President Trump signed an emergency relief act into law on March 18. The law contains new paid sick leave provisions for businesses with fewer than 500 employees. The Families First Coronavirus Response Act contains significant paid sick leave provisions for employees of small businesses that have been impacted by the coronavirus (COVID-19) outbreak. There are many questions about how it impacts small businesses and their employers. The law provides leave for employees of small and mid-size businesses with fewer than 500 employees. The employee must have been employed for at least 30 days prior to taking the leave in order to qualify.
Independent contractors and people who are self-employed also get these benefits in the form of a tax credit. People who are self-employed but work for another employer — e.g. Lyft and Uber drivers, caterers or event planners — are eligible for a tax credit of up to two weeks of sick pay at their average pay and 12 weeks of family leave pay at two-thirds their normal rate.
Part-time workers will be paid based on the amount they typically earn in a two-week period, and subject to the daily caps put in place for sick and family leave.
The law gives the U.S. Labor Secretary the ability to exempt businesses with fewer than 50 employees if they can show providing the leave would put them out of business, as well as businesses that are providing services at the forefront of the crisis such as first responders, nursing homes and hospitals.
It also provides two weeks paid leave for workers who are sick, quarantined, or attempting to get preventive care or diagnosis for the coronavirus. It also covers the worker if he or she is providing care for sick family members.
In addition, it provides 12 weeks of paid leave to employees who need to care for children because schools or childcare facilities are closed due to the virus. However, the law stipulates that the employee must be in a situation where they are unable to work or “telework.”
The new law grants two weeks of paid sick leave at 100 percent of the person’s normal salary, up to $511 per day. It would also provide up to 12 weeks of paid family and medical leave at 67 percent of the person’s normal pay, up to $200 per day. This includes employees who take the paid leave to care for family.
These workers must show they had to comply with a self-isolation recommendation or that they had to care for a child whose school closed due to the coronavirus. Their benefit is capped at $511 per day for paid sick leave and $200 for family leave (or the average daily income the person usually receives if it is less than those amounts).
According to the Center on Budget and Policy Priorities paid sick leave would fully compensate employees earning up to about $130,000 a year for that two-week period, and paid family and medical leave would fully compensate employees earning up to about $75,000 a year for the three-month period,
How are employers going to be compensated for the leave?
Businesses will be paid back in the form of a payroll tax credit within the tax period, which is the calendar quarter. If the amount the employer pays workers for the leave exceeds the amount the employer owes in taxes, they can request a refund any excess credit.
Many small-business owners may be expressing concern about how to pay for these benefits, especially at a time when business across numerous industries has stalled.
The bill provides a tax credit to cover the costs. The credit is applied to the tax the company or nonprofit normally pays for each employee’s Social Security. (This is the 6.2 percent tax employers pay on each employee’s salary.) If sick leave or family and medical leave end up costing more than the Social Security bill, the U.S. government will send the employer a check to cover the remaining costs. How this will be determined is up to the Treasury and the Internal Revenue Service.
About 35 million people work for small businesses in the United States. Currently, 12.6 million of those workers have no paid sick leave at all, and 30.5 million have no paid family leave, according to the Center for American Progress.
Government employers must provide paid sick and family leave: The House bill says all government employers must provide these benefits to workers. The same is also true for any union workers who are part of a “multi-employer” agreement.
The tax credit can be applied against a person’s income taxes, and it is refundable, meaning taxpayers will get a government rebate if their sick or family leave pay was greater than their tax bill.
You do not have to have the coronavirus to get the benefit: The two weeks of paid sick leave apply to anyone told to quarantine, showing symptoms, exposed to the virus or trying to get a test or preventive care. That is a broad definition. The IRS will probably have to come up with an exact rule, but it is clear Congress wants to avoid a situation in which everyone is trying to get a doctor’s note to qualify.
The benefits are in place for a year: The House bill covers coronavirus-related sick leave taken during the next 12 months.
Can employers require workers to find a replacement for their shift?
No. Under the provisions of the emergency leave law for the coronavirus outbreak, employers are not allowed to force employees to find a replacement worker in order to take the leave.
Can employers require workers to use other existing leave before using the emergency paid sick leave?
No. Employers are barred from requiring employees to use previously existing paid leave policies they already provide before taking the sick leave granted through the emergency relief law.
Are employers required to pay out unused leave from the emergency act?
No. The leave specific to this law does not carry over and is not required to be paid out upon termination of employment.
When does this leave go into effect?
The Coronavirus Paid Sick Leave Law goes into effect 15 days after the president signed the bill into law. That means it goes into effect on April 2.
Is this leave permanent?
No. It’s intended to last only through the crisis and expires on Dec. 31, 2020.
Do employers need to post anything?
Yes. The law states that employers need to post in a conspicuous location where they normally provide notices a new notice which the Secretary of Labor is to provide within 7 days.
Are there penalties for failing to comply?
Yes. The penalties specified depend on the nature of the offense but are the same as described in the Fair Standards Labor At (FSLA).
How much of a gap does this cover for workers?
Seventy-three percent of private industry workers have access to paid sick leave, according to the Bureau of Labor Statistics.
But that number drops for smaller-sized businesses. For businesses with less than 100 employees, only 65% have access to paid sick leave. For businesses with 100 to 499 workers, 80% of workers have access to paid sick leave.
Eighty-nine percent of businesses with 500 or more workers have access to paid sick leave.
Large Companies Not Included
Large companies with more than 500 employees are not mentioned in the bill. Experts say that is a significant loophole. These employees will have to rely on the policies of the companies they work for. According to the Labor Department, 89 percent of workers at companies with more the 500 employees have access to some paid sick leave, with an average of eight days offered — well short of the 14-day quarantine prescribed for people who may have the coronavirus.
There’s concern about how quickly the money will flow: Experts say one of the biggest issues with these new benefits is they are largely being paid for by tax credits. That means small businesses and independent or gig workers will have to apply to the IRS to get a tax credit — or a tax refund if a person’s tax bill is not as large as the cost of their paid sick and family leave.
Mnuchin has pledged to get this process up and running as quickly as possible, but it will take some time to create the forms and procedures.
Small-business groups have already voiced concerns over the fact that restaurants and travel and hospitality companies have seen sales plummet. They do not have the cash on hand to start paying these benefits.
Editor’s note: As the concerns regarding Covid-19 continue, we are attempting to provide information as soon as possible to our clients. The information provided is subject to change and revision. This information does not constitute legal advice and should not be a substitute for advice from a legal professional.
For guidance on CARES Act tax matters, please contact Lee Schmidt or other members of the A. L. Schmidt CPA Tax Practice.
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