The CARES Act passed in March 2020 created an “employee retention tax credit,” which entitled eligible employers to a refundable tax credit for wages paid to employees during periods that the employer’s business was subject to a suspension, a shutdown, or a significant decline in revenues. The tax credit was not widely used by employers with fewer than 500 employees, primarily due to the fact that employers with Paycheck Protection Program (PPP) loans could not take advantage of the credit. On December 27, 2020, the Consolidated Appropriations Act (the CAA) was signed into law. The CAA significantly expanded the usability of the employee retention tax credit by allowing employers with PPP loans to take advantage of the credit. Further, the CAA increased the amount of the tax credit available. In tandem, these changes make the credit an attractive opportunity for employers during 2021 as well as easier to obtain for qualifying wages paid during 2020.
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Trump Signs Payroll Tax Deferral Executive Order
Over the weekend, President Trump signed an executive order purporting to defer the payment of the employee’s share of the Social Security portion of FICA (payroll) tax from September 1, 2020, until December 31, 2020. The order is limited to only the employee’s share of the Social Security portion of the payroll tax, which is currently set at 6.2%. The order does not affect the Medicare portion of the payroll tax (1.45%), nor does the order affect the employer portion of the payroll tax, so these will still have to be withheld (where applicable) and deposited on a timely basis. The order also limits deferrals to employees with biweekly, pretax income of less than $4,000, or a similar amount where a different pay period applies. This roughly equates to an annual salary of $104,000. Importantly, the order is not a suspension of the payroll tax (a “payroll tax holiday”), but merely a deferral. The president directed the Treasury to seek ways to implement a full suspension at a later date, including by legislative action.
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Employers That Repay PPP Funds by May 14 Are Eligible for Employee Retention Tax Credit
The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides for, among other things, an “employee retention tax credit” for employers that are forced to suspend operations or experience a financial downturn. The CARES Act disqualified employers that received Paycheck Protection Program (PPP) loans from taking the employee retention tax credit. Some employers that received PPP loans are now contemplating repaying the loans based on recently released guidance clarifying the scope of employers that are eligible for the PPP. The guidance allows employers that received PPP funds to repay the funds by May 14 without penalty.
Families First Bill Contains Special Provisions Affecting Public Agencies
The Families First Coronavirus Relief Act (the Act) was passed on March 18, 2020 and imposes paid leave obligations on most employers throughout the country. The bill contains special and often overlooked provisions affecting public agencies. Those provisions could provide a “trap” for public agencies that do not carefully review the bill.
Definition of “public agency.” A “public agency” is defined broadly to include the government of the United States; the government of a state or political subdivision of a state; or an agency of the United States, a state, or a political subdivision of a state, or any interstate governmental agency.
Application of employee threshold. For purposes of the law’s paid leave obligations, a covered employer in the private sector includes any employer with fewer than 500 employees. This threshold does not apply to public agency employers. Public employers with only one employee are covered by the bill’s paid leave provisions, meaning large public employers with more than 500 employees are covered by the paid leave provisions.
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Recent Clarifications to Families First Coronavirus Relief Act
The Department of Labor (DOL) recently clarified numerous issues under the Families First Coronavirus Relief Act (FFCRA) in three notices released on March 24, 2020. We previously provided a summary of the law’s paid leave provisions in a client update on March 19, 2020. Some of the clarifications made in the recent guidance include the following:
The paid leave provisions go into effect on Wednesday, April 1, 2020.
The law does not apply retroactively, which means that employers who provided paid leave prior to April 1, 2020, cannot count leave payments as having been made under the FFCRA, and also cannot claim a tax credit for such amounts.
All employees (full-time and part-time) within the United States or any of its territories are counted in determining the 500-employee threshold for whether an employer must comply with the paid leave obligations. Employees on leave, temporary employees, and leased employees from a temporary employment agency are also counted. The threshold is determined as of the time an employee’s leave is to be taken.
