Governor Baker Announces Reopening Plan for Massachusetts Economy

Posted in coronavirus, GT Alert, Massachusetts, Workplace Safety

On May 18, 2020, Massachusetts Gov. Baker announced the implementation of a four-phase reopening plan for Massachusetts. For an overview of the four-phase plan, see GT Alert, Massachusetts Announces Four-Phase Reopening Approach and Mandatory Workplace Safety Standards, May 14, 2020.

Businesses eligible to reopen in Phase One must follow both mandatory workplace safety standards and sector-specific requirements. Businesses currently operating based on an Essential Services designation, as defined in the Governor’s March 23, 2020, Executive Order (updated May 15), may remain open, but must comply with mandatory safety standards by May 25, 2020.

Continue reading the full GT Alert, which discusses the elements businesses must have in place to reopen.

Massachusetts Announces Four-Phase Reopening Approach and Mandatory Workplace Safety Standards

Posted in coronavirus, Department of Labor, Employee Policies, Employment Agreement, Labor, Labor & Employment, Massachusetts, Workplace Safety

On May 11, 2020, Massachusetts Gov. Baker announced a four-phase approach to reopening the Massachusetts economy in light of the Coronavirus Disease 2019 (COVID-19) pandemic. The phased reopening is based on public health guidance, and is intended to allow certain businesses, services, and activities to resume, while aiming to protect public health and limit a resurgence of new COVID-19 cases.

Phase One, the “Start” Phase, will allow industries with little face-to-face interactions to resume operations with severe restrictions. Phase Two, the “Cautious” Phase, will allow industries with more face-to-face interactions to resume operations, but with significant restrictions such as capacity limits. Phase Three, the “Vigilant” Phase, will allow for a loosening of some restrictions and conditions contained in the first two phases, if public health data is trending in the right direction. Phase Four, the “New Normal” Phase, enables resumption of activities under the “new normal” framework, assuming the development of appropriate therapy treatments and/or vaccines.

The prospective length of each phase is currently unclear, as progression to the next phase is dependent on satisfying public health metrics. To the extent those metrics fall below certain thresholds, it could result in a reversion to a prior phase.

Read the full GT Alert, “Massachusetts Announces Four-Phase Reopening Approach and Mandatory Workplace Safety Standards.”

COVID-19 and Retirement Plan Partial Terminations

Posted in coronavirus, Labor, Retirement

Among the longer-term considerations for employer layoff and furlough decisions is the impact on a single employer pension, profit sharing, or 401(k) plan.

In general, a 401(k) plan can sustain a partial termination when 20% of the participants in a given year are involuntarily terminated. 26 U.S.C. §411(d); Rev. Proc. 2007-43. Partial termination is a facts-and-circumstances analysis. For example, if an employer typically experiences employee turnover in excess of 20% per year, such routine turnover may not trigger a partial termination. When a partial termination occurs, all benefits vest. Invariably, these benefits are employer contributions, because employee contributions are always fully vested.  That may or may not have a significant impact on the employer, and every situation can be different. Employers who partially terminate a 401(k) plan must identify the plan participants who require an acceleration of vesting. Employers may owe additional benefits to plan participants who improperly suffer a forfeiture.

Employers in multiemployer plans have further concerns, because partial termination triggers withdrawal liability. A partial withdrawal occurs when a contributing employer has not entirely withdrawn from a multiemployer plan, but there has been a long-term decline in the employer’s contributions. Unlike 401(k) plans, partial withdrawals from multiemployer plans are determined formulaically pursuant to 29 U.S.C. §1385. Generally, the partial withdrawal occurs when there is a 70% or greater decline in employer contribution base units (CBU) or when there is a partial cessation of the employer’s contribution obligations, such as under a collective bargaining agreement. CBUs are not monetary units but rather the basis on which contributions are made.  Where contributions are set on the basis of dollars per hour, the hour is the CBU. The reduction is calculated by an involved formula in which the employer’s CBUs over the current and two prior plan years are compared to the two highest CBUs over the prior five years. The partial withdrawal occurs if each of the three testing years’ CBUs are not more than 30% of the highest base year. Special rules govern withdrawal determinations in the building and construction, retail foods, entertainment, and trucking industries, among others.

