Late on Wednesday, March 18th, President Trump signed into law the Families First Coronavirus Response Act. This Act contains a number of emergency amendments to existing legislation (such as FMLA) and new Acts to help families and businesses understand and navigate the economic impact that this virus is having on our economy.
As ECPs around the country are impacted by this, those that own their own practices are faced with additional challenges of understanding how to handle their teams through the temporary slowdown/shutdown.
After reading this article, you’ll know:
- The important highlights of two Acts most likely to affect ECPs
- An update on unemployment insurance
- Details on employer tax credits to offset the cost of paying sick leave & extended leave
- Information for those that are self-employed
- A possible exemption for practices with <50 employees
- Having your employees file for unemployment insurance
There are two provisions of this law that are going to directly impact practice owners: the Act that covers paid sick leave and the Act that expands/amends the definition to the already-in-force FMLA (Family Medical Leave Act). This article will help you understand the Acts and walk through the decision-making process as you evaluate options in your practice.
The additional rules of Emergency FMLA
The following table summarizes the characteristics of this Act:
|Effective dates of Act||April 2nd and expires 12/31/2020|
|Employee Eligibility||Employed at least 30 days|
|Unpaid leave duration||10 days|
|Duration of paid coverage||Up to 10 weeks|
|Rate of pay||2/3 regular rate of pay for the number of hours employee would be regularly scheduled|
|Max rate of pay||Not to exceed $200/day and $10,000 in aggregate|
|Tax credits||The cost of providing extended leave can be offset against employer portion of Social Security tax liability for total payroll.|
Understand rates of pay definitions and criteria under Emergency Paid Sick Leave Act (EPSLA)
As an employer, you’ll have to cover either 100% or 2/3 of your employees’ rates of pay. The following criteria dictate 100% rate of pay:
- The employee is subject to a Federal, State, or local quarantine or isolation related d/t (due to) COVID-19
- The employee has been advised by HCP (health care provider) to self-quarantine d/t COVID-19
- The employee is experiencing symptoms of COVID-19 and is seeking a medical dx
Employees will be subject to receive 2/3 of their pay rate for the following reasons:
- The employee is caring for an individual who is subject to #1 above
- The employee is caring for son or daughter if their school or place of care has closed down d/t COVID-19 precautions
- The employee is experiencing any other similar conditions specified by
The following chart summarizes the rest of the details of the EPSLA:
|Effective dates of Act||April 2nd and expires 12/31/2020|
|Employee Eligibility||All current employees regardless of tenure|
|Unpaid leave duration||None; enforceable on April 2nd.|
|Duration of paid coverage||Up to 14 days|
|Rate of pay||100% of pay (max of $511/day, not to exceed $5,110 in aggregate) for the first three reasons listed above. 2/3 rate of pay (max of $200/day, not to exceed $2,000 in aggregate) for last three reasons.|
|Tax Credits||The cost of providing extended leave can be offset against the employer portion of Social Security tax liability for total payroll.|
An update on unemployment insurance
Another provision in the legislation requires the federal government to “shore up” the states’ unemployment funds when claims are made because of layoffs caused by COVID-19. In short, as an employer, you will not see an unemployment merit rate increase due to claims filed by your employees because of COVID-19
Details on the tax credit to offset employer cost
In the two charts above, it’s mentioned that employers will be able to offset 100% of the cost of providing paid leave for either Act against the amount of Social Security & Medicare tax the employer is responsible for paying for that quarter (henceforth known in this article as “employer’s tax”). This tax credit is also a refundable tax credit, which means if the cost of providing leave exceeds the amount of the employer’s tax imposed on their payroll for that quarter, the employer can submit for a refund, though it’s unclear exactly how that process will be administered by the IRS.
