UPDATE – Please note that HR 6201 was originally slated to go into effect on April 2, 2020, but has been pushed up to April 1, 2020.
President Trump recently signed into law HR 6201 which becomes effective April 1, 2020. The law generally puts requirements on businesses with fewer than 500 employees (i.e. small business) to provide paid sick time and paid family medical leave time to employees that are impacted by the Covid-19 virus. To offset these mandated costs to small business, HR 6201 provides a 100% tax credit related to such costs applied to the employer funded piece of social security taxes. We’ve organized this post to hopefully address the questions you as a taxpayer may have.
Who does HR 6201 Apply to?
- HR 6201 applies to employers who employ less than 500 employees (“covered employers”). There is still some questions to be answered regarding affiliated entities and whether such test is applied to each separate entity or on a consolidated basis (integrated employer theory).
- HR 6201 does not impact employers with more than 500 employees.
What does HR 6201 Mandate regarding Sick Leave Pay?
HR 6201 requires Covered Employers to provide two weeks of paid sick leave (80 hours or hours worked over two week period for part-time employee). Note: this applies to all employees (there is no time worked requirement)
Paid sick leave may be used when an employee is unable to work or telework for any of the following reasons directly related to Covid-19:
- Employee is subject to government ordered quarantine or isolation
- Employee has been advised by a healthcare provider to self-quarantine
- Employee has symptoms of Covid-10 and is seeking medical diagnosis
- Employee is caring for an individual subject to either (1) or (2)
- Employee needs to care for a child whole school or place of care is closed or whose childcare provider is unavailable due to Covid-19
- Employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.
- HR 6201 mandates that if Employee is unable to work or telework due to reasons (1), (2), or (3), then sick leave is paid at employee’s regular rate of pay (for 2 weeks), however, it is capped at $511/day and $5,110 in the aggregate.
- HR 6201 mandates that if Employee is unable to work or telework due to reasons (4), (5), or (6), then sick leave is paid at 2/3 employee’s regular rate of pay (for 2 weeks), however, it is capped at $200/day and $2,000 in the aggregate.
What does HR 6201 Mandate regarding Family Medical Leave Pay?
- HR 6201 requires Covered Employers to provide paid leave at 2/3 of employee’s regular rate of pay after the first 2 weeks of leave for the remainder of the 12 weeks (i.e. 10 weeks). FMLA paid leave is capped at $200/day and $10,000 in the aggregate*.
- HR 6201 adds qualifying need related to a public health emergency as a ground for Family Medical Leave.
- HR 6201 defines ‘qualified need related to public health emergency’ and relates to qualified employees that are unable to work (or telework) due to need to care for a child (18 & under) whose school or place of care has been closed or because childcare provider is unavailable due to ‘an emergency with respect to Covid-19 declared by Federal, state, or local authority’. Qualified employee is any employee that has been employed for at least 30 days.
Will the Federal Gov’t reimburse the mandated paid Emergency Sick Leave and paid emergency Family Medical Leave?
- HR 6201 allows taxpayers required to provide emergency paid Sick Leave and emergency paid Family Medical Leave (“Covid-19 Paid Leave) a tax credit of 100% of Covid-19 Paid Leave subject to Caps above which is applied to the employer portion of social security taxes.
- The Credit may be used to offset payroll deposits; accordingly immediate relief is provided to impacted employers. The credit would then be reported on federal form 941.
- * The Credit can be increased from the Caps noted above to include amounts employers pay for the employee’s health plan coverage while they are on leave.
- To the extent the tax credit exceeds employer payroll obligations, the tax credit is refundable.
How do I track this?
- While varying software and systems will vary, we advise businesses ensure they are tracking the Emergency Paid Leave separately from existing paid leave obligations.
- Additionally, we advise that tracking be kept on an employee by employee basis.
- The amount of the credit is includible in employer taxable income; accordingly it is not a true dollar for dollar savings.
- The tax credit is reduced by any credits allowed for employment of qualified veterans (i.e. WOTC).
- The tax credit is reduced by any payroll credits related to R&D previously claimed. (FML will monitor closely whether the IRS issues guidance allowing impacted employers to defer R&D payroll tax credits already claimed)
- The tax credit is not retroactive and applies only through December 31, 2020.
As noted above, the legislation does not define how to apply the 500 employee threshold. Existing FMLA rules apply an integrated employer test, therefore consolidated affiliated entities; however, federal employment tax rules generally do not aggregate entities. Further, the legislation does not state whether the 500 employee test is applied at a specific date in time or averaged over a period of time.