Over the last three weeks of the Coronavirus pandemic, Congress has passed an astonishing amount of legislation to help businesses and workers weather the economic fallout of this public health crisis. In this alert, we provide a guide to this new legislation from an employment law perspective. Prince Lobel will continue to publish more in-depth alerts on specific Coronavirus-related topics of special interest to our clients.
Phase I – H.R. 6074
Enacted into law March 6, 2020, H.R. 6074 provides $8.3 billion in emergency funding for federal agencies. These funds will help ensure that vaccines developed to fight the coronavirus are affordable, that impacted small businesses can qualify for Small Business Administration (SBA) Economic Injury Disaster Loans (EIDLs), and that Medicare recipients can consult with their providers by telephone or teleconference, as necessary.
The majority of the measure, $6.2b, was designed as emergency funding for several agencies (HHS, CDC, NIAID, and the FDA) to respond to the COVID-19 outbreak. An additional $1.5 billion is designated for an international response.
The following allocations in H.R. 6074 are of particular interest to businesses:
- Small Business Administration (“SBA”) – The enactment designates $20m for the SBA disaster loan program, to support loans to small businesses that have suffered substantial economic injury as a result of COVID-19. Governor Baker declared a state of emergency on March 10, making these low-interest federal disaster loans for working capital available to impacted small businesses in all counties in Massachusetts, and the contiguous counties in neighboring states.
- Economic Injury Disaster Loans (EIDLs) (Disaster Loans Program Account) – The law designates $20m which is to remain available until expended for use “to make economic injury disaster loans….in response to the coronavirus.” This loan will take longer to process than a traditional loan because the lender is the government, not a bank.
- Telehealth Services – $500m allocated. The bill includes a waiver that removes restrictions on Medicare providers from offering telehealth services to beneficiaries.
Phase II – H.R. 6201 – The Families First Coronavirus Response Act (“FFCRA”)
The president signed the FFCRA into law March 18, 2020. This package includes provisions for paid sick leave, free coronavirus testing, expanded food assistance, additional unemployment benefits, and requirements that employers provide protection for healthcare workers. The FFCRA includes the following:
The “Emergency Family and Medical Leave Act” (“EFMLEA”) (effective April 1, 2020 and ending December 31, 2020.) Applications, terms and conditions are:
- Eligible Employees are any employees unable to work due to a need for leave to care for a son or daughter under 18 because the school or daycare has been closed or the child care provider is unavailable due to a public health emergency. If the leave is foreseeable, the employee must provide notice as soon as practical. An eligible employee must have worked for the employer for at least 30 calendar days. The employee does NOT need to have been employed for a year, have worked 1,250 hours or worked in a location where there are 50 employees within a 75-mile radius, per the usual FMLA requirements. An employer of an employee who is a health care provider or emergency responder may elect to exclude such an employee.
- Applicable employers are private businesses with fewer than 500 employees (on the payroll) and most public employers. The bill exempts employers that employ fewer than 25 employees from the job-protected aspect of the emergency FFCRA leave, provided a specific set of conditions are met. The Secretary of Labor shall have the authority to exclude certain health care providers or emergency responders from the “eligible employee” definition and to exempt small businesses with fewer than 50 employees if compliance with the requirements “would jeopardize the viability of the business as a going concern.”
- Term – Employees may take a total of 12 workweeks of leave during a 12-month period under the FMLA, including the Emergency Family and Medical Leave Expansion Act. The first two weeks of coverage may be unpaid, but employees can use other paid leave if available through the employer (vacation, personal time, or sick time) or through the Emergency Paid Sick Leave Act. Benefits are not retroactive.
- Following the 2-week unpaid period, the employee will receive pay of not less than two-thirds of the employee’s regular pay, up to $200/day and $10,000 over the benefit period (10 weeks or 50 days).
- Payroll Tax Credits for qualified sick leave and family leave paid by employer shall be allowed in the amount of benefits paid over the term.
- Individual Tax Credits are granted for qualified family leave for self-employed persons.
FMLA is typically job-protected. The FMLA requires employers to restore employees to their prior positions (or equivalent) upon the expiration of their leaves unless the employees would have lost their jobs even if they had not taken leave. For employees who take FMLA under the new public health emergency provision, the new law notes that exemptions to reinstatement will occur if: the employer has fewer than 25 employees (under specific conditions), the position no longer exists, and the employer makes reasonable efforts to restore the employee to an equivalent position but is unable to do so. Within a 1-year period from the end of the 12 weeks, if an equivalent position becomes available, the employer must make reasonable efforts to contact the employee.
Under certain circumstances, an employee who is obligated under a Collective Bargaining Agreement (“CBA”) may be required to fulfill its obligations to provide sick time by making an equivalent contribution to the plan fund.
