New Guidance Issued by the Department of Labor and Internal Revenue Service for Employers Regarding FFCRA Paid Leave and Available Tax Credits
March 23, 2020
Categories : Coronavirus
Types : Alerts
Importantly, the DOL revealed that it will observe a 30-day non-enforcement period. This gives covered employers, generally employers with fewer than 500 employees with some limited exceptions for employers with fewer than 50 employees (when the impact of the new law would jeopardize the viability of the business as a going concern) time to adapt to the FFCRA’s new paid leave provisions, so long as the employer “has acted reasonably and in good faith to comply with the Act.” Good faith means that any non-willful violations are remedied, an affected employee is made whole as soon as practicable, and the employer commits to future compliance to the DOL in writing.
After the non-enforcement period:
- Employers in violation of the FFCRA’s provision for 80 hours of paid sick leave for specified reasons related to COVID-19 (such as diagnosis or quarantine), will be subject to the penalties and enforcement provisions of the Fair Labor Standards Act (“FLSA”).
- Employers in violation of the FFCRA’s provision provisions for ten weeks of paid family leave to care for a child whose school or daycare is closed (“EFMLEA”) will be subject to the penalties and enforcement provisions of the Family and Medical Leave Act (“FMLA”).
The guidance also confirms that, when paid sick leave and emergency family and medical leave overlap, such as in a childcare situation, they run concurrently and not consecutively. For more information, check out our recent alert outlining the COVID-19 qualifying reasons for emergency family leave and paid sick leave.
The DOL indicated that it will issue FFCRA regulations in April.
On Friday, The U.S. Treasury Department, the Internal Revenue Service (“IRS”), and the DOL announced a plan (IR-2020-57) to implement the tax credits available to small and midsize employers administering paid sick leave and emergency family and medical leave under the FFCRA:
- Covered employers qualify for dollar-for-dollar (100%) reimbursement through tax credits for all qualifying wages paid under the FFCRA
- Qualifying wages are those paid to an employee who takes leave under the Act for a qualifying reason, up to the appropriate per diem and aggregate payment caps, for the period from April 2, 2020 through December 31, 2020.
- Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage
The IRS announcement provides that for employers to take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. Payroll taxes available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
“If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released [this] week.” The IRS indicated will also announce details for this new, expedited procedure this week.
Additionally, eligible self-employed individuals are allowed an income tax credit for any taxable year for a qualified sick leave equivalent amount.
If you have any questions or concerns about COVID-19 and its implications for your business and employees, Montgomery McCracken’s Labor and Employment, Employee Benefits and Executive Compensation, and Tax attorneys are available to assist. Montgomery. Montgomery McCracken’s COVID-19 Resource Center is available here.