Updated on 11/12/2020
Employee Benefit Questions
If I furlough or layoff employees, can I continue some or all of their benefits during the leave?
There may be ways to continue some or all benefits during a furlough or layoff. Each plan is unique, however, and the exact terms must be reviewed. Many plans include a provision that employees be “employed” or “actively at work” and, therefore, employees may lose eligibility under the terms of the plan if they are not performing services. In addition, service requirements for eligibility (such as offering benefits only to employees working at least 30 hours per week) may cause an employee to lose eligibility during a temporary leave (but not in all circumstances). However, many plans include specific provisions extending eligibility during leaves of absence (including unpaid leaves) or following layoffs. Thus, each plan must be reviewed to make this determination.
However, even if benefits would be discontinued, an employer might assist employees to continue their benefits by subsidizing COBRA coverage or assisting employees by converting fully-insured policies and providing a severance payment to cover the costs. Further, many life and disability policies include provisions that waive waiting periods and other limitations if an employee is rehired within a certain period of time after termination. These provisions may mitigate the impact of temporary loss of coverage and should be reviewed in creating a benefit strategy.
Can I establish a leave-sharing program to allow employees to assist one another with COVID-19 situations?
Yes, if designed properly, the donated leave will not be treated as wages subject to income and payroll taxes for donating employees and, instead, will be treated as wages to the employee receiving the donated leave. As with all tax matters, the rules can be complex, so employers should consult with legal counsel in designing and documenting the leave sharing program.
If employees’ hours are reduced and they will lose health coverage, at what point must COBRA notices be sent?
As noted above, employees who experience a reduction of hours may lose eligibility under health plans, resulting in a qualifying event for which the employer would need to offer COBRA. The COBRA election notice must be sent within a certain time after the “qualifying event.” The qualifying event will be the date coverage would otherwise end due to termination or reduction of hours. Thus, as with the question above, it is critical to understand when coverage will end under the terms of each plan.
For example, if an employee is temporarily laid off on March 17 (and therefore has a termination of employment on that date) and health coverage under the plan ends at the end of the month that includes termination, then the qualifying event is March 31. The COBRA notice and election process should run from that date, even if the employer decides to pay all or a portion of COBRA to assist employees in extending benefits. On the other hand, if the plan provides that coverage will end on the last day of the month that is at least 60 days after a temporary layoff, then the qualifying event date is May 30, and the COBRA notice and election process generally should begin at that time.
Failure to provide COBRA notices timely can result in significant liability. Thus, each employer should work with their vendor and benefits counsel to ensure the notice is properly provided based on the terms of its particular plan(s).
Can employees receive a hardship distribution from their retirement plan on account of expenses related to COVID-19?
IRS has not specifically addressed hardship distributions for COVID-19 or any financial hardship that may result from a participant or family member contracting the virus. Several advocacy agencies have requested specific relief to make hardship distributions easier to obtain.
Hardship distributions from a 401(k) or 403(b) plan generally are available only if necessary to satisfy an immediate and heavy financial need—which does include potential COVID-19-related hardships, including:
- Medical expenses of the participant, spouse, and dependents, and
- Prevent eviction from, or foreclosure on the mortgage of, the participant’s primary residence.
Keep in mind that legislation has expanded the types of contributions a plan may allow the participant to access for a hardship distribution and lightened the documentation requirement of administrators. Access to these other contributions for hardships may provide additional relief.
Note that it is unclear whether the Federal Emergency Management Agency’s (FEMA) emergency declaration regarding COVID-19 allows a hardship distribution under the FEMA disaster provisions of the new hardship regulations. If so, a hardship distribution would be permitted for expenses and losses (including loss of income) incurred by the participant on account of COVID-19, up to $100,000. Participants would also be able to spread income tax burden on the distribution over a three-year period and may be allowed to repay the distribution back into a retirement plan for three years.
457(b) plans (a special defined contribution plan available only to tax-exempt entities) may permit an “unforeseen emergency” distribution when faced with a severe financial hardship resulting from illness and medical care for the participant or beneficiary, but not merely due to loss of income. It does not have a similar provision for disasters.
Pension plans and cash balance plans do not permit hardship distributions or loans. However, the SECURE Act, which passed in late 2019, would allow an employer to add a permanent or temporary ability to receive in-service distributions for employees who are at least age 59.5.
Are there any other special distribution or loan relief I can allow from my retirement plan?
Distribution Relief. Yes, the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows a sponsor of a 401(k), 403(b), or 457(b) plan to permit distributions of up to $100,000 during 2020 to a participant who:
- Is, or whose spouse or dependent is, diagnosed with COVID-19, or
- Experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having hours reduced, or being unable to work due to lack of childcare as a result of COVID-19.
Any such distribution will not be subject to the normal 10% early withdrawal penalty. In addition, participants who take such distribution may take the distribution into income over the three year period beginning on the date of the distribution and may repay such distribution to a qualified plan. This special distribution does not apply to money purchase plan assets that may be in a 401(k) or profit-sharing plan, nor does it apply to pension plan benefits.
