FFCRA – law requiring sick pay for coronavirus, starting April 2, 2020
FFCRA – law requiring sick pay for coronavirus, starting April 2, 2020
This article is about how your business may be affected by the FFCRA (Families First Coronavirus Response Act). This is not the $2 trillion bailout, but a law signed on March 18, 2020. It goes into effect April 2, 2020 and stays in effect until December 31, 2020. It is NOT retroactive. If a business has employees on April 2, 2020, the law applies. If not, it doesn’t.
The law requires paying anyone who cannot work (or telework) due to COVID-19 based on being quarantined due to illness or to government-imposed isolation (like the one Houston and Dallas are now in). Although these quarantines are supposed to end April 3, they could go longer.
Basically, an employer would owe pay if its employees could not telework (and were thus sitting at home not working) and could not show up to a job that required in-person presence.
There are two main parts of the law, The Emergency Family and Medical Leave Expansion Act (section 3101, et seq., and the Emergency Paid Sick Leave Act (section 5101 et seq).
Generally, the Act provides that covered employers must provide to all employees (with the exception of health care providers or emergency responders) under section 5101 (Emergency Paid Sick Leave Act):
- Two weeks (up to 80 hours) of expanded family and medical leave at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined (pursuant to Federal, State, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
- Two weeks (up to 80 hours) of expanded family and medical leave at two-thirds the employee’s regular rate of pay because the employee is unable to work because of a bona fide need to care for an individual subject to quarantine (pursuant to Federal, State, or local government order or advice of a health care provider), or care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor.
Benefits are limited to either $511 per day or $5,110 total if the employee is directly affected, or $200 per day or $2000 total, if the employee is caring for someone else.
Further, under section 3101 (Emergency Family and Medical Leave Expansion Act) a covered employer must provide to employees that it has employed for at least 30 days (with the exception of health care providers or emergency responders):
- Up to an additional 10 weeks of expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.
This extended leave kicks in, however, after the first ten days of leave, which are unpaid (or are paid using otherwise existing paid time off – vacation days, other paid sick days outside this law).
Who the law applies to:
The law applies to employers with less than 500 employees. It is meant for smaller businesses, but as shown below, may impose severe hardships on small businesses.
It is an open question if and how the law would apply to employers with less than 50 employees because the Secretary of Labor can issue regulations that would exempt such employers if the pay requirements would shut down the business (the legal term is “cease to be a going concern”).
It is also an open question if employees can claim the benefit if their children are out of school, but the employee is physically able to tele-work, but chooses not to due to taking care of kids, or they can work, but it is exceedingly difficult. The implementing regulations are supposed to come out by April 2, 2020 and until then, it is unclear how the law would be applied to such a situation
If the employee does work that requires a physical presence at work (carpenter, factory worker, truck driver, barber), and is forced out of work, the law applies. If the employee is too sick from COVID-19 to work, then the provisions would kick in, no matter if tele-work was available.
Part-time vs. full-time workers:
The law makes distinctions between part time and full time workers. Their classification as part-time or full-time matters on the date the first benefits are requested, but has little practical effect as of April 2, 2020 if an employer decides to reclassify workers as part-time who were formerly full-time because the pay owed to part time workers is based on an average wages for the prior two weeks. If a worker goes from being full-time to part-time to avoid the reach of the law, they are paid benefits based on the work they did in the two-weeks prior, which would be the full-time wage.
Re-classifying workers as contractors instead of employees:
If the business does not have employees on April 2, 2020 because it re-classifies employees as contractors legitimately, the law does not apply to the company and the company does not have to pay the benefits mandated by the law. If a company fires its employees prior to April 2, 2020 and rehires them as contractors, that could defeat benefits under the law for workers, but only if the workers are legitimately contractors and not misclassified employees. If the employees are mis-classified as contractors in order to defeat the law, the employer could be subject to punitive damages, in addition to the lost benefits of the law, if the misclassification is done willfully. This is a very fact-intensive inquiry, and is subject to a much longer discussion about misclassification, but is explained well by the Department of Labor here: https://www.blr.com/html_email/AI2015-1.pdf (but which no longer shows up on the Department of Labor website).
Violations are treated as a violation of minimum wage/minimum hour laws, with attorneys’ fees available to the employee in a lawsuit, and penalties for willful violations. It is also illegal to fire an employee who takes leave in accordance with the law or has filed a complaint under the law, or testified in a lawsuit about violations of the law.
How this is paid for:
The employer can get a tax credit on their quarterly taxes owed for the amount expended on benefits under the law. This is a dollar-for-dollar credit that offsets payroll and business quarterly taxes owed. The benefits are paid for by not paying the amount of taxes otherwise owed.
However, if the amount paid in benefits exceeds the amount owed in taxes for that quarter, then the amount to be reimbursed by the government to pay for the benefit would be treated as an overpayment of quarterly taxes - meaning that the money will come back the following year when the yearly tax returns and refunds are processed.
Potential severe hardship for small businesses:
For smaller businesses, or businesses that operate on small margins and small tax liabilities (that would be offset by the benefits paid) this law may cause a significant cash crunch. For instance, if COVID-19, the shutdown of the city, and the oil price collapse cause a business to lose significant revenues, then there is no cash on hand to pay the benefits themselves, while having to carry the loses until a tax refund is due in a year.
The law attempts to deal with this by exempting businesses that could not comply without ceasing as a “going concern,” meaning that if complying with the law would shut the business down or bankrupt the company, the company does not have to comply. Anything short of that, and compliance is necessary.
It is an open question how this would be calculated. The businesses most likely to be affected are those requiring a physical presence of workers, which also usually have significant capital costs like rent – think barbershops, nail salons, restaurants – or material costs in construction or manufacturing. The question is whether the business can calculate the cost of rent and overhead in future months against both expected revenue in the future and also against the cash cost of the benefit – when determining if they are “going concern” - whether they have to go broke paying the benefits during a time when schools are shut down and people are shuttered in “stay-at-home orders. There is a provision in the law that allows businesses leeway to calculate payments while the regulations are sorted out, using a “good faith” standard. However, this type of standard is a gamble.
This law can have serious adverse consequences to small businesses without free cash. For businesses without excess cash profits to cover the payments, there is no good way to free up the money for employees. In the case where a business is effectively shut down by the Coronavirus, and cannot open due to government edict (nail salons, barbershops), the act does little to no good for the business or employee. Either the company pays the leave out of available cash until the cash runs out and stops paying and shuts down, or makes the decision to pay rent and other necessary costs with available cash, without which it could not continue to operate as a going concern, leaving the employees without the sick leave. Employees could have a benefit temporarily, but no job to come back to. The employees would then be unemployed and drawing unemployment from the government. This seems to be the aim, to make small businesses pay out until they shut down and then employees can go on unemployment. This is not a good situation for small business owners. However, not paying wages to employees who are quarantined has a serious adverse effect on the employees. We have already seen businesses laying employees off when work has dried up, facing mounting wage bills to go along with other costs like rent that are frequently personally guaranteed by the small business owner.
A much better solution would have been to have direct government payments to workers who were quarantined or who could not go to work, thereby freeing employers from deciding whether to keep employees or pay them benefits or shut down entirely.
Self-employed individuals get a benefit
Self-employed individuals, who pay the self-employment tax, can also get a tax credit to the extent that they could not work due to COVID-19 under Section 7002 of the law.
Text of the law:
employee vs. contractor: