By Raffi Yousefian | Published 03/22/2020; Updated 05/11/2020 9:21:51 AM

Many of our clients have been inquiring about relief programs available to small businesses and nonprofits during this time of corona virus and chaos. The Families First Coronavirus Response Act (FFCRA) was signed into law as part of the “Phase 2 Relief”. This legislation has been overlooked by many so I believe it deserves an emergency blog post.

This legislation requires that small business employers (<500 employees) provide sick leave (2 weeks) and family leave (10 weeks) for eligible employees, which the government is willing to pay for you up to a certain amount. The government will be paying for this amount by reducing your quarterly payroll taxes dollar-for-dollar by the amount of credits received as a result of providing the leave. By default, you can reduce federal tax deposits by the amount of the credit. If the credit exceeds your share of payroll tax for the quarter then you will receive a refund when filing your quarterly 941 return. According to the IRS, this reimbursement will be “quick and easy to obtain.” Instead of waiting until the end of the quarter to claim the refund, employers may file form 7200 as frequently as they like before the quarter ends to claim the refunds in advance. The wages are not subject to employer Social Security, but are subject to employer Medicare, and the employer must continue to withhold the employee’s share of Social Security and Medicare taxes. 

Sick leave and family leave are not mutually exclusive, employees are entitled to both. As you will see below, an employee who has to stay home to care for a child whose school is closed due to COVID-19, will be eligible to receive up to 12 weeks paid time off for up to $12,000 in wages without any contribution from the employer. 

Please be aware that this is not optional, it is a requirement, however small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school/child care closure if the leave requirements would jeopardize the viability of the business as a going concern. To claim this exemption, you should document why your business meets the criteria set forth by the Department. The law is supposed to take effect beginning April 1, 2020 through December 31, 2020 but there’s a 30-day non-enforcement period for good faith compliance efforts. The effective date of April 1 refers to the pay period, not pay date, so if you paid wages on April 2 for the pay period 3/15-3/31, then these wages do not qualify for the credit. 

There are a lot of details around this legislation but I will try to simplify by breaking it down into three categories of employees who qualify, and the benefit you and/or they will receive from the federal government:

Paid Sick Leave

Employee #1

  • Unable to work or telework because:
    • the employee is quarantined pursuant to a government order or advice of a health care provider; or
    • the employee is experiencing COVID-19 symptoms and seeking medical diagnosis.
  • Required leave
    • Full-time employee: two weeks of sick leave at the employee’s regular rate
    • Part-time employee: hours that the employee works on average over a two-week period at the employee’s regular rate
  • Federal Government will reimburse: up to lesser of (1) employee’s regular rate, or (2) $511 per day, for up to 10 days; plus the cost of prorated health insurance; plus the employer’s share of Medicare taxes imposed on those wages

Employee #2

  • Unable to work or telework because:
    • the employee needs to care for an individual subject to quarantine pursuant to a government order or advice of a health care provider;
    • the employee needs to 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; 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.
  • Required leave
    • Full-time employee: two weeks of sick leave at the 2/3rd of the employee’s regular rate
    • Part-time employee: hours that the employee works on average over a two-week period at 2/3rd of the employee’s regular average pay
  • Federal Government will reimburse: up to lesser of (1) 2/3rd of the employee’s regular pay or, (2) $200 per day, for up to 10 days or 2 weeks; plus the cost of prorated health insurance; plus the employer’s share of Medicare taxes imposed on those wages

Paid Family Leave

Employee #1

  • Unable to work or telework because:
    • the employee is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19.
  • Required leave
    • Full-time employee: 10 weeks of family leave at 2/3rdof the employee’s regular pay
    • Part-time employee: hours that the employee works on average over a 10 week period at 2/3rdof the employee’s regular average pay
  • Federal Government will reimburse: up to lesser of (1) 2/3rd of the employee’s regular pay, or (2) $200 per day, for up to  50 days or 10 weeks; plus the cost of prorated health insurance; plus the employer’s share of Medicare taxes imposed on those wages
  • Employee must have worked with the employer for at least 30 days to qualify

It’s important to understand this is not an alternative to state unemployment. It relates to employees who are unable to work due to the reasons mentioned in the scenarios above. If work is not available due to a business shut down or reduction in activity, then employees should be temporarily laid off and they should apply for state unemployment benefits instead. If an employee is unable to work or telework for only part of the day because they’re caring for a child whose school or place of care is closed, then the employer can allocate those wages paid between paid family leave/sick leave and regular pay based on a reasonable method. 

To claim the credit or reimbursement, the employer will need to substantiate eligibility for sick/family leave by receiving a written request from an employee that states the employee’s name, the dates for which leave is requested, and the reason they’re requesting leave and unable to work or telework. If the leave relates to a quarantine order then the request needs to include the entity or person ordering the quarantine. If the leave relates to caring for a child due to school closure and unavailable child care, then the request should include the name and age of the child, name of the school or place of care that is unavailable, and representation that no other person will be providing care for the child during the period for which the employee is receiving leave. 

The first ten days of leave may be unpaid, however employees can choose to use their PTO to get paid during this time period. Most payroll processors (ADP, Gusto, Intuit, etc.) have already set up earning types in their systems to be able to administer these benefits. The Department of Labor has posted a very detailed helpful FAQ resource to assist in calculating leave benefits. Here is the notice that employers need to provide to employees to be compliant with the new requirements.

This post was meant to summarize the benefits offered through the FFCRA, but if you need help navigating the detailed requirements then please feel free to contact us. 

Raffi Yousefian is a licensed CPA who advises small to enterprise level businesses on accounting and tax issues in his role as Managing Principal at RY CPAs.