by Trent Krassow

COVID-19 has upended a lot of what we used to call normal, and in addition to the new normal of sheltering in place and social distancing, the Federal government has also passed recent Coronavirus legislation creating new normal for payroll, employer responsibilities, and paid time off for employees. The Families First Coronavirus Response Act (HR 6201), which along with allocating funds for various nutrition and aid programs, also creates new obligations for small employers with respect to paid leave.

The provisions of this law specifically create paid leave obligations for employers with fewer than 500 employees. While there are exemptions available for really small employers (less than 25 employees), those exemptions are by application and not automatic, so we should start with the assumption that all small employers should plan to comply with these new provisions.

Beginning April 1 and through the end of 2020, and subject to a few exceptions and limitations as described below, employers with fewer than 500 employees must provide:

1.      80 hours of paid leave for employees directly impacted by Coronavirus (defined below)

2.      80 hours of paid leave for employees caring for others so impacted

3.      Up to 12 weeks of leave, 10 of which are to be paid, for employees unable to work (or telework) due to a lack of child care or because of school closings related to Coronavirus

In exchange for the “must provide” by small businesses, the government will then provide funding for this leave through payroll tax credits. Of course, as with anything from the Federal government, there are exceptions, limitations, and rules to follow, so we’ll unpack how this works. First, let’s determine who is impacted by Coronavirus:

An employee who is unable to work or telework due to an order of quarantine or self-quarantine due to Coronavirus, or somebody who exhibits symptoms and is seeking a diagnosis, or somebody responsible for another person meeting this description.

There are three different types of leave, and three different requirements for payment:

1.      An employee who is themselves sick with coronavirus as described above and is unable to work or telework, as a result, must be given two weeks or 80 hours of paid leave at their normal rate of pay, up to $511/day for a total of $5110.

2.      An employee who is unable to work or telework due to caring for another person subject to quarantine or a person who must care for a child due to school closings and/or lack of available child care specifically due to coronavirus must be given two weeks or 80 hours of pay at 2/3 their normal pay rate, up to $200/day or $2000 in total.

3.      Separate from number two above, an employee who is unable to work or telework due to the need to care for a child whose school has been closed or whose child care is unavailable due to coronavirus must be provided with 10 weeks of pay at 2/3 the normal pay rate, up to $200/day for a maximum of $10,000. A total of 12 weeks of such leave must be provided, the first two of which can be unpaid.

At first glance, it looks like item three is really just an extension of item two, and in some ways, this is the case. However, it is important to note that these provisions may apply to separate situations. For example, suppose that an employee takes off two weeks to care for a parent who is isolated due to Coronavirus. Such an employee could also take 10 weeks off to care for a child whose school has closed. Alternatively, the employee could take 12 weeks of leave without fear of losing their job, with the first two unpaid. In all cases, the employer cannot require the employee to use other sick time, leave, or other PTO ahead of the Coronavirus specific leave – this is in addition to any leave normally provided by the employer.

So how does the government reimburse such expenses to an employer? Through refundable payroll tax credits. As an employer, you are accustomed to withholding both income taxes and payroll taxes (Social Security and Medicare) from your employees’ paychecks, and then matching the Social Security and Medicare portions from company funds. You then remit those to the Federal government at the frequency designated by your total payroll.

Under the new law, you will be able to retain some of those taxes rather than paying them to the government as a means of being reimbursed for the leave expense. If what you retain is not sufficient to cover these costs, you will be able to apply for a refund when you file your 941 quarterly reports for the quarter in which the leave was paid.

Confused? Let’s look at a few examples:

1.      Sally, who works for ABC, Inc, gets sick and tests positive for coronavirus. She takes a full two weeks off of work due to being unable to even work remotely while sick. She normally makes $24/hour, so ABC pays her for 80 hours of leave for a total of $1920. ABC withholds taxes from all of its employees during that in the amount of $11,500. When the company goes to pay this to the government, it will be able to hold back $1920 to cover the cost of Sally’s coronavirus leave, so it will only pay $9580 for that period.

2.      Same as above, but this time, John, also an employee of ABC, needs to take 10 weeks off to care for his children, whose school closed for the rest of the school year due to coronavirus. Due to the nature of John’s work, it is impossible for him to work remotely. Amy, also an employee of ABC, has a similar situation to John, and also takes ten weeks’ leave. They both hit the maximum of $10,000, which is added to the cost of Sally’s $1920 for a total leave cost to ABC of $21,920, above the amount the company would have paid in taxes of $11,500. They retain the $11,500 and apply for a refund of the difference of $10,420.

A few notes on this:

1.      Very small employers (less than 25 employees) can apply for an exemption with the Department of Labor but must demonstrate that complying with the law would create an undue hardship such that it would threaten the viability of the company to continue in operation.

2.      Employers above 25 employees must reinstate the employee after the leave period.

3.      Employers below 25 employees are not required to reinstate.

4.      Employees cannot be required to find their own replacements.

5.      Provisions go into effect April 1, 2020, and extend through the end of 2020.

All affected employers must conspicuously post a Department of Labor approved poster for employees to see, or otherwise notify employees if already working remotely.