With the spread of COVID-19, the federal government has enacted legislation that could affect your business. President Trump signed the Families First Coronavirus Act into law Wednesday. In addition to expanding unemployment insurance benefits, increasing Medicaid funding, providing free coronavirus testing, and delivering additional nutritional assistance for a variety of low-income assistance programs, the Families First Coronavirus Act also includes two emergency paid sick leave and childcare leave programs.
Emergency Family Leave
If your business employs less than 500 people, you may be required under the Act to provide up to 10 weeks of paid leave to eligible employees if they are unable to work (or telework) because of a need to take care of children whose schools or child care providers are closed or are otherwise unavailable to work as a result of a COVID-19 emergency declaration. An employee who takes such emergency family leave will be entitled to two-thirds of their regular pay during this time up to a maximum total of $10,000 per employee.
Emergency Sick Leave
In addition to emergency family leave, if your business employs less than 500 employees, you may also be required by the Act to provide paid sick leave to your employees during the COVID-19 pandemic. The Act requires employers to provide paid sick time if an employee is unable to work (or telework) because the employee is: (1) subject to a federal, state, or local quarantine or isolation order; (2) advised by a health care provider to self-quarantine; (3) experiencing symptoms of the coronavirus and seeking a diagnosis; (4) caring for an individual who is quarantined; (5) caring for a child whose school or child care provider is closed or are otherwise unavailable to work; or (6) experiencing a similar condition as determined by government authorities.
Qualified full-time employees are entitled to receive up to 80 hours of paid sick leave, and part-time workers are granted leave equivalent to their average hours worked in a two-week period, with the sick leave in either instance being available for immediate use regardless of how long the employee has been employed. Based on circumstances, employees could be entitled to 100% of their regular rate of pay during leave. Employers are prohibited under the Act from requiring workers to find replacements to cover their hours during leave.
Violations of the leave requirements will be considered to have failed to pay minimum wage in violation of the Fair Labor Standards Act of 1938 (FLSA) and could subject the employer to fines up to $10,000 per occurrence and imprisonment up to 6 months for subsequent offenses, as well as possible damages in any lawsuit an employee may bring.
Employer Tax Credits
Employers won’t be expected to bear the entire cost of these emergency leave programs. Employers will be provided refundable credits for the employer portion (but not the employee portion) of the Old-Age, Survivors, and Disability Insurance (OASDI) component of payroll taxes (i.e., the 6.2 percent employer portion of the Social Security tax).
However, the structure of the payroll tax credits could present cash flow problems in the short term for business owners, who are essentially expected to take on the initial costs of these programs with an expectation that the federal government will reimburse them through payroll tax credits each quarter. Some businesses, particularly those that are already experiencing a reduction in revenue in these challenging times, may not be able to overcome the initial financial burden these programs pose.
In an attempt to provide liquidity and financing options to such struggling businesses, Gov. Brian Kemp announced the U.S. Small Business Administration (SBA) will be providing SBA Economic Injury Disaster Loans to eligible Georgia businesses. Applications for the loans are now open, and many will have 30-year repayment terms with first payments not due for up to 12 months. Interest rates will likely range anywhere from 2.75% to 3.75%.
Exemptions for Certain Small Businesses
While the Act does provide authority to the U.S. Secretary of Labor, Eugene Scalia, to exempt certain small businesses from these emergency family and sick leave requirements if the requirements would jeopardize the viability of the business, no such regulations have been introduced by Secretary Scalia to date. Accordingly, unless and until any such exemptions are enacted, the leave requirements could apply to your business.
The Families First Coronavirus Act, which will be in effect April 2 until Dec. 31, will have a widespread impact on businesses in our community. Employers should quickly amend policies and train employees so that the emergency leave programs are administered in accordance with the new law. I encourage you to seek guidance from legal and tax professionals to ensure your business is prepared for the uncharted waters ahead.