Calculating the amount of the withdrawal liability is based on one of four statutory formulas adopted by the multiemployer plan’s trustees and applicable to all employers contributing to the plan. In some circumstances, plan trustees can adopt a different formula, subject to Pension Benefit Guaranty Corporation, a federal agency, approval. Although a full explanation of the various formulas is beyond the scope of this post, each formula assesses the withdrawing employer’s allocated share of the plan’s unfunded vested benefits, as of the last day of the plan year prior to the withdrawal. The amount can vary based on a number of factors, including the date that the plan’s assets and liabilities are valued, the actuarial methods used to value the assets and liabilities, and the formula selected by the trustees.

In the current environment, whether a 70% decline will result is an issue of timing and how the recovery is implemented.

As indicated, the facts and circumstances of each individual situation will be critical and should be reviewed with counsel as part of the process of analyzing risk factors in any layoff or furlough determination.

Handling Employee Concerns and Protests During the Pandemic: Federal Law on Interference with Operations

Posted in coronavirus, Federal Law, Labor, Labor & Employment

Work stoppages and disruption of operations are consequences of the Coronavirus Disease 2019 (COVID-19) pandemic. This GT Alert provides an overview of federal law regarding employee protections associated with work stoppages that protest safety in the workplace.

Read the full GT Alert here: “Handling Employee Concerns and Protests During the Pandemic: Federal Law on Interference with Operations.”

The Interplay Between the Massachusetts Unemployment Assistance Program, the Massachusetts WorkShare Program, and the Enhanced Unemployment Benefits in the CARES Act

Posted in Benefits, coronavirus, Department of Labor, Labor, Labor & Employment, Massachusetts

The current COVID-19 public health crisis has brought about significant changes to unemployment benefit programs at the state and federal levels. This GT Alert discusses these changes, the interplay between the state and federal unemployment laws, and provides an overview of the Massachusetts WorkShare program, which may provide greater flexibility to employers and benefits to workers impacted by COVID-19.

Read the full GT Alert here: “The Interplay Between the Massachusetts Unemployment Assistance Program, the Massachusetts WorkShare Program, and the Enhanced Unemployment Benefits in the CARES Act.”

COVID-19-Related Supplemental Sick Leave Benefits Now Available to Certain City of Los Angeles Workers

Posted in California, California L&E Group, coronavirus, Employee Policies, GT Alert, Paid Leave, State Law

Mayor Eric Garcetti signed the City of Los Angeles COVID-19 Supplemental Paid Sick Leave Ordinance (the Ordinance) into law on April 7. Originally passed by the Los Angeles City Council on March 27, the new Ordinance applies to employers who have at least 500 employees nationwide (i.e., those businesses that had been excluded from the reach of the Families First Coronavirus Response Act) and requires these employers to provide two weeks of additional paid sick leave to workers who are unable to work because of specified COVID-19-related reasons. The Ordinance is effective April 10, 2020, and will expire Dec. 31, 2020, unless extended before that date. However, the Mayor took further action on the Ordinance.

Read the full GT Alert, “COVID-19-Related Supplemental Sick Leave Benefits Now Available to Certain City of Los Angeles Workers.”

The CARES Act and the Self-Employed: A Primer

Posted in coronavirus, Department of Labor, Employee Policies, Employment Agreement, Labor, Labor & Employment

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) offers economic aid, such as small business loans and unemployment assistance, to self-employed individuals who traditionally have not been eligible for such benefits. Businesses that rely on gig-economy workers may classify these individuals as independent contractors instead of employees, leaving such workers with limited options for obtaining benefits. In addition, those who are self-employed or sole proprietors may also be denied some work-related benefits that regular employees enjoy. This GT Alert outlines new and expanded opportunities available via the CARES Act for self-employed individuals, sole proprietorships, gig economy workers, and independent contractors.

Read the full GT Alert: “The CARES Act and the Self-Employed: A Primer.”

