This post is brought to you by Tim Finnerty, Nicole Kaylor, David Noll and Ben Ward of the McNees Corporate & Tax Practice Group . 

With guidance from the Small Business Administration (“SBA”) and the Internal Revenue Service (“IRS”) still forthcoming, and the existing guidance changing, many businesses are struggling to understand their options under the Coronavirus Aid, Relief and Economic Security Act (“Act”).  We previously published guidance on the Payroll Protection Program (“PPP”) and Disaster Relief Loans which can be found here.  In addition to those loan offerings, the Act also created other relief options for businesses, some of which can be used in conjunction with the PPP loans.

Employee Retention Credit

First, the Employee Retention Credit is available to employers (i) for so long as operations have been fully or partially suspended by government order relating to COVID-19 or (ii) if gross receipts are down 50% or more from receipts in the same calendar quarter of last year, in which case the credit will continue until the business’s receipts exceed 80% of the corresponding quarter in the previous year’s receipts.  Special rules apply to tax-exempt organizations.  No business accepting a PPP loan is eligible to take this credit, but those that are eligible will receive a credit equal to 50% of the “qualified wages” with respect to each employee in each applicable calendar quarter, up to a maximum of $10,000 in wages per employee over all eligible quarters.  For purposes of this credit, “qualified wages” means wages and compensation (as defined in the Internal Revenue Code) paid between March 12, 2020 and January 1, 2021 (i) for employers of over 100 employees, wages to employees not providing services as a result of the events qualifying the employer to take the credit, and (ii) for employers of less than 100 people, (a) all wages paid as a result of a complete or partial closure, or (b) wages paid in a calendar quarter in which the employer qualifies due to a reduction in receipts, and such amount, regardless of how arising hereunder, includes the amount paid or incurred by the employer for any group health plans.  If an employer takes this credit and later applies for and receives a PPP loan, the employer will have to recapture the credit taken or utilize other withheld taxes that will be required to be paid to the IRS. The IRS has issued a very helpful FAQ concerning this process which can be found here.

Credits may not be claimed for any increase in wages over those paid in the 30 days prior to eligibility.  The amount of the credit is then reduced by the amount of sick and family leave credits available under the Families First Coronavirus Relief Act (“FFCRA”) and credits would be negated if certain duplications of deductions arise in limited circumstances.  Since passage, the IRS clarified the reduction for FFCRA credits would be only to the extent such wages are counted in duplication, but both credits would be available to the extent the employer has both paid leave wages refunded under the FFCRA and wage credits under the Employee Retention Credit.

Employers are also eligible, in some circumstances, to request an advance payment of their credit.  The credit can first be taken as a reduction against any tax deposits for the applicable quarter, but may then file a Form 7200 to claim the refund in advance.

Delay in Payment of Employer Payroll Taxes

The Act also authorizes the delay in employers paying their social security tax for the period of March 26, 2020 (the date of the Act’s passage) to December 31, 2020.  One half of the deferred taxes would then be due at the end of 2021 and the other half at the end of 2022.  The Act further provides limited relief for self-employment taxes for self-employed individuals, with 50% payable as usual and the remaining 50% payable in 25% increments at the end of each of 2021 and 2022.  The above deferrals are all available without penalty and as immediate offsets to amounts due.  Finally, as with the Employee Retention Credit, this deferral is not available for employers receiving forgiveness of a PPP loan or a related loan arising under Section 1109 of the Act; however, there is no such prohibition for self-employed individuals.  There is an open question as to whether employers are permitted to defer their social security taxes for the period after securing a PPP loan, but before any forgiveness of the loan.  There will likely be future guidance forthcoming on this and many other open issues under the Act.

The McNees Corporate & Tax Practice Group are continuing to follow guidance issued by the IRS on these matters. Please reach out to any member of the Corporate & Tax Practice Group with questions about the tax changes discussed in this article or other elements of the CARES Act.

Yesterday, the Families First Coronavirus Response Act (FFCRA) became effective, granting eligible employees emergency paid sick leave and emergency paid family leave in response to COVID-19.  On the same day, after weeks of employers (and their attorneys) attempting to decipher the nuances of the leave requirements, the Department of Labor (DOL) issued temporary regulations, shedding light on many of the darkest and unknown corners of the law.

For example, we now know that the emergency paid sick leave (80 hours) runs simultaneously with the first ten days of emergency family leave.  We also know that the emergency paid family leave is not in addition to the twelve weeks of traditional FMLA – employees have 12 weeks total to use for traditional and/or COVID-19 qualifications, not 24.  Yet, employers are more focused on the immediate issue of determining what procedures and documentation they can require to avoid abuse and ensure that they have sufficient information to receive the tax credit.

