Lately, much of the attention has been on the government stimulus from the CARES act, direct payments to individuals, and the Payroll Protection Plan (PPP) loans, but there are other programs that will become more important as time goes on. Yes, the direct payments are nice and the PPP loans will help companies stay afloat over the next couple of months, but the new COVID-19 FMLA and sick policy will have an impact throughout 2020. Due to the enhanced unemployment benefits and the PPP loans, not many employees have taken advantage of the program. Let's dive in and learn the criteria, as well as ways your business can pay for it for your employees.
Emergency Paid Sick Leave (EPSL) and Emergency Family and Medical Leave Act (EFMLA)
The program was enacted on March 18, 2020 as part of the ‘Families First Coronavirus Response Act’. It grants full-time employees 80 hours of sick leave as well as emergency family and medical leave of 12 weeks (the first two weeks can be unpaid and the remaining leave at 2/3rd regular pay). It provides leave for employees of businesses with less than 500 employees who are unable to work, even remotely. It does not apply if the business was forced to close, or if there are employees who were laid off or furloughed.
Six Qualification Criteria:
- Shelter in Place order
- Healthcare provider recommends self-quarantine
- Medical Diagnosis requires self-quarantine
- Need to care for an individual who has to self-quarantine
- Need to care for a child due to a lack of childcare or school closure
- Employee has any other substantial condition that puts them at risk
There is a small business exception, but it only applies to #5 on the above list. If you have less than 50 employees and you can document that giving the time off would destroy your business, then you do not have to grant the leave. If you plan to use this exception, then you will need to document the case, document your financials, and keep that proof on file.
Program Runs Through December 31, 2020
You can see that this program will outlive the current stimulus packages. With no end in sight for the pandemic, it will become more and more likely that you will need to offer this benefit sometime before the end of the year.
Congress Gave Companies a Way to Pay for Plan
The first question that I get from business owners is, how the heck are they going to pay for an additional benefit when the business itself is struggling? The law addresses that question and says that the company can ‘pay’ for the benefit through an employer tax credit. This means that the company can deduct the cost of the leave from any employer taxes owed to the federal government. This includes federal income taxes, employee and employer share of social security and Medicare taxes for all employees. Usually there is a delay between funding a payroll and paying the taxes to the federal government. That could create another point of stress on companies that are struggling to pay their bills. So, the IRS issued form 7200. This will allow companies to obtain an advance on the tax credit. This means that the company can ‘collect’ money from the government before the payroll is run, and the leave will be funded by the government.
So how does the IRS make sure that they are funding the correct amount? The quarterly payroll tax return has a few new lines and it will ensure that the advance and the tax credit will equal out.
Payroll Companies Must Administer the Tax Credit
Most companies outsource payroll to a payroll service provider. Since the payroll service provider makes the tax payments on behalf of the employer, they must calculate any tax credit and file for any tax credit advance. Check with your payroll provider to learn how they plan to administer the IRS form 7200.
Have questions? Contact Mary Brettmann