DOL Clarifications on Emergency Leave Under the Families First Coronavirus Response Act (FFCRA)

Posted in coronavirus, Labor & Employment

Given the speed with which the Families First Coronavirus Response Act (FFCRA) was legislated before its March 18, 2020, enactment, open questions remained at the time of our March 20, 2020 Alert. Employers covered by FFCRA’s paid leave provisions asked how the tax credits would work. Some of those tax credit questions have since been answered by the Internal Revenue Service (IRS), as detailed in our March 25, 2020 Alert. As the FFCRA became effective April 1, 2020, the Department of Labor (DOL) provided guidance in the form of questions and answers, a poster to be displayed in employer workplaces and, importantly, temporary regulations to implement the public health emergency leave provisions of the FFCRA.

DOL continues to add to and make revisions to its question and answer guidance, which has thus far been available at https://www.dol.gov/agencies/whd/pandemic/ffcra-questions.

The following questions now appear to have at least some answers:

Counting Toward the 500 Employee Threshold

Employers were initially left wondering when and whom to count to determine whether the employer has fewer than 500 employees to be covered by the emergency leave provisions of the FFCRA. Related to this issue is whether employers affiliated with other employers under a corporate umbrella may count all employees together or are deemed to stand separately for purposes of the FFCRA. DOL now states the following:

  • When: DOL has now definitively instructed that the time to count to see if the 500-employee threshold is met is “at the time your employee’s leave is to be taken.” Accordingly, the count must be separately done each time an employee needs leave and, for some employers, the answer could change over time.
  • Who: DOL has also stated that the employee count must include (a) all full-time employees (40 or more hours per week); (b) all part-time employees (fewer than 40 hours per week); (c) all employees on leave; and (d) all employees jointly employed by a professional employer organization (PEO), contract vendor, or temporary agency. DOL instructs employers to exclude all independent contractors as defined under the Fair Labor Standards Act (FLSA), as well as those employees who have been laid off or furloughed and not re-employed.
  • Aggregating: DOL has now stated that where one corporation has an ownership interest in another corporation, the two corporations are separate employers unless they are joint employers under the FLSA with respect to certain employees. DOL also states, however, that “two or more entities are separate employers unless they meet the integrated employer test under the FMLA,” and if they are then employees of “all entities making up the integrated enterprise must be counted.” These two statements, while supplying no obvious answer for any given employer(s), at least now clarify two possible legal frameworks applicable to a further tailored analysis, which depends on the context.

Establishing the Applicable Hourly Rate of Pay

The two paid leave sections of the FFCRA also use different language in describing how an employee’s rate of pay is determined for purposes of calculating paid sick leave. DOL has now instructed that for employees who have worked for their current employer for at least six months, the applicable rate is the average of the employee’s regular rate of pay over that six-month period prior to the date leave is taken. For those employees who have worked fewer than six months at the time of taking leave, the applicable rate is calculated as the average of the regular rate over the employee’s period of employment. DOL has also clarified that commissions, tips, or piece rates must be incorporated into the regular rate calculation for the applicable time frame, in accordance with the FLSA. Finally, DOL allows employers the option of simply “adding all compensation that is part of the regular rate” or the applicable period “and divid[ing] that sum by all hours actually worked in the same period.”

FFCRA Leave Used as Intermittent Leave

Whether an employee must be allowed to use any of the new FFCRA leave as intermittent leave or may be required to use it as block leave was also an unanswered question as of FFCRA’s enactment.

DOL has now affirmatively prohibited leave from being taken intermittently by any employee reporting to the worksite based on any of the qualifying reasons other than childcare, i.e., where the employee may have, or has a need to care for someone with, COVID-19, COVID-19 symptoms, or possible exposure to COVID-19. DOL explains its rationale for not allowing intermittent leave under these circumstances as stemming from the “intent of the FFCRA,” to provide sick leave to employees who are sick or possibly sick with COVID-19 so that they aren’t “spreading the virus to others.” Accordingly, only full day paid leave may be allowed in this context.

DOL otherwise establishes a “General Rule” that intermittent leave under the FFCRA is allowed, but “only if the employer and employee agree.” Absent such agreement, however, FFCRA leave may not be taken on an intermittent basis. There are two circumstances under which employers and employees may agree to the intermittent use of FFCRA leave. The first is where employees reporting to the worksite are allowed to take either type of FFCRA leave intermittently because of COVID-19 related childcare responsibilities. The second is where teleworking employees experience any of the qualifying reasons for FFCRA leave, including their own COVID-19 illness or to care for another individual, and there is agreement that they can work only a portion of their regular worktime and are allowed to take intermittent FFCRA for the remainder.

