Join our multipart livestream series to engage in the latest changes related to these uncertain times. You’ll hear strategies for navigating what these developments mean for you. Topics include issues related to legislation, liquidity, workforce, and other relevant topics.
In case you missed it:
Boyd is a principal in CLA's Manufacturing industry group and has more than ten years of experience in public accounting, specializing in tax services for multi-state and multinational C-Corporations, S-corporations, partnerships and tax structuring of M&A transactions. Rohen is a principal in CLA’s Federal Tax Strategies service group. She leads the national Work Opportunity Tax Credit (WOTC) practice, which helps employers hire people who otherwise face barriers into the workforce. Her expertise has unlocked significant savings for more than 700 clients nationally. She is a highly sought speaker on WOTC best practices and legislation.
What we talked about:
Boyd: Good afternoon. While we wish we were conducting this live stream under different circumstances, we are grateful to be spending the next 30 minutes with you and we look forward to helping you navigate the next several weeks. We sincerely hope you, your family members, friends and loved ones are well and staying healthy.
This has been a tough couple of weeks. This is a journey for everyone joining us today, and we have no idea how long it will last nor what the next few weeks hold. These rapidly evolving circumstances just compound the uncertainty and confusion.
Despite all of this, we have seen many wonderful things from our clients and communities. We have seen companies stepping forward to donate supplies and N95 masks; we have seen companies re-tooling to manufacture much needed supplies – like hand sanitizer and ventilators; and we have seen people support one another and stay home to slow the spread. It’s always amazing to me how the toughest times can bring out the best in people.
Our goal with this series is to provide a voice of reason as we all work through the next few weeks.
Our series will provide updates on critical developments and how they impact your business. The discussions will focus on legislative updates, cash flow and liquidity planning, and workforce matters. We will talk about the developments, strategies to deal with these changes, and frequently asked questions we are getting from the companies we serve, so we can help you make important decisions. We will be pulling in various subject matter experts who can help us best address these topics. The topics will be fluid and nimble, because, as you all know, this is a fluid situation.
Today we are going to focus on the Families First Coronavirus Response Act, which was a substantial bill that passed last week. Before we do that, I wanted to give a quick layout of what we have seen from a legislative standpoint, and where we are headed.
In early March, Phase I legislation passed providing over $8B to allow for additional testing and research.
Phase II. Deals with paid sick leave, emergency Family Medical Leave, and emergency unemployment insurance. We will get into the details of this bill today and what it means for you.
Phase III is currently being hashed out. The goal of this bill is to protect the workers and to protect the companies supporting workers. We will go into depth on this bill once it passes and we have a couple days to digest it and recommend strategies for the businesses we serve.
The other big development from last week relates to a change in the tax filing deadline. Originally, the extension related only to the amount of the payment and there were limits related to the amount of payment deferred. On Friday the IRS issued guidance to automatically extend the tax filing due date from Aril 15 to July 15, 2020. Taxpayers can also defer federal income tax payments due on April 15, 2020, without penalties and interest regardless of the amount owed. The deferral applies to all taxpayers, including individuals, trusts and estates, corporations, and those who pay self-employment tax. With respect to this development, we wanted to provide a couple key points:
- If you are due a refund, the IRS and treasury urge you to file as soon as possible to get cash and help with liquidity.
- We recommend you continue getting your return prepared to help understand your liability to assist with cash flow and liquidity planning
- Finally, make sure you understand how the states have adopted this deadline.
Now that we have covered some of the recent updates, I want to introduce Jen Rohen, who will help go over the Families First Coronavirus Response Act. This is a complicated bill, so we will do our best to go over the major points at a high level as well as FAQs we have been getting from our clients. This bill has two components we want to focus on: The Paid Leave Aspects and the Tax Credit Aspects.
Boyd: Jen, let’s start by talking about companies that are subject to this bill.
Rohen: All employers with fewer than 500 employees are covered under this Act. The Act provides exceptions for employers of health care providers. The legislation allows the Department of Labor to issue regulations granting employers with fewer than 50 employees an exemption from providing paid benefits if it “would jeopardize the viability of the business.”
Boyd: Now can you describe the categories of paid leave, who qualifies and the amounts of the paid leave by category?
Rohen: Emergency Paid Leave requires employers to provide paid sick time of up to 80 hours for full-time employees who need time off for the following circumstances:
- Quarantine order by federal, state, or local authorities related to COVID-19
- Employee must self-quarantine as advised by a health care provider
- Employee is experiencing COVID-19 symptoms and is seeking medical diagnosis
- Employee is caring for an individual who is quarantined
- Due to school or child care closures, an employee is unable to work to care for children
The paid sick time benefits will be capped at $511 per day for the employee’s own care, and $200 per day to care for another individual. Employees should be paid at the higher of the following:
- Regular rate of pay
- Federal minimum wage
- Local minimum wage
Part-time employees should be paid for the average number of hours they would normally work over a two-week period.
Paid Family Leave (E-FMLA) is for employees who cannot work (or telecommute) due to child care concerns related to the coronavirus. If a minor child’s school or care facility is closed, the employee will be eligible for up to $200 per day, with a maximum of $10,000 through the end of the year. Employees are eligible for E-FMLA if they have been employed for 30 days.
