The Families First Coronavirus Relief Act provides tax relief to small businesses in exchange for COVID-19 paid leave.
March 26, 2020 (Updated: April 8, 2020)
These are trying times for small businesses. The COVID-19 pandemic has drastically altered the business climate in North Carolina and across the globe. In North Carolina, Governor Roy Cooper has ramped up the state’s response to COVID-19 with a series of executive orders aimed at “flattening the curve.”
In the span of a couple weeks, North Carolina went from business as usual to an economy on lockdown:
- on March 10, Governor Roy Cooper declared a state of emergency in North Carolina;
- on March 14, all schools in North Carolina were ordered closed through March and gatherings of more than 100 people were prohibited;
- on March 17, all food and beverage sales in the state were limited to carry-out or drive through only; and
- on March 23, Governor Cooper extended the school closure through May 15, and ordered the closure of all gyms, health clubs, movie theaters, nail salons, barber shops, and massage therapists.
- on March 27, Governor Cooper issued a statewide stay-at-home order, closed all non-essential business operations, and limited gatherings to no more than 10 persons.
These are *not* normal times.
Against this backdrop, Congress passed the “Families First Coronavirus Response Act” (FFCRA). For the first time in U.S. history, the FFCRA requires paid leave for employees under certain circumstances. Prior to the enactment of the FFCRA, no law in North Carolina required employers to provide paid family or medical leave to employees. The new law provides relief to struggling small businesses by covering all the costs of the paid leave.
So, what relief does the new Act offer small businesses?
At its core, the FFCRA is a marriage between (1) mandatory paid leave to employees for sickness and other COVID-related absences, and (2) refundable tax credits to small businesses. Effective April 1, 2020, the federal government will provide refundable tax refunds to small businesses to cover the full amount of eligible payroll expenses.
In other words, Uncle Sam will put cash in the bank account of your business to pay your employees to stay home from work, up to $10,000 per employee.
The FFCRA is broken down into two parts:
- emergency sick leave
- emergency family and medical leave
Under both programs, businesses can receive tax credits for employees to stay home to care for a child who is out of school due to COVID-19. In North Carolina, this means that all employees with school-aged children, who cannot telework, may be eligible for paid leave through at least May 15.
So, why lay off an employee when the government will pay the employee to stay at home with their kids?
Assuming your company can afford the cash outlays, the refundable tax credits in the FFCRA offer an alternative to mass layoffs. Depending on the circumstances, large numbers of employees may exercise their rights to paid leave under the FFCRA, lessening the need to furlough workers to respond to the sharp decrease in demand for goods and services.
But there are important practical considerations: an employer can take advantage of the refundable tax credits only if they have work for their employees to perform (and the employee cannot perform the work because of the COVID-19 related reason). As a practical matter, a company could be limited by cash reserves and access to capital. With revenues down significantly, your business may not be adequately capitalized to front the payroll expense before receiving the quarterly tax credits. The FFCRA allows a company to take an offset against its payroll tax obligations, but the remaining portion of the refundable tax credit may not be paid out for months.
The IRS has published a new form for employers to claim an advance of the tax credit. Consult with your CPA about how you can seek a refund of your company’s eligible FFCRA paid leave expenses.
Your company also may be eligible for bridge loans in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
What should my small business do now to comply with the FFCRA?
All small businesses in North Carolina should revise their employment policies to comply with the FFCRA, including revising their policies for Family Medical Leave Act (FMLA) and sick leave. The new law also requires employers to post a notice to workers of their rights to paid leave under the FFCRA.
The Department of Labor’s Wage and Hour Division released the required notification poster. The notice should be posted “in conspicuous places on the premises of the employer where notices to employee are customarily posted,” or by sending the notice to employees.
Employers also should document the need for the employee’s COVID-19 related leave.
What are the details of the FFCRA?
Here are some of the details with the new paid leave requirements of the FFCRA:
- The FFCRA applies to all companies with fewer than 500 employees. In a twist, the FFCRA exempts large companies. (Prior to the FFCRA, it was small companies with fewer than 50 employees that were exempt under the FMLA.)
- Small businesses must provide paid leave to any employee who is unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age, if the school or place of care has been closed, or the child care provider of the child is unavailable, due to COVID-19. This provision could apply to all employees in North Carolina with school-aged children through at least May 15, 2020.
- The FFCRA requires paid leave for COVID-related childcare for up to 12 weeks. The required rate of paid leave is “not less than” two-thirds the regular rate of pay, based on the number of hours the employee is “normally scheduled to work” (with a cap of $200 per day and $10,000 per employee).
- The FFCRA does apply to employees with reduced hours, in what is known as “intermittent” leave. In other words, you may have an employee who can no longer work mornings due to COVID-19 related childcare needs. That employee may be eligible for emergency FMLA leave under FFCRA, and your company may be eligible for tax credits for the morning leave taken by the employee each day (up to 12 weeks).
- The FFCRA also requires up to two weeks of paid sick leave for all employees who are
- subject to a government quarantine or isolation order related to COVID-19,
- advised by a health care provider to self-quarantine due to COVID-19,
- experiencing symptoms of COVID-19 and seeking a medical diagnosis, or
- caring for an individual who is self-isolating because of a coronavirus diagnosis (or who is experiencing symptoms and seeking a medical diagnosis)
- For all but Item 4 above, the FFCRA provides a higher rate of pay, that is, the employee’s full regular rate of pay (with a cap of $511 per day).
- An employer may require documentation from an employee who is seeking leave under the FFCRA. The permissible documentation varies depending on the type of leave sought by the employee.
- The FFCRA requires that employees who take leave must be reinstated to their regular position when they return to work, with certain exceptions.
- The law includes a hardship exemption for small businesses with fewer than 50 employees. If you believe your small business needs an exemption, seek out legal advice to determine whether you qualify under the new guidance provided by the federal government
At this critical time, small businesses need to be fully aware of the fast-changing legal landscape surrounding COVID-19. The business and employment lawyers at Spengler & Agans are available to meet with you (remotely, of course). Contact Spengler & Agans for a video conference consultation today.