While the DOL’s temporary regulations speak more to the prerequisite of an agreement before FFCRA leave may be taken intermittently, its questions and answers repeatedly indicate DOL’s support for employers and employees who work together, stating that it “encourages employers and employees to collaborate to achieve flexibility” and “is supportive of such voluntary arrangements” that allow for the use of intermittent leave while also keeping employees from spreading COVID-19.

Recordkeeping

Another issue left open by the text of the FFCRA is what, if any, records an employer must keep, or require of the employee, when an employee has a need for either type of FFCRA leave. DOL has now made it clear that employers may require employees to provide the following:

  1. The employee’s name;
  2. The date or dates for which leave is requested;
  3. A statement of the COVID-19-related qualified reason the employee is requesting leave and written support for such reason; and
  4. A written or oral statement that the employee is unable to work, including by means of telework, for such reason.

Additional information may be required, depending on the COVID-19-related reason for Emergency Leave:

  • For a leave request based on a quarantine order or self-quarantine advice, the statement from the employee should include the name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine, and, if the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the employee.
  • For a leave request based on a school closing or child care provider unavailability, the statement from the employee should include the name and age of the child (or children) to be cared for, the name of the school that has closed or place of care that is unavailable, and a representation that no other person will be providing care for the child during the period for which the employee is receiving family medical leave and, with respect to the employee’s inability to work or telework because of a need to provide care for a child older than 14 years old during daylight hours, a statement that special circumstances exist requiring the employee to provide care.

As of the date of this Alert, neither DOL nor IRS has provided specific guidance on what documentation it will accept to support the need for leave. DOL, however, suggests as an example of documentation supporting the need for leave for childcare that employees may be required to supply notices, publications and/or other communications relating to school or day care closures or the unavailability of childcare providers due to COVID-19. As of the date of this Alert, DOL has not otherwise provided further guidance regarding recordkeeping pertaining to the new leaves available under FFCRA, other than the need to maintain such documentation.

Prior Use of FMLA

As noted in our March 20, 2020, GT Alert, the FFCRA was also silent on whether the Emergency Family and Medical Leave Expansion Act (Division C of the FFCRA) gave employees an additional 12 weeks of FMLA leave entitlement for the reasons specified or if an employee’s prior uses of FMLA would reduce the employee’s available amount of new Emergency FMLA. DOL has now provided a definitive answer to this question. DOL’s answer is essentially that Emergency FMLA is limited to 12 weeks for each employee between April 1, 2020, and Dec. 31, 2020 (regardless of the FMLA year used by the employer), and to the extent an employee has previously taken FMLA leave for another FMLA-qualifying reason during the FMLA year defined by the employer, this reduces the amount of Emergency FMLA available to the employee.

Employer-Provided Leave

Another issue on which the FFCRA itself was silent is whether and how paid leave already provided by employers might be used to allow employees to receive full pay for leave time in light of the caps on paid leave under both types of FFCRA leave. The DOL has now clarified that employees may use, and employers may require employees to use, employer-provided leave such as vacation or PTO to run concurrently with Emergency FMLA (but not Emergency Paid Sick Leave) so that an employee can be paid at 100% of the employee’s regular rate of pay. For purposes of any tax credit, however, employers can only claim the amount allowable under the FFCRA.

Employer Business Decisions/Ineligibility for Leave

Questions have also arisen since the FFCRA was enacted about retroactivity of leave, whether and how FFCRA emergency leaves apply to employees who are laid off or furloughed during the COVID-19 public health emergency, and whether FFCRA leave applies when employees have no work.

First, DOL has made clear that the FFCRA leave entitlements are not retroactive.

In addition, DOL has clarified that FFCRA leave entitlements do not extend to any of the following:

  • Employees sent home without pay for lack of work before April 1, 2020;
  • Employees whose worksites are closed, either for lack of business or pursuant to a federal, state, or local directive, and who do not work after April 1, 2020;
  • Employees furloughed for lack of work after April 1, 2020;
  • Employees whose worksites are closed and who do no work but are told that the worksite will reopen at some time in the future.

DOL suggests that employees in all of the above circumstances can and should contact their state workforce agencies and/or seek unemployment compensation.

