Author: Jacob Franklin
Paid Leave for Employees
There are essentially three scenarios that trigger the required sick pay to employees and the resulting credit to employers:
- The first scenario is traditional sick leave with the only exception to traditional sick leave being that the sickness is COVID-19 related. Essentially, an employee has one of the following: is currently ill with COVID-19, has Coronavirus symptoms and is seeking medical diagnosis, or is in medically required quarantine or self-quarantine.
- The second scenario is if the employee needs to care for someone with Coronavirus.
- The third scenario is if the employee is unable to work because he or she needs to care for a child due to a school closure or child care facility closure related to the coronavirus.
Amount of pay required/maximum amount of credit available:
- If the leave is required due to the employee’s own illness or medically necessary quarantine, the employee will receive his or her regular rate of pay, up to $511 per day for a total of 10 days, with a maximum payment amount of $5,110.
- If the leave is required due to the employee taking care of someone else with Coronavirus, the employee will receive 2/3 of his or her regular rate of pay, up to $200 per day for 10 days, with a maximum payment amount of $2,000.
- If the leave is caused by a Coronavirus related school or child care facility closure, the employee will receive 2/3 of his or her regular rate of pay, up to $200 per day for 10 weeks, with a maximum payment amount of $10,000. The first 10 days for which an employee takes leave under this scenario is unpaid. (Employees may elect to substitute vacation or other personal leave during this 10-day period). However, it appears this type of scenario may also be covered under the previous scenario effectively rendering the unpaid leave portion null as well as effectively making this benefit 12 weeks instead of 10.
Employers will receive a 100% reimbursement for payments made to employees under the act.
- The employers receive reimbursement from the federal government for these amounts as a credit on the quarterly payroll tax filings. The credit is fully refundable, so even if the payments exceed the employer’s required amounts, the employer will be entitled to a refund on the payroll tax filing in order to be reimbursed for the payments made to employees.
When are the payroll tax returns filed?
- The payroll tax returns are generally filed quarterly (April, July, October, and January)
Can I claim the credit sooner?
- The IRS is encouraging employers to reduce the required deposit amounts for payroll taxes by the amount of the credit. For many employers the deposit is required to be paid a few days after the payroll. This reduction in payroll tax deposit will help employer’s cash flow in making the payments to employees.
- For some employers the amount of the credit may be larger than the required payroll tax deposit. These employers will be able to file for an accelerated payment from the IRS prior to the quarterly payroll tax return. The IRS expects to process these claims in two weeks or less. Details of this procedure have yet to be announced, but the IRS has promised to announce those detail during the week ended this week (ending March 27).
Which Employers are Covered?
- Businesses with fewer than 500 employees.
- When the act was first passed many were confused by a provision that could have exempted employers with fewer than 50 employees. Congress gave the Department of Labor the authority to exempt these employers. However, the IRS seems to indicate that employers with fewer than 50 employees will only be exempted from the requirement to provide leave payments for those who can’t work due to school and child care facility closures. Additionally, the exemption will only be provided if the payments would jeopardize the ability of the business as a going concern.
When does it start? When does it end?
- The coverage will start of April 2, 2020 and end December 31, 2020. We’re still not 100% certain on the start date. The way the law is written it essentially is giving the IRS the authority to begin the coverage on any date between the law enactment, March 18, and 15 days later, April 2. The IRS has not yet communicated an effective date.
What about continuing benefits to employees while they are away from work?
- There are additional tax credits amount to cover health insurance costs during the employee’s leave period.
Are the amounts paid to employees subject to tax?
- The amounts paid to the employee are similar to normal payroll amounts. The employer is to withhold federal income tax, social security tax, and Medicare tax.
- Employers will not have a payroll tax liability on the payments.
What type of leave is not covered?
- The largest question that has surrounded this provision is whether or not it allows the employer to claim a credit for wages paid to employees when the business is shut down as a result of a public health order (e.g. bars, restaurants, etc.). Unfortunately, this credit does not cover this type of leave. As of this point the only options for employers are to continue employee pay at the employer’s expense, or lay off the employees and direct the employees to unemployment. This issue is currently a key topic of proposed legislation and will hopefully be addressed in the very near future.
How do I notify my employees of their benefits related to this change?
- The Department of Labor was instructed by congress to have a “Model Notice” available to employers no later than 7 days after the bill was passed (which would be March 25th, 2020).
- This notice is to be posted with all of the other required notices (minimum wages, overtime rules, etc.).