The temporary regulations give us some answers.  First, the employer can require reasonable notice procedures and generally can require the employee to comply with its usual and customary notice and procedural requirements for requesting leave.  However, there are limitations.  Employers cannot require notice to be given in advance of the leave, it can only be required after the first workday (or part of workday) for which the employee takes the paid leave.  Thereafter, employers can require notice as soon as practicable.  An employer can require the content of the notice, which can be oral, to contain sufficient information determine that the leave is qualifying for paid sick or paid family leave.

An employer can also require supporting documentation.  Regardless of whether the employee is taking paid sick leave or paid family leave, the employee is required to provide documentation containing following: (1) his/her name; (2) dates for which leave is requested; (3) qualifying reason for leave; and (4) a statement that the employee is unable to work because of a qualified reason.  The documentation requirements do not end there.  Additional documentation is required depending upon the basis for the leave.  With respect to paid sick leave, if the employee is taking paid sick leave based on a quarantine or isolation directive (either from the government or a health care provider), he/she must provide the name of the governmental entity or the health care provider that issued the directive.  If the employee simply takes leave under traditional FMLA for their own serious health condition (or to care for the employee’s spouse, child, or parent with a serious health condition) related to COVID-19, the normal FMLA certification requirements apply.

Given that most (if not all) schools and childcare facilities are closed, the most prevalent need for paid sick and family leave will likely be related to childcare.  If the basis for paid sick and paid family leave is childcare, the employee must provide: (1) the name of the son or daughter; (2) the name of the school or place of care that has closed; (3) and a representation that no other suitable person will be caring for the son or daughter during the period of leave.  This last requirement will help avoid the situation where both parents are utilizing paid sick and paid family leave, while only one is needed to care for their children.  Finally, the regulations allow employers to request additional documentation that will be needed to support a request for tax credits for providing the leave.

Enter the IRS.  The IRS issued its own guidance related to seeking the tax credits, and if you thought that the IRS was not going to put limits on the eligibility for tax credits, you were wrong.  While the documentation requirements for the tax credit largely mirror the DOL temporary regulations, there is one large difference when it comes to paid leave for childcare purposes.  IRS requires that the documentation include the age of the child – and if the need for leave is to care for child under older than 14 during daylight hours, the documentation must include a statement that special circumstances exist requiring the employee to provide care.

So, while an employee may be eligible for leave for any child under 18, the employer will only be eligible for a tax credit if the leave is for children 14 and under (absent some exceptional circumstance).   This makes clear that employers need to be careful to gather needed documentation to capture as much tax credit as possible. Given the implications, employers should include these documentation requirements in their policies to ensure both compliance with DOL regulations and also eligibility for tax credits.  If the employee fails to provide them, after giving them notice and an opportunity to correct the failure, employers should deny the leave.

This post was contributed by Timothy Finnerty, Co-Chair of the McNees Corporate & Tax Group

As the coronavirus spread throughout the US and many businesses closed their doors, Congress passed the Families First Coronavirus Response Act (the “Act”). President Trump signed the Act on Wednesday, March 18. The legislation provides benefits to employees that are affected by the virus (both directly and indirectly).

Specifically, the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act, which are both part of the Act, provide employees of small employers (less than 500 employees) with paid leave if they are impacted by the virus. Our Labor and Employment Group has provided a detailed summary of qualifications, limitations and amounts of these benefits here.

In order to reduce the stress that payment of these benefits will cause to a small employer’s cash flow, the Act includes two tax credits, both of which are in the form of payroll tax credits. The credits are structured to fund the benefits that are required to be paid to employees under the Act for Emergency Paid Sick Leave and Paid Family Leave. However, employers will be required to make the payments to employees and then recoup such amounts through the mechanism of the two credits in the Act.  Some of the details are still being worked out as Congress works to finalize additional legislation, which could impact some of these provisions.

Tax Credit for Required Paid Sick Leave
The payroll tax credit for Required Paid Sick Leave provides employers with a tax credit against the social security tax it is required to pay to the IRS, equal to 100% of the “qualified sick leave wages” paid by the employer with respect to a calendar quarter. The amount of the qualified sick leave wages will depend upon the exact reason for the payment to the employee, but in all cases, it will not exceed $511 per day, per employee. The maximum amount of wages, therefore, would be $5,110 per employee.

