Federal and State Governments act to help lessen the impact of COVID-19

As the US has continued to brace and cope with the impact of the coronavirus pandemic, both Federal and State governments have responded to help small business and their employees.  On March 17, 2020 California’s Governor signed an executive order addressing 60-day layoff requirements, and on March 18, 2020 Congress passed and signed the Families First Coronavirus Response Act to address employee leave and related tax credits for employers. This memo will review the details and benefits provided in the Act and executive order.

California’s Executive Order N-31-20

For employers in California subject to the Worker Adjustment and Retraining Notification (WARN) act and Cal-WARN, labor code requires mass layoff or termination notifications to be provided with a 60-day notice.  The governor’s executive order signed on March 17^th, 2020 suspended the requirements of the 60-day notice under Labor code sections 1401(a), 1402, and 1403, with the objective to relieve companies from having to provide advanced notice, if a closing or layoff is related to COVID-19.  This order will stay in effect until the end of the declared State of Emergency.

California businesses that are forced to order mass layoffs, closing, or relocation as a direct result of the COVID-19 pandemic are required to provide written notice to employees and government officials.

Any notice sent on 3/18/2020 or thereafter must include the following: “If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI).  More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019.”

Since the executive order does not completely suspend Cal-WARN, employers should continue to evaluate obligations under the Federal WARN Act and Cal-WARN acts.

The Families First Coronavirus Response Act

The Act expanded upon the Family and Medical Leave Act, providing temporary coverage and eligibility related to the current COVID-19 pandemic.  Business owners with less than 500 employees should review the requirements and benefits becoming available to help lessen the impact to employees and their business.

The emergency expansion of the Family and Medical Leave Act will be effective April 2^nd, 2020 through December 31^st, 2020 and will apply to businesses with less than 500 employees and public agencies.

Under the expansion of the Act:

• Full-time or part-time employees (employed for at least 30 calendar days, seasonal or temporary employees do not qualify) are allowed job protected leave for up to 12 weeks if caring for a child under age 18 because that child’s school or daycare is closed due to public health emergency with respect to COVID-19.
• The first 10 days may be unpaid, or employees can use accrued paid leave, including emergency paid sick leave, but employee must be paid for each subsequent day off.
• After the initial 10 days’ pay amount is based on normal hours worked, paid at 2/3 of an employee’s regular pay rate; to not exceed $200/day or $10,000 in aggregate.
• Employers with fewer than 25 employees are exempted from the “job-protected” aspect of the emergency FMLA leave provided a specific set of conditions are met, including if a leave-taking employee’s position is eliminated due to “economic conditions” or other changes that affect the employer’s operations resulting from the public health emergency (basically the employee can take leave but is not guaranteed to have their job “protected” under the exemption).
• Businesses with less than 50 employees could be exempted by the Secretary of Labor if requirements would jeopardize the business

Payroll Tax Credits for Employers

A refundable tax credit equal to 100% of qualified family leave wages paid by an employer will be credited against the employer’s portion of social security taxes and can be claimed quarterly.  If the credit exceeds the employer’s social security tax liability, the excess credit is refundable to the employer.

Sick Leave

The Act also included provisions for sick leave under the Emergency Paid Sick Leave Act.  Employers with less than 500 employees are required to provide paid sick time to workers. This applies if the worker is sick with or has been quarantined due to COVID-19, is experiencing symptoms of the disease and seeking medical attention or is caring for a child in the event of a school closure or unavailable childcare provider.

The sick leave provisions mandate (no matter how long they’ve been employed):

• Full-time employees are entitled to 80 hours of such leave.
• Part-time employees are entitled to time equal to the number of hours they work on average over a two-week period.
• An employer may not require, as a condition of providing the paid sick time, that an employee search for or find a replacement to cover for the hours during which the employee is using the paid sick time.
• Pay Rate:
  • When used for the employee’s own illness, quarantine or care: The pay rate is calculated based on the employee’s “required compensation” (i.e. the employee’s regular rate of pay or the federal, state or local minimum wage, whichever is greater) and the number of hours the employee would otherwise be scheduled to work.
  • When used to care for a family member, or child whose school or care is closed due to COVID-19 precautions: The pay rate is 2/3 of the employee’s regular rate of pay.
• Pay is capped at $511/day or $5,110 total if purpose of the leave is for a quarantine/isolation order, when experiencing symptoms of COVID-19 and seeking medical diagnosis.
• Pay is capped at $200/day or $2,000 total when caring for others.
• Small businesses with fewer than 50 employees from the paid sick leave requirement, if it jeopardizes the viability of the business.
• Employer is prohibited from terminating an employee who takes paid sick leave.
• The sick leave provided under the Act expires on December 31^st ,2020 and does not carry over.

Payroll Tax Credits for Employers

A refundable tax credit equal to 100% of qualified sick leave wages paid by an employer

• Limited to $511/day per employee if qualified sick leave was taken by the employee for their own needs
• The credit is limited to 10 days of leave per qualifying employee
• The credit would be applied against the employer’s portion of social security taxes. If the credit exceeds the employer’s social security tax liability, the excess credit is refundable to the employer.
• The credit is only available for Q2 through Q4 of 2020.

Self-employed

Self-employed individuals are allowed a tax credit against their regular income taxes related to sick or family leave.  The per day amount is limited to the lesser of the individual’s average daily self-employment income, or $511 per day if caring for themselves, or $200 if caring for a minor child.  The days allowed are the same with 10 days of sick leave and 50 days if related to family leave.

Our Team

The actions by federal, state, and local governments are likely to continue as we all work together to minimize the impact of COVID-19 on our communities.  Our team will be continually monitoring any policy or tax changes that may be impactful or helpful to our clients and the business community.  Please use this opportunity to leverage our team for help as we navigate these challenges together.  Contact us for any questions regarding these policy changes or other tax, investment, or planning related questions.