Finally, DOL has provided guidance that: (1) employees whose scheduled hours are reduced for lack of work cannot use FFCRA leave to get paid full time; and (2) employees who request and receive FFCRA leave prior to a worksite closure are not entitled to FFCRA leave past the period they would otherwise have stopped working.

None of above DOL guidance prevents an employer from being found to have violated the retaliation provisions of the FFCRA leave laws if it selectively furloughs or terminates employees who take or express interest in taking FFCRA leave. However, it appears the consistent principles DOL is applying in the above guidance are: (1) that the FFCRA does not preclude broad-based employer business decisions; and (2) that FFCRA leave is only applicable if the employee would otherwise be working. 

Meaning of Quarantine or Isolation Order

There has also been uncertainty since FFCRA’s enactment about what circumstances lead to availability of emergency paid sick leave under Section 5102(a)(1), which relates to employees who are “unable to work (or telework) due to a need for leave” because “the employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19.” This issue has become an area of increasing focus as various versions of “stay at home” or “shelter in place” orders have been issued and enacted by states and municipalities across the country.

In its temporary regulations, DOL now defines the phrase “Subject to a Quarantine or Isolation Order” in two different ways. First, DOL clarifies that this phrase includes the sweep of “quarantine, isolation, containment, shelter-in-place, or stay-at-home orders issued by any Federal, State or local government.” Second, DOL states that this phrase also includes “when a Federal, State, or local government authority has advised categories of citizens to shelter in place, stay at home, isolate, or quarantine.”

Consistent with DOL’s regulatory and question-and-answer guidance described in the “Employer Business Decisions/Ineligibility for Leave” section above, DOL also clearly indicates that any employee affected by either of the two types of order identified by DOL may only receive paid leave where their employers have work for them. Where the order has closed the employer’s business, and the employer has no work that the employee could otherwise be doing, the employee is not entitled to paid leave under the FFCRA.

Small Business Exception

The FFCRA vests the DOL with authority to “issue regulations for good cause” to “exempt small businesses with fewer than 50 employees from the requirements of” the FFCRA with regard to providing leave for childcare “when the imposition of such requirements would jeopardize the viability of the business as a going concern.” In its temporary regulations issued April 1, DOL states that a small business “is entitled to this exemption if an authorized officer of the business has determined” that any of the following conditions exist:

  1. Paying leave under the FFCRA “would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;”
  2. The absence of the employee or employees requesting leave under the FFCRA “would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities;” or
  3. “There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting” FFCRA leave, “and these labor or services are needed for the small business to operate at a minimal capacity.”

Authorized officers of small businesses who make such determinations are required to document their determinations, and to retain such documentation. At present, they are not, however, directed to submit the documentation to DOL. Making such a determination also does not relieve the small business of the requirement to post and/or distribute to employees the DOL’s notice of FFCRA rights; the small business exception cannot apply to exempt small businesses from the requirement of providing up to 80 hours of paid sick leave under the Emergency Paid Sick Leave Act where employees cannot perform available work for any of the covered reasons other than childcare, including where the employee or an individual he or she must care for has COVID-19, has been exposed to or is suffering from the symptoms of COVID-19 or is subject to an order or quarantine recommendation relating to COVID-19.

Health Care Employer Exception/Discretion to Deny Employee Requests

The FFCRA vests DOL with authority to “issue regulations for good cause” to “exclude certain health care providers and emergency responders from the definition of employee.” Under the Emergency Paid Sick Leave Act, this DOL regulatory authority may include “allowing the employer of such health care providers and emergency responders to opt out.” Under the Emergency Family and Medical Leave Expansion Act, there is a separate “Special Rule for Health Care Providers and Emergency Responders” allowing employers of such employees to “elect to exclude” these employees from taking leave.

In its April 1 temporary regulations, DOL does not fully authorize health care employers to “opt out” of the FFCRA, but it provides broad definitions of “health care provider” and “emergency responder,” whom health care employers “may exclude” from eligibility for paid leave under the FFCRA. Both definitions encompass a broad swath of workers who are and/or will be necessary to deal with the health care needs of those affected by the COVID-19 public health emergency. The definition of “health care provider” also clarifies that it applies not just to those workers specifically engaged in rendering health care but also to those workers employed at or necessary to provide services or to maintain the operation of the many facilities where health care services are being, or may be, provided.