The tax credit is also increased by a pro-rata portion of the employer’s qualified health plan expenses. The exact amount of this ‘portion’ is difficult to determine based on the language in the Act. However, the Act provides that further regulations will be prescribed to establish how these amounts will be determined.  Additional guidance will likely be finalized very soon.

Importantly, this credit is refundable to the employer. As such, if the amount of the tax credit exceeds the amount owed by the employer to the IRS, that amount will be treated as an overpayment and refundable to the employer. We expect that the IRS will release additional information this week on how those refunds will be processed. The normal process would be through the employer’s quarterly payroll return (Form 941), but a quicker process is likely being vetted by the IRS.

Tax Credit for Required Paid Family Leave
The other payroll tax credit tax in the Act is the Payroll Credit for Required Paid Family Leave. This tax credit also provides employers with a credit against the social security tax it is required to pay to the IRS, equal to the 100% of the “qualified family leave wages” paid by the employer to an employee.  The amount of the tax credit is capped at $200 per day and $10,000 in the aggregate, per employee, but is otherwise calculated as two-thirds of the employee’s regular pay.

Like the Tax Credit for Required Paid Sick Leave, the Tax Credit for Required Paid Family Leave is also increased by a pro-rata portion of the employer’s qualified health plan expenses. Additional guidance from the IRS is expected to provide more clarity on how that amount should be calculated.

This tax credit is likewise refundable to the employer. The details on how those refunds will work will be forthcoming. However, we are expecting that whatever the IRS puts in place will provide the employer with quick access to the much-needed cash. As Congress debates additional relief for everyone affected by the virus, we will keep you updated on issues impacting your business.

 

On the heels of its invitation to individuals and businesses to participate in a dialogue on the Families First Coronavirus Response Act (“Response Act”), the U.S. Department of Labor’s Wage & Hour Division issued a much needed Q&A late Tuesday afternoon.

Effective Date. The biggest question weighing on everyone’s mind has been answered.  The law passed to provide emergency paid sick leave and emergency paid family leave to employees impacted by the pandemic gripping the nation will be effective April 1, 2020 and apply to qualifying leave taken by December 31, 2020.  This means that employers cannot take credit for any paid leave extended to employees prior to April 1, 2020, even if they did so in an effort to comply with the Response Act.  To be perfectly clear, the paid sick leave and expanded family and medical leave requirements are not retroactive.

500-Employee Threshold.  Another grey area we highlighted in yesterday’s edition has been answered.  The DOL advised that in counting your U.S. “employees” you should not include independent contractors, but you should include:

• full-time and part-time employees;
• employees who are on leave;
• temporary employees who are jointly employed by you and another employer (regardless of whose payroll they are on); and
• day laborers supplied by a temp agency

This counting can get a little tricky where one corporation has an ownership interest in another corporation and (a) they are Joint Employers under the Fair Labor Standards Act or (b) they are Integrated Employers under the Family and Medical Leave Act.

• The DOL’s Joint-Employer Fact Sheet explains the final rule on Joint Employers. According to Tuesday’s Q&A, if two entities are joint employers, all of their common employees must be counted.
• The DOL’s Regulation on Integrated Employers is found According to Tuesday’s Q&A, if two entities are an integrated employer, then the employees of all entities making up the integrated employer will be counted.

Under either the Joint Employer or the Integrated Employer count, if the employee count is 500 or more, you are under no obligation to pay the emergency paid sick or emergency paid family and medical leave provided by the Response Act.  You also will not qualify for the tax credits, if you do extend paid leave to your employees during this pandemic.  If you have operations outside of the U.S. and its territories, you should not count them.

Eligibility for Emergency Paid Family and Medical Leave.  This grey area was cleared up as well.  Employees who need leave because they are unable to work/telework and must care for a child whose school or place of care is closed are eligible if they were employed and on the payroll for the 30 calendar days immediately prior to the day their leave would begin.  For example, if the employee requests paid leave for this singular purpose on April 1, 2020, that employee would need to have been on the payroll from March 2, 2020.  If an employee converted from temporary to regular, the time as a temporary employee counts.

We will have to wait for the actual regulations to learn more, including how to help our small business clients apply for the exemption.  Please stay tuned and subscribe to the blog for updates.  Check out McNees Law for up to the minute COVID-19 resources and do not hesitate to contact any member of the McNees Labor & Employment Law Group for assistance with implementation or policy development.