The “Emergency Paid Sick Leave Act” (“EPSLA”) (effective April 1, 2020 and ending December 31, 2020.)The Emergency Paid Sick Leave applies to the following employees.
- Eligible Employees – An employee is qualified for emergency paid sick time leave if the employee is unable to work or telework due to a need for leave because the employee is subject to federal, state, or local quarantine or isolation orders, has been advised by a health care provider to self-quarantine due to COVID-19 concerns, or is experiencing symptoms of COVID-19 and is seeking a medical diagnosis. Unlike FMLA, there is no 30-day-on-payroll requirement.
- Additional Eligible Employees – An employee is qualified for emergency paid sick time leave if he/she can’t work due to a need for leave because the employee is caring for someone who is subject to quarantine or isolation or caring for a person who has been advised to self-quarantine or isolate due to COVID-19 concerns, caring for a son or daughter if school/daycare has been closed or child care provider unavailable due to COVID-19, or is experiencing “any other substantially similar condition specified by” the HHS. Unlike the FFCRA, there is no 30-day-on-payroll requirement.
Note: Eligible employees do not need to find a replacement for themselves.
“Applicable employers” – Employers subject to EPSLA are private businesses with fewer than 500 employees (on the payroll) and most public employers. These requirements should be posted, and no firings, discipline or discrimination can be made against any employee who takes leave under EPSLA. Similar to the expanded FMLA provision, the bill allows certain healthcare providers or emergency responders to be excluded from the definition of “eligible employees” and it exempts small businesses with fewer than 50 employees if compliance with the requirements “would jeopardize the viability of the business.The duration of the leave for a full-time employee is a maximum of 80 hours and for a part-time employee the number of hours equal to the average number of hours such employee works over a 2-week period. Benefits must be used this year. Paid sick time will not carry over from one year to the next. Benefits under EPSLA are not retroactive.
- Other terms: The sick leave is immediate and there is no waiting period. An employer may not require an employee to use other paid leave provided by the employer before using the Emergency Paid Sick Leave.
- Compensation for Eligible Employees – Workers at companies with fewer than 500 employees are entitled of two weeks of paid sick. Employees earn their regular pay, up to $511/day and $5,110 over the 10-day period.
- Compensation for “Additional Eligible Employees” – These employees (as defined above) may receive two-thirds of the employee’s regular pay, up to $200/day and $2,000 over the 10-day benefit period.
- Payroll Tax Credits for qualified sick leave and family leave paid by employer shall be allowed in the amount of benefits paid over the term.
- Individual Tax Credits are available for qualified sick leave for self-employed persons equivalent to the sick leave amount referenced above. These credits will be claimed on income tax returns and will reduce estimated tax payments.
The EPSLA does not diminish any other rights or benefits to which an employee is entitled under federal, state, or local law, collective bargaining agreements, or exiting employer policy.
No paid sick leave under the EPSLA is due to an employee from the employer upon the employee’s separation from his/her employment.
Under certain circumstances, an employer who is obligated under a collective bargaining agreement may be required to fulfill his/her obligations to provide sick time by making an equivalent contribution to the plan fund.
The Emergency Unemployment Insurance Stabilization and Access Act of 2020 provides the following:
- $1 billion in emergency grants to help states process and cover unemployment insurance claims.
- 50% of funding for states that follow certain notification and accessibility requirements related to unemployment compensation.
- 50% of funding for states where unemployment compensation claims increase by at least 10% over the same quarter in the previous calendar year. States must ease eligibility requirements (i.e. for employees furloughed, laid off, or exhausted their paid leave allotment) and have access to unemployment, including waiving work search requirements and waiting period.
- 100% federal funding for extended benefits (rather than a 50% match) for states that experience a 10% or higher unemployment rate compared to the previous years, and comply with other beneficiary access requirements, through December 31, 2020.
- Full cost of Covid-19 testing for all Americans, including those uninsured.
- More than $1 billion to maintain federal nutrition assistance, such as subsidized lunches for low-income children, food banks, and meals for eligible seniors.
COVID-19 Phase III – Coronavirus Aid, Relief, and Economic Security (CARES) Act
The Cares Act was passed by Congress on March 27, 2020 and signed by the president the same day. This Prince Lobel Alert provides a description of its many economic relief provisions to businesses. Below we describe some additional aspects from an employment law perspective.
Pandemic Unemployment Insurance (“PUI”)
- The federal government will provide temporary full funding of the first week of regular unemployment. It is also incentivizing states to repeal any “waiting week” provisions, and extend state unemployment for an additional 13 weeks through December 31, 2020 after the normal unemployment period ends.
