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COVID-19 Requires New Leave Policies

by Symmetry Tax Updates | Mar 20, 2020

This week Congress created and passed a federal paid sick leave requirement regarding the recent COVID-19 outbreak. The Families First Coronavirus Response Act (FFCRA) expands the Family and Medical Leave Act (FMLA) in response to COVID-19 needs and requirements. This Act only applies to public-sector employers with fewer than 500 employees. For employers with less than 50 employees and other various health care employers, there are certain exemptions if the employer can prove the employee's leave will endanger the business. This Act will go into effect no later than April 2, 2020 and will conclude on December 31, 2020.

During this crucial time, the FFCRA will provide paid sick leave to employees who meet any of the following requirements:

  1. There is a quarantine or isolation order due to the COVID-19 in their area that prevents the employee's ability to travel.
  2. A health-care provider suggests that the employee self-quarantine due to the COVID-19.
  3. The employee experiences COVID-19 symptoms and is in the process of determining if they have contracted the virus.
  4. The employee is caring for an individual who is under quarantine.
  5. The employee needs to care for their child due to daycare and school closures relating to COVID-19.
  6. Any other situation similar to the five above as specified by the Department of Health and Human Services.

The first three situations described above require the highest amount of paid sick leave. A full-time employee is eligible for 80 hours of paid sick leave, as long as they have worked for the employer for more than 30 days, regardless of the number of hours worked during the 30 days. Flexible work schedule employees should average their hours per day over the past six months. If the employee has a flexible work schedule and has only been hired for 30 or more days, they are eligible for the number of hours they would usually be expected to work during this time. Full-time employment paid sick leave for any of these three reasons cannot exceed $511 per day or $5,110 for the entire 80 hours. To learn more about the details regarding sick pay, review this recent article by Bloomberg Tax: Coronavirus Response Act Adjusts Payroll Requirements.

In the situation the employee is taking leave for the fourth and fifth situation, taking care of a family member or their child, they are eligible for two-thirds of the pay they would have received for any of the above conditions. Similarly to full-time new hires, all part-time employees are eligible for payment based on the number of hours they would typically work, or an average of hours based on previous weeks. Paid sick leave for these reasons cannot exceed $200 per day or $2,000 for the entire 80 hours.

Under all of these circumstances, the employer is not allowed to require the employee taking leave to find a qualified replacement for their work. Employers must display a notice regarding the qualifications and restrictions in this Act in a reasonable area of the office. The U.S. Department of Labor will be issuing a model notice by March 25, 2020.

The tax treatment for these new provisions under the Act related to the COVID-19 for Paid Sick Leave and Paid Family and Medical Leave are taxable wages for income and employment tax purposes, except that such wages are exempt from Employer Social Security Taxes. These payments are subject to Medicare taxes for both employee and employer, but the tax credit is increased by the amount of the employer Medicare taxes paid on such wages.

The amounts of these credits can be increased by the cost of the employer's qualified health plan expenses for the employees receiving the paid sick leave, which will assist the employers in maintaining health coverage for the employees. These credits will be taken on the employer's quarterly tax return. If you are unsure of how these credits will be applied, consult your accountant or legal counsel for more details.

While FFCRA only expands the FMLA, employees still have other options for paid leave policies. The Federal and Medical Insurance Leave (FAMILY) Act may qualify select individuals for up to 12 weeks of partial income as described in our article, Federal and State Paid Leave Policies. The qualifications include the need to care for a sick family member or to care for their own medical needs, which may be needed for those affected by COVID-19.

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Disclaimer: We are NOT providing legal or tax advice, that this is not the final word from the government, nor is this intended as a political opinion.