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Senate Unveils Stimulus Bill That Affects Employers
On March 19, 2020, Senate Republicans rolled out a $1 trillion economic stimulus plan commonly referred to as “Phase III” of the legislative response to the coronavirus pandemic. The bill — the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) — provides additional detail on the paid leave provisions in the “Phase II” bill and contains some additional provisions that affect employees.
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Senate Passes Coronavirus Bill Requiring Paid Leave
On March 18, 2020, the Senate passed the “Families First Coronavirus Response Act,” which contains provisions related to mandatory paid leave for employers with fewer than 500 employees. A summary of the bill, which is supposed to be effective within 15 days of enactment, is below.
The bill creates a new paid leave benefit called “emergency paid leave.”
Reasons for Leave: Employees who are eligible for “emergency paid leave” are those individuals who are unable to work due to one of the following conditions or situations: (i) the employee is subject to a federal, state, or local isolation or quarantine order; (ii) the employee has been advised by a health care provider to self-quarantine; (iii) the employee is experiencing symptoms of coronavirus and seeking a medical diagnosis for the symptoms; (iv) the employee is caring for an individual who is subject to a quarantine order or who has been advised to quarantine by a health care provider; or (v) the employee is caring for a child because the child’s school or place of care has been closed due to COVID-19.
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Does COVID-19 Paid Sick Leave Apply to a Government-Ordered Shutdown of Your Business?
One of the bigger questions with the Emergency Paid Sick Leave Act is an employer having to pay for leave because “the employee is subject to a federal, state or local quarantine or isolation order related to COVID-19”. Does that apply when the business itself is shut-down by the government, but the employee is free
Technical Corrections to House Bill Significantly Change Previous Provisions Regarding Paid Leave
On March 14, 2020, the House of Representatives passed H.R. 6021, the “Families First Coronavirus Response Act,” which contains provisions related to mandatory paid leave for employers with fewer than 500 employees. Since passage, the House has been working on “technical corrections” to the bill prior to sending the bill to the Senate for consideration. The technical corrections were voted on and passed by the full House late in the evening on March 16, 2020.
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Employee Benefits Issues — Coronavirus
As the coronavirus continues to spread within the United States, employers are dealing with a number of issues with respect to workforce, labor, and employee benefits. The following are common questions regarding employee benefits issues that employers may face sooner rather than later. We will update this list of questions and answers as the situation unfolds.
Q1: If an employer furloughs employees, are they still eligible for group medical plan coverage?
It depends. The terms of the group medical plan document or applicable certificate of coverage will dictate whether employees who are no longer “actively at work” may continue active coverage. Most plans provide that an employee who is not “actively at work” may only continue coverage for a designated period of time. After the expiration of this designated period, active coverage will be terminated and the covered employee will be eligible for COBRA.
Employers that maintain “self-funded” plans may have more flexibility, as they may amend their plans to waive eligibility conditions and allow furloughed employees to continue active coverage. (Note that some employers with fully insured plans may be able to work out similar arrangements with their insurance carriers.) Employers with self-funded plans that want to waive actively at work requirements or extend coverage while employees are on leave or furlough need to obtain the consent of their reinsurance carriers to avoid any coverage issues.
Finally, employers utilizing an Affordable Care Act (ACA) lookback and stability approach to determine full-time status for health plan purposes should consider whether affected employees are in a stability period that would result in continued eligibility for the duration of the stability period. Reduced hours in 2020 might impact such employees’ full-time status for the next stability period (e.g., 2021 for plans using a calendar year stability period). Employers should also consider whether to provide relief for such employees in future stability periods.
Q2: If an employee is on leave because he or she is experiencing coronavirus-like symptoms, is the employee eligible for group medical coverage?
It depends on whether the employer sponsoring the plan is subject to the Family and Medical Leave Act (FMLA). If so, then the leave is likely protected by the FMLA, meaning that continued group medical coverage must be provided for the period of FMLA leave, and the employer’s policies regarding payment for coverage during FMLA-qualifying leaves will apply. For employers that are not subject to the FMLA, applicable policies and procedures regarding continued coverage during periods of sick leave will apply, as well as the plan terms and ACA full-time measurement and stability issues noted in Q1 above.