New Paid Leave Requirements for Employers of Fewer Than 500 Employees

March 19, 2020 Advisory

President Trump has signed into law the Families First Coronavirus Response Act (“Act”), which includes two new significant paid leave laws that will impact millions of employees in the United States: (1) the Emergency Family and Medical Leave Expansion Act, and (2) the Emergency Paid Sick Leave Act. Both statutes address absences from work caused by the COVID-19 pandemic. However, these new laws contain some key differences that should be considered carefully—especially by employers that have fewer than 500 employees and employers that are closely related to other commonly owned entities whose aggregated employee headcounts exceed 499 employees. The Act provides that it shall take effect “not later than 15 days after the date of enactment,” which was March 18, 2020.

Emergency Family and Medical Leave Expansion Act
This law creates a new form of FMLA leave covering up to 12 weeks of an eligible employee’s inability to work or telework “due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency.” The employer can treat the first 10 days of this leave as unpaid; however, if an employee has accrued paid leave available, the employee can elect to substitute such paid leave for unpaid time during the first 10 days of FMLA leave under the new law. If this type of FMLA leave continues beyond the first 10 days, it must be paid by the employer at two-thirds the regular rate of the employee’s pay (up to a daily cap of $200 and an aggregate cap of $10,000) through the end of the FMLA leave.

For private-sector employers, the threshold question of whether an employer is covered by this new form of FMLA leave may not be as straightforward as it initially appears. For purposes of the expanded FMLA leave, the FMLA’s definition of “employer” includes employers with “fewer than 500 employees” instead of employers with “50 or more employees…” (the latter being the crux of the definition of “employer” for traditional FMLA purposes). This new definition may appear to require a simple tally of an entity’s employees to determine coverage, but the rules determining which employees are included in an employer’s headcount for FMLA purposes are complicated. The Department of Labor’s regulations requiring the aggregation of separate entities’ employees for FMLA coverage determinations will presumably apply to the expanded FMLA provisions just as they apply to existing FMLA provisions. Thus, companies belonging to a group of commonly held, related businesses should consider (and should seek counsel to decide) whether the joint-employer or integrated-business tests under the FMLA regulations require counting all of the employees of such related entities together to determine whether the “fewer than 500 employees” threshold is satisfied. Given the obligations imposed by the expanded FMLA, the question of whether an entity should count only those workers employed under its Employee Identification Number (EIN) or the sum of all employees working for related entities under common control could carry significant financial implications.

The next step in the analysis is to identify which employees are eligible to receive the new FMLA benefits. Unlike traditional FMLA, this new form of protected leave, for absences to care for a child whose school or place of care is closed due to a public health emergency, is available to any employee who has been employed for at least 30 days by a covered employer. Thus, eligibility for public health emergency FMLA differs from eligibility for traditional FMLA in several key respects:

Eligibility Criteria

Traditional FMLA

Public Health Emergency FMLA

Minimum duration of employment

12 months

30 days

Minimum hours worked

1,250 in the past 12 months

Not considered

Proximity to other employees

Within 75 miles of 50 or more co-workers

Not considered

For covered employers, the law also ushers in new notice and posting requirements. As such, covered employers should immediately begin planning to amend the FMLA policies in their employee handbooks and provide notice to employees regarding this new benefit that is available to them.

Emergency Paid Sick Leave Act
Employees covered under the Emergency Paid Sick Leave Act (EPSLA) are entitled to paid leave for several different types of absences related to the COVID-19 pandemic. EPSLA covers all public employers and any “private entity or individual” that is “engaged in commerce” and “employs fewer than 500 employees.” Eligible employees get EPSLA leave immediately; it is not accrual-based.

EPSLA prohibits employers from requiring an employee to use other paid leave provided by the employer before the employee uses EPSLA leave, but the law gives employees the choice to use other forms of paid leave before using EPSLA. This feature of EPSLA creates a strong incentive for covered employers to review existing paid time off policies to determine whether immediate adjustments should be made.

Amount of Leave. Covered employers must grant the following amounts of paid leave:

  • Full-Time Employees: 80 hours of paid sick leave to full-time employees; and
  • Part-Time Employees: Number of hours equal to the employee’s average hours over a two-week period.