In its March 30 question-and-answer guidance, which also includes the same broad definitions of “health care provider” and “emergency responder,” DOL follows each definition with the identical statement directed to health care employers: “To minimize the spread of the virus associated with COVID-19, the Department encourages employers to be judicious when using this definition to exempt health care providers from the provisions of the FFCRA.”

Enforcement

Finally, DOL’s statements indicate that while it is serious about enforcement, it recognizes the new and sudden imposition of the FFCRA leave requirements under the current unprecedented circumstances. DOL has supplied a toll-free number, repeated in multiple places in the guidance and prominently displayed on the “Employee Rights” Notice, which all employers must post and/or distribute to all employees as of April 1. Employees who believe their employers are improperly refusing to provide them paid sick leave under the Emergency Paid Sick Leave Act-portion of FFCRA are first encouraged to “to raise and try to resolve” concerns with their employers, but are then instructed that they may call the toll-free number “(f)or additional information or to file a complaint.” At the same time, the DOL has indicated that it will observe a temporary period of non-enforcement for the first 30 days following enactment of the Act, as long as the employer has acted reasonably and in good faith to comply with the Act. DOL’s definition of “good faith” is if (1) the violation is not willful, (2) the violation is remedied and the employee made whole as soon as practicable, and (3) the DOL receives a written commitment from the employer of future compliance. Based on the FFCRA’s March 18, 2020, date of enactment, this DOL grace period would apply through April 17, 2020. DOL has made clear, however, that while it will not begin enforcement until after April 17, it will thereafter retroactively enforce violations back to April 1 to the extent such violations have not been remedied.

Conclusion

This GT Alert is not intended to cover every regulatory section or question and answer thus far supplied by DOL, nor to provide any legal advice. The objective of this Alert is to highlight some of the what DOL has provided as of the April 1 effective date of the FFCRA relating to certain issues that have been of concern to many following the initial enactment of the FFCRA. DOL may continue to refine and update its temporary regulations or guidance after this Alert. See the current DOL temporary regulations and the current DOL guidance.

For more information and updates on the developing situation, visit GT’s Health Emergency Preparedness Task Force: Coronavirus Disease 2019.

Employee Retention Tax Credit for Employers Under the CARES Act

Posted in coronavirus, Labor & Employment

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was signed into law on March 27, 2020, contains a tax credit to encourage companies to continue paying employees if the business has been closed, or there has been a significant decline in sales due to Coronavirus Disease 2019 (COVID-19). This tax credit is available to a business of any size, although the rules for a business with no more than 100 employees are more flexible. Importantly, the credit is refundable and can be monetized quickly after the payroll is paid.

This provision allows a 50% refundable tax credit for wages paid to employees of businesses that have been closed due to governmental order or that have encountered a significant decline in gross receipts. The tax credit is capped at $5,000 for each employee, so there would be no credit allowed after the first $10,000 in wages eligible for the credit have been paid. The eligibility rules vary depending on the number of workers. The credit may be applied to a company that conducts a trade or business for wages paid after March 12, 2020, and before Jan. 1, 2021, if the requirements are satisfied.

Requirements

The first requirement is that (i) the employer’s business has either been fully or partially closed due to a COVID-19-related governmental order, or (ii) the business’s gross receipts for the calendar quarter are less than 50% of the gross receipts for the same quarter in the prior year, and continuing for subsequent calendar quarters until the gross receipts climb to more than 80% of the respective prior year calendar quarter. Because the COVID-19 crisis in the United States did not hit businesses hard until mid-March, the “significant decline in gross receipts test” might not apply to some companies for wages paid between March 13 and March 31, because the 50% decline in gross receipts is tested on a calendar quarter, and some businesses did not suffer a significant decline in sales until mid-March. Therefore, the availability of this credit for wages paid in the second half of March may be limited for some businesses, unless the business was closed due to a governmental order (since the credit is available for wages paid when a business is closed due to COVID-19).

