On April 1, the U.S. Department of Labor’s Wage and Hour Division (WHD) unveiled a host of new protections and relief benefits for American workers who are struggling through the fiscal downturns caused by the coronavirus (COVID-19) pandemic. Under the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act, both part of the Families First Coronavirus Response Act (FFCRA), employees may receive compensation as paid leave taken for reasons specific to the COVID-19 crisis. The act also includes provisions to prevent cash-strapped small businesses from suffering greater financial hardships resulting from the increased costs. The law comes at a pivotal time when federal and state governments are working feverishly to help curb the effects of the outbreak, both in terms of physical and economic health. However, the FFCRA’s broad scope has introduced ambiguities that may impact federal contractors, particularly those considering Requests for Equitable Adjustments (REAs), 48 CFR § 552.243-71. Let’s see if we can demystify the core elements of the FFCRA.
The Intent of the FFCRA
In a nutshell, the FFCRA strives to alleviate the monetary pressures confronting small businesses, including government contractors, and their workforces during the ongoing pandemic. The overarching goal is to keep employers and employees solvent. For workers, the act aims to maintain a steady stream of income to prevent them from working in unsafe conditions or sacrificing their pay to obey the social distancing measures needed to promote public health. Although employers must bear these additional costs initially, the FFCRA seeks to reimburse them through tax credits, as described in the WHD’s April ruling:
FFCRA helps the United States combat the workplace effects of COVID-19 by reimbursing American private employers that have fewer than 500 employees with tax credits for the cost of providing employees with paid leave taken for specified reasons related to COVID-19. The law enables employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus. The Department’s Wage and Hour Division administers the paid leave portions of the FFCRA.
Who’s Covered Under the FFCRA?
FFCRA provisions include paid sick leave along with an expansion of medical and family leave coverage, which apply to public and private sector employers. But it’s not entirely straightforward. Beneath the surface, things get a tad murkier.
Private Sector Employers
- The FFCRA applies to companies with fewer than 500 employees.
- Large businesses are generally exempt. The 500-worker threshold was established because the amounts paid to employees under the new law involve payroll tax credits. That means the government is picking up the bulk of the tab. Bigger enterprises, the logic goes, usually offer generous leave policies and have access to more substantial cash reserves. It would be cost-prohibitive for the government to support them without compromising relief to small businesses in dire need of assistance.
- Businesses with fewer than 50 employees may qualify for an exemption if “the leave requirements would jeopardize the viability of the business as a going concern.”
Exempt Small Businesses
So what does jeopardizing the “viability of the business as a going concern” mean? Good question. The Department of Labor (DOL) primarily considers child care challenges.
- The leave is requested because the child’s school or care facility is closed in response to the coronavirus outbreak.
- The leave is requested because circumstances related to COVID-19 have made child care providers inaccessible or unavailable.
Beyond child care obstacles, the DOL will consider three other factors in determining whether a business with fewer than 50 workers is eligible. In appealing the mandate, an authorized officer of the small business must validate one of these conditions.
- The expense and financial obligations of extending paid leave would exceed the company’s available revenues and prevent the organization from operating at even minimal capacity.
- The absence of employees on leave would hobble the financial and operational health of the enterprise by removing workers with the specialized skills, knowledge, and responsibilities required to effectively run the business.
- The amount of leaves granted would eliminate the number of qualified personnel needed to perform essential work, even at a reduced capacity.
Covered Workers: Eligibility for Emergency Paid Leaves
All employees working for businesses covered under the FFCRA are eligible for two weeks of paid sick time for reasons related to COVID-19. Workers who have been employed for at least 30 days are also eligible for up to 10 weeks of paid family leave to care for a child, under certain circumstances related to COVID-19.
Federal employees may be eligible to take leave under the FFCRA. This depends on their status in relation to the existing Family and Medical Leave Act (FMLA).
“Most employees of the federal government,” the WHD noted, “are covered by Title II of the Family and Medical Leave Act, which was not amended by this Act, and are therefore not covered by the expanded family and medical leave provisions of the FFCRA.” That said, federal workers covered by Title II of the FMLA remain eligible to claim paid sick leave under the Emergency Paid Sick Leave Act (EPSLA) of the FFCRA, although they can’t apply for the extended family and medical coverage.
Employees covered under Title I, on the other hand, can apply for the full suite of benefits in the FFCRA. The FMLA defines Title I workers as:
- individuals employed on a temporary appointment of one year or less;
- individuals employed on an intermittent appointment;
- employees of the U.S. Postal Service and the Postal Rate Commission;
- or employees of the government of the District of Columbia.
Other public sector employees are also covered by the EPSLA, including those who work for a state, a territory or possession of the United States (think Guam or Puerto Rico), a city, a municipality, a township, a county, a parish, or a similar government entity.
Health care providers and emergency responders, regardless of public or private sector employment, may be excluded from taking paid sick leave and expanded family and medical leave under the FFCRA.
