The Department of Labor (DOL) recently issued regulations interpreting the newly enacted expanded Family and Medical Leave Act (FMLA) and paid sick leave provisions of the Families First Coronavirus Response Act. These rules became effective April 1 and continue through December 31 when the law expires. These provisions may be costly to a practice after it reopens.
The new rules apply to businesses with fewer than 500 employees, so many New Hampshire businesses will be affected. However, the law is inapplicable to employees who have been laid off or furloughed who have not yet returned to work. Thus, while these provisions were not applicable while a business was closed due to COVID-19, they will apply once that business reopens.
Under the law, up to 80 hours paid sick leave (based on an employees regular pay rate) must be paid to eligible employees (those who have worked for your business at least 30 calendar days), who meet any of the following tests:
Full-time employees (those working 40 hours a week) receive up to 80 hours of paid sick leave. Other (part-time) employees are entitled to pro rata number of hours of sick leave, based on their average number of hours worked over 2 work weeks. For example, a 2 day a week staffer would be eligible for up to 32 hours of paid sick leave (16 hours/40 X 80).
The amount of paid sick leave is capped at $511 a day, or $5,110 total, if claimed due to reasons 1, 2, or 3 above, or $200 a day, or $2,000 in the aggregate, if claimed due to reasons 4 or 5 above.
As noted above, employees who were terminated, laid off, or furloughed are not eligible for paid leave, unless and until they are rehired. However, the cost of the paid leave, including maintaining health insurance, can be fully offset through payroll tax credits as explained below.
The new law provides the full amount of sick leave pay, as well as all business contributions for employee health insurance, will be reimbursed within 3 months in the form of a payroll tax credit to your business. Once your business begins paying qualified sick leave pay, you should alert your payroll provider and CPA immediately.
You claim the tax credits on federal payroll tax returns (Form 941); however, you can accelerate the financial benefit by reducing your federal payroll tax deposits. Furthermore, if your credits exceed your regular tax deposits, you can file Form 7200, Advance Payment of Employer Credits, with the IRS to have the credits refunded to you.
You will need to retain documentation showing how the paid leave and qualified health plan expenses are calculated, as well as your related payroll records, along with Form 941 and Form 7200 that were submitted to the IRS. These records must be retained for at least 4 years.
Under the law, the DOL has the authority to exempt small businesses with fewer than 50 employees from the expanded FMLA leave (the requirement to offer 12 weeks of paid leave to care for children under 18 whose schools are closed or whose child care provider is unavailable (reason number 5 above)), if it would jeopardize the viability of the business going forward. The regulations provide that your business is exempt if an authorized officer of the business, such as the President of your corporation or managing member of your LLC, determines that: 1) the leave would cause the businesses’ expenses and financial obligations to exceed available business revenues and cause the small business to cease operating at a minimal capacity; or 2) the absence of the employee requesting leave would put the company’s operational or financial health at risk because of the employee’s specialized skills, knowledge of the business, or responsibilities; or 3) there are not enough employees with the requisite skills who are available to perform the work the employee performs and that employee’s “labor or services are needed for the small business to operate at a minimal capacity.”
In order to be exempt, you must sign the determination and retain it, but you are not required to file it with the DOL. There is no particular guidance on the exact form of the determination but it should be in writing and provide sufficient grounds to justify the exemption under one of the aforementioned three options.
Author: John S. Polgrean.
This blog is intended for informational use only. The information contained herein should not be construed as offering legal advice or a legal opinion.