- The bill provides unemployment benefits of $600/week for four (4) months (in addition to the unemployment compensation received from states.)
- Unemployment payments extend to gig workers and freelancers (self-employed, independent contractors, and those with limited work history), and furloughed workers (those employees who are still receiving health insurance benefits but are not receiving a paycheck.)
Supporting the Healthcare System
The CARES Act provides expanded funds for hospitals, medical equipment and healthcare providers
For businesses that received loans under Section 7(a) of the Small Business Act, exclusive of the CARES Act’s Paycheck Protection Program loans (described in detail in Prince Lobel’s earlier Alert, the government will provide a subsidy whereby the SBA will pay six (6) months of principal, interest, and fees on qualifying loans .
Employers and Payroll Taxes
Employers are eligible for a 50% refundable payroll tax credit on wages paid up to $10,000 during the crisis. The credit is available for employers whose businesses were disrupted due to the COVID-19 shutdown and had a decrease in gross receipts of 50% or more compared to the same quarter last year. For firms with more than 100 employees, the credit can be claimed for employees who are retained but not working due to the pandemic. For firms with fewer than 100 employees, it can be claimed for all employee wages.
Employer and Student Loans
In 2020, employers may contribute up to $5,250 toward a student’s loan obligation on a tax-free basis. This will not be calculated towards your 2020 income and will not be reported on an employee’s W-2. The employee cannot deduct the student loan interest paid by the employer on his/her tax return.
Employee Retention Credit
- Certain employers will receive up to a one-year credit against the employer’s 6.2% share of Social Security payroll taxes.
- To be eligible for the credit, the business meet the following definition (1) operations were fully or partially suspended, due to a COVID-19-related shut-down [government mandated] order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
- For each eligible quarter, the business will receive a credit against its 6.2% share of Social Security payroll tax equal to 50% of the “qualified wages” paid to each employee for that quarter, ending December 21, 2020.
- If the business employed more than 100 employees during 2019, the qualified wages are limited to those wages that were paid by the employer while the business was closed or suspended; if there were fewer than 100 employees for 2019, qualified wages include “qualified health plan expenses” allocable to the wages.In all cases, the amount of qualified wages per employee shall not exceed $10,000 per quarter.Payroll taxes credits for Emergency Family and Medical Leave Act under Phase II of the Coronavirus “bailout” may not be used in determining qualified wages.
- The credit is refundable if it exceeds the business’s liability for payroll tax.
- If the employer takes out a loan per the Section 7(a) of the Small Business Act, no credit is available.
Employer-side Social Security Payroll Tax Payments
- Separate from credits provided under this Act, the new law seeks to alleviate the burden on employers struggling to make payroll by deferring employer-side Social Security Payroll Tax payments for the remainder of the year.
- From the date of enactment through the end of 2020, half of the first Social Security payroll tax payment originally due December 31, 2020 is now due December 31, 2021.The second half of the payment originally due December 31, 2020 is due on December 31, 2022.
- Self-Employed persons can defer 50% of their self-employment tax from the date of enactment to the end of 2020 per the dates above.
In sum, an employer incurring the 6.2% share of Social Security tax in 2020 may defer it to 2021 and 2022 yet receive immediate credit against those yet-to-be-paid payroll taxes through the emergency medical leave credit, sick leave credit, and the new employee retention credit.
Net Operating Losses
Firms may take net operating losses (“NOLs”) earned in 2018, 2019, or 2020 and carry back those losses five years. The firm may opt to forgo the carryback and carry the loss forward. Losses carried to 2019 and 2020 may offset 100% of taxable income, not the 80% TCJA limit.
Net Interest Deduction Limit
The CARES Act changes a business’s ability to deduct 50% of adjusted taxable income for 2019 and 2010 increased from 30% per Section 163(j) of the TCJA. More importantly, as most businesses are not expected to have taxable income in 2020, a business may elect to use its 2019 adjusted taxable income for the purpose of computing its 2020 limitation allowing it to recover prior year taxes paid.
Temporary Removal of the TCJA Section 461(l) Business Losses
Section 461(l) limits the ability of noncorporate taxpayers (including partnerships and S corporations) to deduct business losses against nonbusiness income. For individuals, the cap was set at $250,000 and $500,000 for a joint return. The CARES Act puts Section 461(l) on hold for 2020, retroactively to January 1, 2018.
For more information, please contact members of the Prince Lobel Employment team: Richard Wayne (firstname.lastname@example.org; 617-456-8071); Dan Tarlow (email@example.com; 617-456-8013); Joe Edwards (firstname.lastname@example.org; 617-456-8131); or Laurie Rubin (email@example.com; 617-456-8020).