Coverage Employers Must Provide to Workers
The coverage that businesses must extend to their employees has also posed some confusion. Despite language in the act, which states all covered employees receive two weeks of paid sick time, there are several nuances that come into play. There are basically three scenarios of emergency paid leave, and employees are bound to provide documented evidence. Let’s break it all down. And keep in mind that employers who can accommodate and have authorized telework for their employees may probably be exempt.
Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay. To qualify, the worker must be unable to work because of the following reasons.
- He or she has been quarantined under the direction of federal, state, or local government orders.
- He or she has been quarantined under the advice of a licensed health care provider.
- He or she is experiencing COVID-19 symptoms and is actively pursuing a medical diagnosis.
Now, if the employee is capable of performing his or her duties and has been given the option for telework, employers may not have to provide the paid leave under the EPSLA.
Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay. Yes, you read it correctly. Two-thirds the regular rate of pay. So, if the worker’s regular hourly rate is $30.00, the EPSLA would require the employer to cover only $20.00 per hour of paid leave, if the following conditions apply.
- The worker has a bona fide need to care for someone under quarantine at the order of federal, state, or local government officials.
- The worker has a bona fide need to care for someone under quarantine on the advice of a licensed health care professional.
- The worker must care for a child under 18 years of age whose school has closed or whose child care provider is unavailable because of COVID-19.
If an employee has been on the job for at least 30 calendar days, he or she is eligible for an additional 10 weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay. Okay, this one is a bit different.
- The worker is covered under the Emergency Family and Medical Leave Expansion Act (EFMLEA) portion of the FFCRA, not the paid sick leave (EPSLA) part.
- The rate is always two-thirds the regular pay.
- The additional 10 weeks encompasses only the verified need for a worker to care for a child under 18 who has no access to school or child care because of COVID-19.
Notice of Benefits Requirements
Under the new law, employers also have to post a “conspicuous notice” on its place of business to inform employees of the requirements mandated by the FFCRA. The DOL has created two template posters for employers: an employee rights notice for federal workers and an employee rights notice for private sector employers.
The FFCRA cautions that “Employers may not discharge, discipline, or otherwise discriminate against any employee who takes paid sick leave under the FFCRA and files a complaint or institutes a proceeding under or related to the FFCRA.”
Documentation Workers Must Provide
Although the government’s aim is to help beleaguered employees weather the storm of the pandemic, receiving relief under the FFCRA does place a burden of proof on the workers claiming these benefits. Employees must deliver a statement representing the qualifying reason for their inability to work, including telework, due to COVID-19.
- Workers requesting paid leave because of a government-imposed quarantine must provide the name of the government entity that issued the quarantine or isolation notice.
- Employees requesting paid leave on the advice of a licensed health care professional must provide the name of the provider who recommended the quarantine or isolation.
- Workers requesting leave to care for quarantined individuals must provide the name of the government entity or health care provider who issued the quarantine or isolation order to that individual.
- Employees requesting the extended family and medical leave to care for a child must provide the name of the child being cared for; the name of the school or child care provider that closed or became unavailable due to COVID-19; and a statement representing that no other suitable person is available to care for the child during the period of the leave.
Claiming Those Tax Credits for Reimbursement
While the FFCRA can appear lopsided and tilted in the favor of employees, the act attempts to reimburse covered employers through “dollar-for-dollar” tax credits. As the Labor Department’s WHD states: “Covered employers qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the FFCRA. Qualifying wages are those paid to an employee who takes leave under the Act for a qualifying reason, up to the appropriate per diem and aggregate payment caps. Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage. For more information, please see the Department of the Treasury’s website.”
Jackson Lewis PC’s Bruce H. Schwartz offered a clearer, more simplified explanation in his article for Lexology, which is definitely worth reading for a deeper dive into the details of the act.
The FFCRA provides a tax credit to employers to cover the costs on a dollar-for-dollar basis of providing the FFCRA-required qualified sick leave and family leave wages. In addition, the tax credit includes health plan expenses paid by the employer in connection with the qualified leave wages. Eligible employers can claim these tax credits based on qualifying leave wages paid for the period between April 1, 2020, and December 31, 2020.
Of course, certain elements of the CARES Act also play a role, particularly the Employee Retention Tax Credit.
The CARES Act provides a tax credit to employers whose operations are suspended or reduced due to COVID-19 equal to 50% of qualified wages (up to $10,000) paid to employees after March 12, 2020, and before January 1, 2021. Employers who receive a Small Business Interruption Loan under the CARES Act cannot claim the Employee Retention Tax Credit.
“Both tax credits are applied against the employer portion of the Social Security tax that normally would have to be paid by the employer on W-2 wages paid to all employees,” Schwartz added. “Employers can use the tax credits immediately by reducing the federal employment tax deposits they otherwise are required to make to the IRS. If the total amount of the tax credits exceeds an employer’s Social Security tax liability, the employer can receive a refund of the excess tax credit amount or request an advance payment from the IRS.”
Stay Tuned for More
The FFCRA is a crucial part of the government’s overall COVID-19 economic relief package, but it just scratches on the surface of many other emerging policies that materially affect government contractors, especially those considering filing for equitable adjustments. Throughout this series of posts, we’ll continue to explore the complications and strategies for government contracting in the era of COVID-19. We hope you’ll stay tuned.