The second requirement is that the employer may not receive a small business interruption loan under the CARES Act’s Paycheck Protection Program (PPP) (which itself is limited to companies with less than 500 employees). If an employer takes this credit, and later obtains a small business interruption loan, the tax credit is recaptured and must be repaid to the IRS. This may be a difficult choice for businesses with up to 500 employees, since the economics of taking out a PPP loan for 2.5 times the average monthly payroll is favorable, because the loan can be forgiven. However, in order to have a PPP loan forgiven, a company may not reduce its workforce or wages – a requirement not present for the employee retention tax credit. Accordingly, if a reduction in workforce or pay rates is a possibility, a company might want to consider taking the tax credit rather than the PPP loan.

The third requirement applies only to companies with more than 100 employees. For a company with more than 100 employees, to receive the tax credit for wages paid to any specific employee, such employee may not be providing any services to the employer. This means that if an employee is working from home because the business is closed due to a COVID-19-related governmental order, the wages paid would not be eligible for the credit. On the other hand, a company with 100 employees or less would be eligible to receive the tax credit, even if all its employees are working, whether from home or at the workplace. There is a broad aggregation rule that would treat entities controlled by a common owner as a single employer for purposes of this 100-employee rule. For example, if a common owner owns 10 businesses, each operated by a separate legal entity, and each business has 15 employees, all 150 employees would be aggregated, so that each business would be treated as having more than 100 employees.

The 50% tax credit is allowed for wages plus amounts paid or incurred to maintain the employee’s group health plan on a pro rata basis during the time the employee is receiving retention pay. In order to include the pro rata share of health insurance benefits, the benefits must be tax-free to the employee (as most employer-provided health benefit plans are). For example, assume an employee is paid $1,000 per week and receives tax-free group health insurance benefits that are continued by the employer, and the cost to provide the health insurance is $100 per week. In such a case, the amount eligible for the 50% credit would be $1,100 (for a $550 tax credit). However, the maximum credit per employee would still be limited to $5,000.

A special rule prohibits application of the credit for wages paid to an employee that exceed the amount the employee would have been paid for working the same amount of time during the prior 30- day period. This may cause issues for employees who work on commissions, and such situations may need to be addressed by future guidance from the IRS.

In order to avoid a double tax benefit, the CARES Act provides that the deduction for wages paid shall be reduced by the amount of the tax credits received. Furthermore, the credit will not be available for wages paid to owners of a business or their relatives.

If an employer uses a Professional Employer Organization (PEO) to provide staffing, the tax credit belongs to the employer, not to the PEO. The PEO is required to provide information to the employer so that the employer can use the information to claim the credit.

The tax credit is taken against the social security component of payroll taxes. If the amount of the credit exceeds the social security component of payroll taxes, the excess amount will be refunded. The IRS announced in Release IR-2020-62 that an employer can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit. In other words, an employer can retain the amount of taxes withheld from its employees in order to be reimbursed for the credit. If the employer’s tax deposits are not sufficient to cover the credit, the employer may receive an advance payment of the credit from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. This will allow the employer to receive the refund prior to the filing date for the quarterly Form 940 payroll tax return.

Employment Law Provisions of the Families First Coronavirus Response Act

Posted in coronavirus, Labor & Employment

On March 18, 2020, President Trump signed into law the “Families First Coronavirus Response Act,” (the Act). This Act is a broad response to many of the challenges caused by the current and impending spread of the Coronavirus Disease 2019 (COVID-19). The Families First Coronavirus Response Act has eight provisions intended to assist people during the public health emergency caused by COVID-19 and to allocate federal funds intended to provide such assistance. This GT Alert addresses two of the eight provisions of the Act that require certain private employers to provide paid leave to employees who cannot work because of coronavirus and/or the public health emergency surrounding it. Specifically, this Alert will address the Emergency Paid Sick Leave Act (Division E) and the Emergency Family and Medical Leave Expansion Act (Division C). This Alert supersedes our previous Alerts reporting on the versions of H.R. 2601 which led to the Act.

In combination, the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act may require certain private employers with fewer than 500 employees to provide up to 14 total weeks of leave, 12 weeks of which must be paid leave. Such paid leave is required for employees whose absences from work become necessary due to COVID-19 and its consequences. All new requirements on private employers will take effect 15 days after “final enactment” of the Act (presumably April 2, 2020) and continue through Dec. 31, 2020.

Read the full GT Alert: “Employment Law Provisions of the Families First Coronavirus Response Act.”

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