advises that “employees who continue to report to an employer’s worksite may only take paid sick leave or expanded family and medical leave intermittently and in any increment—subject to the employer and employee’s agreement—in circumstances where there is a minimal risk that the employee will spread COVID-19 to other employees at an employer’s worksite.” The Rule further clarifies that only the amount of leave actually taken during an intermittent leave may be counted toward the employee’s total leave entitlements.

IRS Guidance on Tax Credits for FFCRA Paid Leave

On March 30, 2020, the IRS confirmed that covered private employers who are required to provide paid leave under the EPSLA or EFMLEA qualify for reimbursement through refundable tax credits for qualified leave wages. The U.S. government, state governments, or any political subdivision, agency or instrumentality cannot claim either tax credit. The IRS directs that employers should substantiate eligibility for tax credits for qualified leave wages by collecting the records described above from employees taking leave.

The new sick leave credit per employee is limited to the amount of paid leave under the EPSLA and EFMLEA–$511 per day for a maximum of 10 days if the employee is taking sick leave to care for themselves and $200 per day for a maximum of 10 days if the employee is taking sick leave to care for a family member or child when the child’s school or daycare is closed. Likewise, the qualified family leave wages per employee for which a credit may be claimed for a quarter cannot exceed $200 per day and $10,000 in the aggregate. These tax credits cannot exceed the employer’s Social Security and Medicare tax liability for the quarter, but an employer may claim a refund under for amounts exceeding this limitation.

The IRS is allowing employers to seek advance credits through filing the Form 7200. To claim tax credits, the IRS advises employers to maintain the following documentation for four years:

  1. Documentation to show how the Employer determined the amount of paid sick leave and expanded family and medical leave paid to Employees that are eligible for the credit, including records of work, Telework and Paid Sick Leave and Expanded Family and Medical Leave;
  2. Documentation to show how the Employer determined the amount of qualified health plan expenses that the Employer allocated to wages;
  3. Copies of any completed IRS Forms 7200 that the Employer submitted to the IRS;
  4. Copies of the completed IRS Forms 941 that the Employer submitted to the IRS or, for Employers that use third party payers to meet their employment tax obligations, records of information provided to the third-party payer regarding the Employer’s entitlement to the credit claimed on IRS Form 941,

Employers evaluating how to implement the FFCRA should seek counsel from an employment lawyer. Montgomery McCracken’s Labor and Employment attorneys are available to consult with and advise businesses of any size on how these new regulations may affect them and their employees. Visit the firm’s Coronavirus (COVID-19) Resource Center for more information and updates on this constantly evolving situation.