Since President Trump signed the Families First Coronavirus Response Act (“FFCRA”) on March 18^th, we have been waiting for further guidance from the U.S. Department of Labor (“DOL”).  Yesterday afternoon, the DOL announced that it will be hosting a national online dialogue to allow businesses and individuals to contribute to the development of compliance assistance and related implementation of the FFCRA.

The ideas and comments that are gathered from this online dialogue will be used by the DOL to create guidance, resources, and tools that are designed to assist employers and employees in understanding their responsibilities and rights under the FFCRA.  This is a great opportunity to express any concerns and provide innovative ideas that may assist the DOL in providing meaningful guidance to employers.

For those who would like to participate in the online dialogue, use the following link from March 24 through March 29, 2020 to provide your input and ideas: https://ffcra.ideascale.com/.  You can also join a Twitter chat hosted by @ePolicyWorks on March 25, 2020 at 2 p.m. using the hashtag #EPWChat.

As businesses scramble to develop their plan for the weeks ahead, it’s important to identify aspects of the Families First Coronavirus Response Act (“Response Act”) and related laws that are unclear at this point. Professional advisors may offer educated opinions on these questions – but, at the end of the day, we won’t know some of the answers with certainty until the U.S. Department of Labor (“DOL”) and other government authorities issue regulations or further guidance. The following is intended to assist businesses with identifying some of the gray areas in the law – and hopefully direct regulators to points where further guidance could be helpful:

Effective Date – The expanded FMLA and paid sick leave provisions of the Response Act are to take effect “not later than 15 days after the date of enactment of this Act.” The DOL is directed in the Act to issue regulations within the same time frame. Although the 15th day following enactment would be April 2, 2020 – it is possible the new requirements may take effect sooner – possibly upon issuance of DOL regulations, or shortly thereafter.

Counting Employees – The expanded FMLA and paid sick leave provisions both apply to private employers with “fewer than 500 employees.” Such statutory language always raises questions of how to count employees. May related companies be aggregated for purposes of determining the total employee head count? How closely related must the companies be to do so? Do temporary employees who have been engaged for a sustained period count? Do part-timers count – or may they count as a partial full-time equivalent? The DOL will presumably rely upon existing FMLA regulations and case law when interpreting the paid FMLA provisions in the Response Act. However, whether or not those regulations will apply to the paid sick leave provisions is unknown at this point. Hopefully, for the sanity of all employers, the same legal standards will apply to both benefits.

Eligibility – The expanded FMLA benefits apply to any employee who “has been employed for at least 30 calendar days by the employer” from whom leave is requested. Must those days be consecutive? Would an employee who was rehired yesterday be eligible based on 30 days of employment in 2017?

Unable to Work (or Telework) – The Act’s paid FMLA and sick leave benefits are available to an eligible employee who is “unable to work (or telework)” due to a need to care for a son or daughter under 18 years of age if the child’s school or child care arrangement is closed or unavailable due to a public health emergency. What if the employee has already used 11.5 weeks of FMLA week this year? What if both spouses are sent home by their respective employers due to the closure order. Spouse A has the ability to telework, but Spouse B does not. However, Spouse A claims that he/she is unable to telework because his/her 17-year old child’s school is closed. Must employers ignore the fact that the employee’s spouse is also at home – and is not teleworking? Must employers ignore the fact that most 17-year old children are capable of occupying themselves for several consecutive hours at a time? What if the child’s school building is closed, but continues to provide classes online? May employers inquire about the status of an employee’s spouse or child during the closure period?

Exempted Employees and Small Businesses – The DOL has been authorized to issue regulations exempting certain health care providers and emergency responders from the paid FMLA and sick leave requirements. Also, regulations may be forthcoming exempting small businesses with fewer than 50 employees, if the benefits would “jeopardize the viability of the business as a going concern.” The scope of these exemptions is not yet clear but hopefully will be soon.

Effect of Business Closure and Layoffs – The paid sick leave benefits are available when an employee is unable to work (or telework) for several reasons related to Covid-19.   One qualifying reason for taking paid sick leave is “the employee is subject to a Federal, State, or local quarantine or isolation order related to Covid-19.” Does Governor Wolf’s recent business closure order qualify as an isolation order? Would an employee who has been laid off due to the closure order be eligible for the expanded FMLA and paid sick leave benefits once they take effect? What if the employee was receiving statutory paid sick leave or paid FMLA at the time of the layoff – do the benefits continue? We have strong opinions on these issues, but official guidance is needed to bring certainty.

