Stay Ahead of Law Changes & Protect Yourself Against Being Audited: Corporate Transparency Act and Reasonable Compensation

Coronavirus Relief Bill “Phase 2”

Analyzing the Implications of Phase 2 Relief Measures 

In addition to the extension of the tax filing deadline to July 15, 2020, the Emergency Families First Coronavirus Response Act (H.R. 6201), has now been signed into law by President Trump and takes effect April 2. It will remain effective until December 31, 2020. This will have a huge impact on small to medium sized businesses in order to swiftly recover the cost of providing Coronavirus-related leave. (See this article for more information on Phases 1 and 3)

Emergency Family and Medical Leave Expansion Act

The Emergency Family and Medical Leave Expansion Act (FMLA Expansion Act) applies to employers with fewer than 500 employees and government employers.

Under its provisions, employees who have been employed for at least 30 calendar days have the right to take up to 12 weeks of job-protected leave under the FMLA if the employee is unable to work or telework due to a need for leave to care for the employee’s son or daughter under 18 years of age, if the child’s school or place of care has been closed or if the child care provider is unavailable due to a COVID-19 emergency declared by a federal, state, or local authority.

The first 10 days of leave provided under the FMLA Expansion Act is unpaid, but employees may elect to substitute paid leave for unpaid leave. After the initial 10-day period, leave is paid at 2/3 of the employee’s regular rate of pay for the number of hours that the employee otherwise would have been normally scheduled to work.

The bill provides a specific method to calculate the number of hours for employees with a varying schedule. The amount for each employee is capped at $200 per day and $10,000 in the aggregate. If leave is foreseeable, employees must give as much notice as is practical.

Employers with fewer than 25 employees are not required to restore the employee to the same or equivalent position at the end of leave if the employee’s position no longer exists due to economic or operating conditions caused by the coronavirus emergency, and the employer makes reasonable efforts to restore the employee to an equivalent position at the time and over a one-year period.

The FMLA Expansion Act provides that the Secretary of Labor may exempt small businesses with fewer than 50 employees when these requirements would jeopardize the viability of the business as a going concern. In addition, employers of health care providers or emergency responders may elect to exclude such employees.

The Department of Labor is to clarify regulations that will address the process for requesting an exemption, as well as other issues.

An important provision of the FMLA Expansion Act exempts employers who do not have 50 or more employees from private lawsuits alleging violations, but such employers would still be subject to actions by the Secretary of Labor. Individual liability and successor liability still apply.

Emergency Paid Sick Leave Act

The Emergency Paid Sick Leave Act requires employers with fewer than 500 employees and government employers, through December 31, 2020, to provide full-time employees 80 hours of paid sick time if the employee is unable to work or telework for the following reasons:

  1. The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
    2. The employee has been advised to self-quarantine by a health care provider due to concerns related to COVID-19; or
    3. The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis.

In addition, full-time employees must be paid at 2/3 the regular rate if the employee is unable to work or telework for the following reasons:

  1. The employee is caring for an individual who is subject to an order under (1) above or been advised under (2) above.
    5. The employee is caring for his/her son or daughter if the school or place of care of the child has been closed or the child care provider is unavailable, due to COVID-19 precautions
    6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of Treasury and the Secretary of Labor.

Part-time employees are also entitled to the above paid sick time, based on the number of hours that the employee would otherwise be normally scheduled to work in a two-week period.

Employees are immediately eligible for paid sick time, regardless of how long they have been employed.

The law limits paid leave to $511 per day ($5,110 in total) where leave is taken for reasons (1), (2), and (3) noted above (generally, an employee’s own illness or quarantine); and $200 per day ($2,000 in total) where leave is taken for reasons (4), (5), or (6) (care for others or school closures).

An employer of an employee who is a health care provider or an emergency responder may elect to exclude such employee.

The new law requires that the employer allow the employee to first use sick leave provided for under this sick leave law, then decide to use any remaining accrued paid leave under an employer’s policy. The employer cannot require the employee to use accrued leave under an employer policy first. Any paid leave provided by an employer before the law is effective cannot be credited against the employee’s paid leave entitlement.

Other key provisions of the Emergency Paid Sick Leave Act include:

  • An employer may require reasonable notice procedures after the first workday or portion thereof for which an employee receives paid sick time.
  • Employers may not require that employees search for or find a replacement employee to cover the hours during the employee’s use of emergency paid sick time.
  • Paid sick time terminates with the beginning of the next shift immediately following the termination of the need for paid sick time.
  • Paid sick time cannot be carried over after December 31, 2020.
  • Paid sick time is not required to be paid out at termination of employment.

The new act includes anti-retaliation protections, and provides for penalties for failure to pay wages.

The final bill allows the Secretary of Labor to also exempt employers with fewer than 50 employees when these requirements would jeopardize the viability of the business as a going concern. As mentioned above, the Department of Labor will clarify the regulations that will address the process for requesting an exemption, as well as other issues.

Tax Credits for Paid Sick and Paid Family and Medical Leave

The new law provides for a series of refundable tax credits for employers providing paid emergency sick leave or paid FMLA, including tax relief for self-employed individuals.

Emergency FMLA Expansion Act:

  • A refundable tax credit for employers equal to 100 percent of qualified family-leave wages required to be paid by the Emergency Family and Medical Leave Expansion Act that are paid by an employer for each calendar quarter. The tax credit is allowed against the employer portion of Social Security taxes. If the credit exceeds the employer’s total liability for all employees for any calendar quarter, the excess credit is refundable to the employer.
  • A refundable tax credit equal to 100 percent of a qualified family leave equivalent amount for eligible self-employed individuals. The credit is allowed against income taxes and is refundable. Eligible self-employed individuals are individuals who would be entitled to receive paid leave pursuant to the Emergency Family and Medical Leave Expansion Act if the individual was the employee of an employer (i.e., not self-employed). The qualified family leave equivalent amount is capped at the lesser $200 per day or the average daily self-employment income for the taxable year per day.

Emergency Paid Sick Leave Act

As above with the emergency FMLA, the new paid sick leave law offers refundable tax credits for paid sick leave:

  • A refundable tax credit for employers equal to 100 percent of qualified Emergency Paid Sick Leave wages required to be paid by the Act, that are paid by an employer for each calendar quarter. The tax credit is allowed against the employer portion of Social Security taxes. If the credit exceeds the employer’s total liability for all employees for any calendar quarter, the excess credit is refundable to the employer.
  • A refundable tax credit for self-employed individuals equal to 100 percent of a qualified sick leave equivalent amount for eligible self-employed individuals who must self-isolate, obtain a diagnosis, or comply with a self-isolation recommendation with respect to coronavirus. For eligible self-employed individuals caring for a family member or for a child whose school or place of care has been closed due to coronavirus, the section provides a refundable tax credit equal to 67 percent of a qualified sick-leave equivalent amount.

We’ve got you covered

We deeply value our relationship with you and strive to continue to be worthy of the trust you have placed in us as all of us adjust to these changing times. We are available and devoted to helping address any concerns you may have.

If you have any questions, please feel free to reach out to a member of our staff at 281-440-6279.

 

Clark Boyd

Chief Operating Officer

 

PLEASE NOTE: This information is only a summary of what is included in the new legislation and resources available and should not be considered legal advice. If you are seeking to take action or contemplating action based on this information, please consult with a professional that will consider all relevant facts particular to your business.

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