Boyd: Now let’s flip to how the company receives tax credits for these.
Rohen: The Act allows employers to claim a limited refundable tax credit that would equal benefits paid to employees for E-FMLA subject to the maximum per employee. There is also a credit for paid sick leave. There isn’t much guidance at this point about the mechanics of how these will be claimed; however, the department of labor and secretary of treasury are expected to release information sooner rather than later about these.
Boyd: We have received several frequently asked questions with respect to this topic. We will try to address some of those. What is the effective date for these changes?
Rohen: The effective date of the legislation is “no later than April 2.” That said, employers can start issuing payments prior to that time. However, it is important to note that if they do so, any payments made prior to April 2 will not be eligible for the tax credit relief.
Boyd: Many have asked if they should consider layoffs of employees or the paid leave?
Rohen: That’s a tough question, but paid leave is for employees who have to take leave to care for young children or who need to self-quarantine as a result of doctor’s orders for one reason or another. The tax credits are meant to “reimburse” the cost of the paid leave, so if the employer manages the liquidity properly (and we’ll discuss that in future livestreams), they may not have to experience layoffs and the problems inherent in that process.
Boyd: If an employee is on paid leave, are they prohibited from laying off the employee?
Rohen: If an employee is out on paid leave when they are laid off, they may be entitled to continue your benefits until they are released to work, even though the former employer won't be able to rehire them when that happens. An employer with fewer than 25 employees is not obligated to reinstate an employee at the end of his or her leave if the employee's position has been eliminated due to economic conditions or other changes in operating conditions of the employer caused by COVID-19, and the employer is unable to reinstate the employee to an equivalent position.
Boyd: The first 10 days of FMLA are generally unpaid although they can use vacation pay. That said, in the bill there is also 10 days of paid sick leave to cover being out due to a school closure. What does someone use first – their paid sick leave or FMLA?
Rohen: Normally, under FMLA, the employee would have to use PTO or go unpaid for the first 10 days; however, the Act allows for paid sick leave to be paid during that first 80 hours.
Boyd: What do employers with 500 or more employees do?
Rohen: The act does not apply to employers with 500 or more employees. It doesn’t change existing FMLA and Fair Labor standards acts, to which they’ll be held accountable. This Act is not meant to punish small employers; rather, it creates a structure for understanding who they need to pay and for providing relief in the form of a tax credit for which larger employers will not be eligible.
Boyd: How do you count the 500?
Rohen: This is determined under the FMLA act. Factors considered in determining whether two or more entities are an integrated employer include:
i. Common management;
ii. Interrelation between operations;
iii. Centralized control of labor relations; and
iv. Degree of common ownership/financial control.
A lot companies will want to set up new entities to take advantage of the credits, but please know that we DO NOT want employers to change structure solely to take advantage of the credit because it is a single-year thing – an entity structure change could create negative ramifications in the long term. Aggregation rules in the labor world are incredibly complex, and we would highly suggest they talk with their attorney or the HR consultant prior to doing so.
Boyd: What about relief for those who have 50 or fewer employees?
Rohen: The legislation allows the Department of Labor to issue regulations granting employers with fewer than 50 employees an exemption from providing paid benefits if it “would jeopardize the viability of the business.” We will definitely keep you posted once the regulations are posted. An employer with fewer than 25 employees is not obligated to reinstate an employee at the end of his or her leave if the employee's position has been eliminated due to economic conditions or other changes in operating conditions of the employer caused by COVID-19, and the employer is unable to reinstate the employee to an equivalent position. Healthcare provider exception: key takeaway is that the employer is going to be able to opt out, but as of now we don’t know what the definition will be of a “healthcare provider” and who can opt out. We won’t know until they issue guidance, but industry experience is that it should be limited to people who diagnose the condition and emergency responders. The point is that they don’t want to incentify people on the front lines not to show up for work.
Boyd: Will employers have to pay FICA taxes on the benefits paid to employees under the Families First Coronavirus Response Act?
Rohen: Employers will not pay FICA taxes on leave paid pursuant to the Families First Coronavirus Response Act. Employers will not report Social Security (OASDI) tax on the benefits. Employers will report Medicare tax, but they will receive a dollar-for-dollar credit for the Medicare tax.
Boyd: Will employees pay income tax and FICA on the paid leave they receive pursuant to the Families First Coronavirus Response Act?
Rohen: Employees will pay income tax and FICA (both SSA (OASDI) and Medicare).
Boyd: Are employers required to pay exempt employees during office or business closures?
Rohen: Exempt, salaried employees generally must receive their full salary in any week in which they perform work. Employers that have a paid time off or vacation plan can require exempt employees to use this time off, provided the employee continues to receive their normal weekly salary.
Boyd: Are employees eligible for unemployment benefits (UI) during business closures?
Rohen: Federal law permits states to have flexibility with their unemployment benefits related to COVID-19. Each state administers its UI benefits differently, and employers should review state specific information.
Boyd: We realize there may be unanswered questions. You can also reach out to an expert at CLA for more information. We thank you for joining us and for the opportunity to serve you and be a resource to you. Please reach out to our team with questions.