Qualifying Reasons for EPSLA Leave. Eligible employees can use EPSLA leave if they are unable to work or telework because of any of the following reasons and are subject to the following caps:

Reason for Leave

Caps on Paid Leave for Full-Time Employees

Quarantine or isolation ordered by a governmental authority or health care provider related to COVID-19

Regular daily pay capped at $511
(aggregate cap of $5,110)

Employee has COVID-19 symptoms and is seeking a diagnosis

Regular daily pay capped at $511
(aggregate cap of $5,110)

Employee has substantially similar condition specified by the Secretary of Health and Human Services

Two-thirds regular daily pay capped at $200
(aggregate cap of $2,000)

Employee is caring for someone under quarantine or isolation order, or advice to self-quarantine because of COVID-19 concerns

Two-thirds regular daily pay capped at $200
(aggregate cap of $2,000)

Employee is caring for a son or daughter whose school or care provider is closed/unavailable due to COVID-19 precautions

Two-thirds regular daily pay capped at $200
(aggregate cap of $2,000)

Tax Credits
Covered employers who pay the new forms of paid leave will be eligible to claim refundable tax credits to offset a large portion of those costs. The Act contemplates employers claiming those tax credits on quarterly payroll tax returns. 

For amounts paid under the Emergency Family and Medical Leave Expansion Act, the tax credit is equal to the wages paid under the Act, up to $200 a day or $10,000 in total per employee. For amounts paid under EPSLA, the credit is also equal to the wages paid during the leave, but the cap is different based on the reason for the leave:

Basis for the Sick Leave

Applicable Tax Credit Cap

Employee subject to quarantine or isolation order; advised to self-quarantine; experiencing coronavirus symptoms and seeking medical diagnosis

$511 per day per employee, aggregate cap of $5,110

Caring for another person; experiencing another substantially similar illness

$200 per day per employee, aggregate cap of $2,000

The total number of days for which an employer may claim a credit across all calendar quarters for an employee is limited to 10.

Both tax credits are allowed against the quarterly tax imposed under the employer portion of Social Security and Railroad Retirement payroll taxes for all employees. If the amount of tax credits exceeds the employer payroll tax obligation on all wages paid during the calendar quarter, the excess is considered an overpayment and is refundable to the employer. Tax credits received under these provisions are includable in the employer’s gross income.

An employer’s tax credit may be increased to include amounts paid for qualified health plan expenses allocable to the employee receiving sick leave wages. Qualified health plan expenses are amounts paid or incurred by an employer to maintain group health plan coverage that is excludable from employees’ income. Expenses are allocable to an employee under rules established by the Treasury Secretary, so additional rules and guidance on this point are expected. Unless that guidance provides otherwise, allocations will be treated as properly made if made on the basis of being pro rata among covered employees and pro rata on the basis of periods of coverage (relative to the time periods of leave to which the wages relate).

Required Group Health Plan Coverage
The Act also imposes new mandated coverage requirements on employer-sponsored group health plans and health insurance issuers offering group or individual health insurance coverage. These requirements also apply to “grandfathered” health plans as defined under the Affordable Care Act. These plans must provide, effective March 18, 2020, coverage for the following items:

  1. In vitro diagnostic products for the detection of SARS-CoV-2 or the diagnosis of the virus that causes COVID-19 that are approved, cleared or authorized under the Federal Food, Drug and Cosmetic Act, and the administration of such in vitro diagnostic products.
  2. Items and services furnished to an individual during health care provider office visits (which includes in-person visits and telehealth visits), urgent care center visits and emergency room visits that result in an order for or administration of an in vitro diagnostic product; but only to the extent such items and services relate to the furnishing or administration of such product or to the evaluation of such individual for purposes of determining the need of such individual for such product.

The coverage must be provided without imposing any cost sharing, including deductibles, copayments and coinsurance requirements, prior authorization or other medical management requirements. For additional information on recent IRS guidance for high-deductible health plans (HDHP) and health savings accounts (HSA) for COVID-19 testing and treatment, click here.

These laws are included in a much larger package of legislation providing for a broad spectrum of economic relief to address the COVID-19 pandemic. Furthermore, this is one of several legislative measures expected from the federal government to confront the pandemic and the economic fallout that is certain to flow from it. Armstrong Teasdale attorneys will continue to monitor and provide updates regarding these developments. For additional information, please visit Armstrong Teasdale’s COVID-19 Resource Center.

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