United States: DOL, IRS And Treasury Preview Employment Provisions For Families First Coronavirus Response Act

Highlights

• In a joint statement, the U.S. Department of Labor, the Internal Revenue Service (IRS) and the U.S. Department of the Treasury previewed how employers may implement the paid family and paid sick leave made available in the Families First Coronavirus Response Act.
• The Act creates paid sick leave and an unpaid and paid family leave benefit needed for certain COVID-19-related reasons.
• Employers with less than 500 employees are required to provide these benefits. Eligible employers are reimbursed immediately through payroll tax credits for paid leave benefits mandated by the Act that are provided to employees.

The recent passage of the Families First Coronavirus Response Act left many questions for employers. In a joint statement issued on March 20, 2020, the U.S. Department of Labor (DOL), the Internal Revenue Service (IRS) and the U.S. Department of the Treasury previewed how employers may implement the paid family and paid sick leave made available in the Act.

The Act creates paid sick leave and an unpaid and paid family leave benefit needed for certain COVID-19-related reasons. (See Holland & Knight's previous alert, "New Law Requires Employers at Certain Firms Provide Leave, Gives Employer Tax Credits," March 19, 2020.) Employers with less than 500 employees are required to provide these benefits. Eligible employers are reimbursed through payroll tax credits for paid leave benefits mandated by the Act that are provided to employees. The provisions take effect on April 2, 2020.

The DOL has stated that regulations relating to the Act will be ready by April. In the meantime, the DOL and IRS explained in the joint statement that employers may now begin to take advantage of the tax credits, which are "designed to immediately and fully reimburse [employers], dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees." To be clear, as of now, covered employers may provide paid family and paid sick leave provided by the Act and take advantage of the tax credits; as of April 2, they will be required to do so unless exempted.

A key question for employers is how to obtain the tax credits for reimbursement. The IRS will be releasing guidance about how to handle the tax credits this week. In the joint statement, the DOL previewed the process of obtaining the tax credits – eligible employers that pay for qualifying leave under the Act will be able to refund the cost of the leave paid to employees by withholding the commensurate amount of money from the payroll taxes paid rather than deposit them with the IRS as normal. The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. If the amount of payroll taxes is not enough to cover the cost of the leave paid, employers will be able to file a request for an accelerated payment for the disparity from the IRS. The IRS has indicated that the processing of these requests will be done in two weeks or less.

The DOL also will issue emergency guidance regarding the exemption for small businesses (less than 50 employees) from the leave requirements related to school closings or childcare unavailability where the Act's requirements would jeopardize the viability of the business as an ongoing concern. The DOL indicated that the exemption would involve "simple and clear criteria."

The DOL recognizes that there is ambiguity in the Act related to these new leave provisions, and that employers, while attempting to navigate through these unchartered and sometimes unexplained waters, will need time to understand their new obligations. Accordingly, the DOL announced that it will be issuing a temporary non-enforcement policy for a 30-day period. During that time, the DOL will not commence an enforcement action against a noncompliant employer as long as the employer has acted reasonably and in good faith to comply with the Act's obligations. During this transition time, the DOL will focus on compliance assistance.

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