Aronson’s Guide to COVID-19 Emergency Paid Sick Leave

March 27, 2020

I. Overview

Effective on April 1, 2020, the Families First Coronavirus Response Act (FFCRA) requires employers with less than 500 employees to provide up to 80 hours of paid sick leave for full-time employees who are subject to any of the following situations:

  1. Complying with a federal, state, or local quarantine or isolation order related to COVID-19
  2. Advised by a health care provider to self-quarantine due to COVID-19 concerns
  3. Experiencing COVID-19 symptoms and seeking medical diagnosis
  4. Caring for an individual subject to a federal, state, or local quarantine or isolation order or advised by a health care provider to self-quarantine due to COVID-19 concerns
  5. Caring for the employee’s child if the child’s school or place of care is closed or the child’s care provider is unavailable due to public health emergency
  6. Experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

The sick leave must be paid at the employee’s regular rate for qualifying reasons one through three and at two-thirds the employee’s regular rate for qualifying reasons four through six. Part-time employees are eligible for a pro rata pay. The total required sick leave is capped at $511 per day or $5,110 per employee for reasons one through three and $200 per day up to $2,000 for reasons three through four. This emergency sick leave does not replace any other sick leave offered by the company and will expire after December 31, 2020.

The FFCRA also expands the Family Medical Leave Act (FMLA), as summarized below:

  • FMLA now applies to employers with less than 500 employees.
  • Employees only need to be employed for 30 days to be eligible for FMLA leave.
  • The Secretary of Labor can exempt businesses with less than 50 employees if compliance would jeopardize the viability of the business. The process to obtain an exemption has not been established.
  • Employers of healthcare workers or emergency responders can exempt such employees at the employer’s election.
  • Only the first 10 days of FMLA leave will be unpaid, though employees may use other accrued PTO during the 10-day period.
  • After the 10-day period, the employee must be paid at two-thirds their regular rate for the employee’s regular hours, up to a ceiling of $200 a day and $10,000 aggregate per employee.
  • Employers with at least 25 employees must offer job-protected leave. Under certain circumstances, employers with less than 25 employees are not required to provide job-protected leave if the employee’s position no longer exists due to the pandemic.

The government will utilize tax credits to reimburse businesses for the paid sick leave granted, as a result of the FFCRA. The FFCRA will expire on December 21, 2020.

The Department of Labor has issued a news release with more information on how to implement the FFCRA at your business.

II. Accounting

Emergency sick leave is distinct from the employer’s normal PTO and will ultimately lead to tax credits. Therefore, it needs to be accounted for separately.

The first recommended step is to establish at least four new leave accounts in your system to track for tax credits, as described below:

Pay Type E.g. Pay Code Per Employee Limitations Effective Until
Sick Leave Sick-EE This is for qualified employees that are ill or under quarantine (#1-3) Maximum of $511/day ($5,110 total) 12/31/20
Sick Leave Sick-FM This is for qualified employees having to take care of family member of child (#4-6) Must receive two-thirds of their regular rate, up to a maximum of $200 per day ($2,000 total) 12/31/20

Note: The maximum combined sick leave is 80 hours

Pay Type E.g. Pay Code Per Employee Limitations Effective Until
FMLA FMLA-N Under Family Medical Leave Act (FMLA) – Employee can choose 80 hours leave without pay or use existing accrued leave Leave without pay $0 12/31/20
FMLA FMLA-Y Under FMLA – after the first two weeks employee is eligible for up to 400 hours of paid leave subject to pay cap Maximum at $200/day for 10 weeks ($10,000 total) 12/31/20

Recommended Tips:

  • Instruct your employees to record their time to the appropriate charge code on their timesheet to facilitate the correct calculation of their pay.
  • Check with your payroll provider to cap the maximum costs allowed to pay. There may be a need to establish additional leave codes for part-time employees who receive reduced benefits.

III. Tax Credits

Under guidance expected to be released soon, eligible employers who pay qualifying sick or child care leave will be compensated, retaining payroll taxes equal to the amount of qualifying sick and child care leave that they expect to pay. This includes federal income taxes and the employee and employer’s share of Social Security and Medicare taxes, with respect to all employees. According to the IRS Information Release (IR 2020-57), if the payroll taxes are not sufficient to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. Processing times are expected to be two weeks or less.

Examples (provided by IR 2020-57)

If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all of their employees, the employer could use up to $5,000 of the $8,000 of taxes they were going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on their next regular deposit date.

If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

Our team will continue to monitor this situation and keep you informed about any relevant updates that impact your business. More tax-related news can be found on our service page. For help guiding your business through the coronavirus outbreak, visit our COVID-19 resource hub.

If you have additional questions or concerns during these difficult times, please feel free to contact any of our experts. For consulting needs, contact Barbara Morgan, Donna Dominguez, or Tom Marcinko. For tax needs, contact Mario DeLuca, Anatoli Pilchtchikov, or Christopher Lee.