Credit for Voluntarily-Provided Paid Leave – We know that if an employer has always provided an amount of paid sick leave or PTO to employees, the existing leave will not be credited against the 80 hours of paid sick leave that will soon be available to full-time employees under the Response Act. What if an employer supplemented its regular sick leave benefits with additional “pandemic paid leave” time that was made available before the Act took effect. Would these additional benefits be credited toward the statutory sick leave requirement?  Will tax relief be available for such voluntarily-provided additional leave? (Note: Until the DOL says otherwise, cautious employers should assume the answer to these questions is no).

Notice of Rights – The DOL has been directed to promptly publish a Notice outlining employee rights under the Response Act. Employers must “keep [the Notice] posted, in conspicuous places on the premises of the employer where notices to employees are customarily posted.” What if all employees are telecommuting? Is there a duty to distribute the Notice electronically?

Use of Paid Sick Leave – The Response Act makes 80 hours of paid sick leave available to full-time employees, and a pro-rated amount available to part-timers.  Since the leave entitlement is expressed in terms of “hours”, it may presumably be taken on an intermittent hourly basis and not just full-day blocks – but official clarification on this point would be helpful.  Similarly, one of the approved reasons for taking paid sick leave under the Act is to care “for an individual” subject to a local quarantine or isolation order. Does this right extend to caring for individuals outside of the employee’s family or household? Is paid sick leave available to care for friends? Neighbors?

Definition of Full-Time – The Response Act provides 80 hours of paid sick leave to “full-time employees”, and a prorated amount for part-timers. However, the Act doesn’t define “full-time.” Does the employer’s existing employee handbook govern who is “full-time” for purposes of eligibility for paid sick leave benefits? Is 40 hours per week the definition – or are we using the 30-hour standard utilized in the Affordable Care Act?

WARN Notices – Under the Worker Adjustment and Retraining Notification Act (“WARN”), employers with 100 or more employees may be required to provide 60 days’ advance notice to employees who are subject to a mass layoff that affects at least 50 employees and lasts more than six months in duration. Notices must also be given to the employees’ union and certain government authorities. Less advance notice is permitted if the layoff is due to “unforeseeable business conditions.” However, in those situations, the employer must give as much advance notice “as is practicable.” It’s unfathomable to believe that mandated closures will last anywhere near six months – however, some facilities may close permanently due to the business impact of Covid-19. How strict will WARN enforcement be in light of the fluidity of the current situation?  Relief for businesses on this issue would likely require an act of Congress and shouldn’t be assumed.

Life-Sustaining Businesses – Most Pennsylvania employers already know that Governor Wolf’s closure order for “non-life sustaining” businesses took effect at 8:00 p.m. on March 19, 2020. An announcement was made on Friday that enforcement of the closure order has been delayed until Monday, March 23, 2020 at 8 a.m. Updated Business Guidance, a Waiver Process and an email address (ra-dcedcs@pa.gov) for seeking clarifications are available on the Governor’s website at www.governor.pa.gov. In addition, multiple clarifications as to which businesses are permitted to remain open have been added to the list. Here, the questions are unlimited. Perhaps the most pressing question is – “We are closed per the order, but I really need to retrieve that client file from my office – will I be fined and shackled if caught sneaking into my office under the cover of darkness on Monday night?” And, trust me, this is a purely a hypothetical question….

It’s important to “know what we don’t know” as we navigate these uncharted waters. We hope this outline of some of the gray areas in the law is helpful to you as you plan for the next few weeks. If we may assist in any way, please contact any member of our Labor and Employment Law Practice Group.

On March 19, Governor Wolf announced that non-life sustaining businesses would be required to close their physical locations in Pennsylvania by 8:00 p.m. that evening.  As part of the order, the Administration published a list of life sustaining and non-life sustaining businesses.  The measure was implemented to inhibit the spread of COVID-19 and enforcement was slated to begin at midnight on March 21.  Governor Wolf’s order also included a mechanism whereby businesses could seek an exemption from the shutdown.

Since Thursday, the Governor’s Office has been flooded with exemption requests from Pennsylvania businesses seeking to keep their physical locations open during the shutdown.  As a result, Governor Wolf announced that enforcement of the shutdown order would be delayed until 8:00 a.m. on March 23.  The Administration also updated its list of life sustaining and non-life sustaining businesses.

Businesses that are classified as non-life sustaining may still seek exemption from the shutdown order.  Those who choose to apply for exemption may do so online.

If you have questions about how the shutdown order affects your business, or if you need assistance seeking an exemption from the order, contact any member of our Labor and Employment Group.