Example 1: ABC Practice has 3 individuals that qualify for 14 days of paid sick leave and the total cost to the employer is going to be $4,000. The employer is also responsible for depositing $5,000 in payroll taxes attributed to the employer-portion of Social Security & Medicare, so the total “employer’s tax” that the employer would be responsible for submitting would be $1,000.
Example 2: Because XYZ Practice has had to temporarily shut down due to a mandated quarantine, its entire team qualifies for 14 days of paid sick leave for a cost of $14,000. Since the practice has no employer Social Security tax that is paid right now, the cost of providing leave is offset against all employer’s tax paid during that quarter.
Qualified health care plans add to credit
Another important item to note is that the cost of administering and continuing group health care coverage is also a cost that can be offset by the tax credit mentioned above. This is limited to the employer’s cost of administering and continuing to provide group health insurance coverage to covered employees that have qualified for and are on leave.
For those that are self-employed…
If you are self-employed (you file a Schedule C as a 1099 independent contractor or are a single-member LLC that has elected self-employed tax status), you are eligible to claim the lesser of either
- $200 per day for either the last three reasons listed in the table above or d/t extended FMLA
- 67% (100% if d/t the first three reasons mentioned above) of the average daily self-employment income for the taxable year, where average daily self-employment income is defined as an amount equal to net earnings from self-employment for the taxable year divided by 260.
If you are off d/t the first three reasons mentioned above in the EPSLA paragraph, the amount you can claim is limited to the lesser of $511 per day or the second bullet point in the previous paragraph.
Keep in mind that the credit is used to offset the “self-employment tax” that self-employed individuals face and is also refundable.
Practices with less than 50 employees may be exempt…
There’s a clause within the legislation that stipulates that the Secretary of Labor shall have the authority to issue additional guidance to exempt small businesses with less than 50 employees from having to conform to the EPSLA when an employee cannot work due to having to care for a son or daughter because their school or daycare is closed down due to COVID-19. However, the exemption would only be granted if requiring the employer to pay the paid leave would “jeopardize the viability of the business as a going concern;…”
The Department of Labor has indicated that they will be providing additional guidance on this clause early this week.
What about having employees file for unemployment?
Given that practices will effectively have amnesty against SUTA increases, you may want to encourage your employees to file for unemployment. A team member can collect unemployment when (1) the employer has temporarily shut down d/t COVID-19, preventing employees from coming to work, (2) an individual is quarantined with the expectation of returning to work once the quarantine is over, and (3) an individual leaves employment due to the risk of exposure, infection, or to care for a family member. New guidance also does not require the employee to quit in order to receive benefits due to COVID-19.
However, know that your team members cannot collect both unemployment and earnings from you for working, so you have to be comfortable knowing that you won’t have team members that are collecting unemployment available to work in your practice.
It’s important to know that unemployment benefits are dictated at the state level, so please check with your state’s issued guidance around COVID-19 related claims.
You’ll have to make the best decision based on the status of your practice, the team that you have in place, and the financial implications of potentially having to pay sick leave for team members that you advise NOT to file for unemployment.
What should practices do?
Payroll providers have also been trying to figure out how to account for all of the changes that have been proposed and enacted and it’s going to be a challenge for them to have the proper technology and accounting systems in place by the time this law goes into effect.
Because of that, it’s imperative that you keep copious records of your team members that qualify for leave so that you are able to collect any and all credits that are due you for leave that is paid. Make sure you can reconcile your payroll records accordingly.
Bottom line: this is the “hurry up and wait” mode right now. We don’t know what the next 48 hours hold for the future much less the next two weeks. The best thing that you can do is to be proactive with those whom you have a business relationship: your suppliers, your landlord, your banks and lending institutions, and most importantly your team.
Plan and prepare for what might happen, but please do what you can to “act in the now” and not get too far ahead of yourself with negative “what if?” talk. As entrepreneurs, we all share the burden of knowing that our business provides the earnings for our workers and their families. I know you want to do everything you can to support them and we want to help you in any way that we can.
We’re all in this together.