Loans. In addition, 401(k) and 403(b) plans may permit loans to participants impacted by coronavirus (as described above) of up to the lesser of $100,000 or 100% of the participant’s vested account balance. While this does provide relief for participants who already took the maximum loan (50% up to $50,000), it does not provide relief from any other applicable plan loan limits (such as a limit on the number of loans permitted). Thus, sponsors should evaluate whether they need to adopt amendments to their plan to allow employees to take advantage of the relief.
Further, participants impacted by coronavirus (as described above) who have outstanding loans from a 401(k) or 403(b) plan may defer any loan repayments due between March 27, 2020 and December 31, 2020, for up to one year. If payments are deferred, interest will still accrue and the remaining loan repayments will be adjusted to reflect the delay and accrued interest. This deferral may occur even if the deferral would result in repayments beyond the 5-year loan period.
In addition, even those not impacted by coronavirus may defer plan loan payments until July 15, 2020. This was special relief provided by the IRS in Notice 2020-23. This does not appear to extend the 5-year repayment deadline like the CARES Act relief.
Implementing Changes. Plans will need to be amended to reflect any special coronavirus relief provided, but those amendments do not need to be adopted until the last day of the first plan year beginning in 2022 (2024 for governmental plans). In addition, if your plan is a “safe harbor” plan, you may need to provide an updated notice to eligible employees explaining the changes to the plan’s distribution rules.
Do participants still have to take required minimum distributions in 2020?
Participants in a 401(k) or qualified pension plan who have a required beginning date in 2020 (e.g., a terminated participant who attained 70.5 in 2019) and who did not take the distribution in 2019 do not have to take a required distribution in 2020. In addition, other required distributions due in 2020 are waived.
This relief does not allow repayment of minimum distributions that were taken in 2019 but could have been timely made in 2020.
If a participant took a minimum distribution in 2020 that is now waived, the participant may repay it as an eligible rollover distribution.
Plans will need to be amended to reflect the waiver, but those amendments do not need to be adopted until the last day of the first plan year beginning in 2022 (2024 for governmental plans).
Can I reduce or eliminate my retirement plan contributions?
It depends on the type of retirement plan you have, but generally the answer is yes. For most defined contribution plans, such as 401(k) plans, you can adopt a plan amendment eliminating future employer contributions. If these contributions are discretionary under your plan, no amendment should be necessary – you will simply decide not to make the contributions.
If your plan is a “safe harbor” 401(k) plan, additional rules apply, and your plan will be required to perform ADP/ACP nondiscrimination testing for the year. You can reduce or eliminate future contributions to a safe harbor plan if: (i) your annual safe harbor notice to participants included a statement that you might reduce or eliminate safe harbor contributions during the year; or (ii) you are operating at an economic loss.
If you meet one of these requirements, you can reduce or eliminate your safe harbor contributions by following the steps below:
- Provide a notice to eligible employees explaining the consequences and effective date of the reduction or elimination, and how employees can change their deferral elections. This notice must be provided at least 30 days before the reduction or elimination of contributions is effective.
- Amend your plan to reduce or eliminate your safe harbor contributions and to provide for ADP/ACP nondiscrimination testing. The amendment must be adopted by the date the reduction or eliminating of contributions is effective.
It is important to bear in mind that if your plan fails ADP/ACP nondiscrimination testing, contributions made by your highly compensated employees may need to be distributed from the plan. In addition, if your plan is top heavy (e.g., 60% of the accounts are held by key employees) you will still be required to make top heavy contributions for 2020 (which, if you were using a safe harbor plan design, you may have been exempt from). You should be sure to understand these nondiscrimination issues before changing the employer contribution.
If you are working with a defined benefit plan, you may freeze the plan, which may reduce certain contribution requirements, but you will still be subject to required funding.
Is there any relief related to funding my defined benefit pension plan?
Yes. Any required minimum contributions (including quarterly contributions) due during 2020 may be deferred until January 1, 2021. If you delay any contributions, the amount will be owed with interest for the period between the original due date and contribution date.
In addition, a plan sponsor may elect to treat its plan’s adjusted funding target attainment percentage (AFTAP) for the last plan year ending before January 1, 2020 as the AFTAP for plan years that include the 2020 calendar year. This relief may prevent certain funding-based benefit restrictions from coming into effect.
Does my health plan have to cover COVID-19 diagnosis expenses at a reduced cost-sharing? (Updated 3.19.2020)
Yes, the Families First Coronavirus Response Act, signed on March 18, 2020, requires that all private health plans (both fully-insured and self-insured plans) provide coverage for the diagnosis of COVID-19 without any cost-sharing (such as deductibles, copayments, and coinsurance). In addition, plans cannot require prior authorization for those services. This requirement applies beginning March 18, 2020, through the end of the national emergency period.
Can my high deductible health plan cover COVID-19 diagnosis and treatment expenses with no or reduced cost-sharing? (Updated 3.19.2020)
Beginning March 18, 2020, the plan must cover these expenses. Before that date, the plan was permitted to cover those services without any cost-sharing. On March 11th, the IRS issued Notice 2020-15 permitting an HDHP to allow for COVID-19 testing and treatment without a deductible or with a deductible below the minimum annual deductible, and that such waiver or lessening of deductible would not affect the status of the plan as an HDHP. Plans may need to be amended if the company wishes to provide these enhanced benefits.
Can my high deductible health plan cover telehealth visits with no or reduced cost-sharing?
Yes, the CARES Act allows a high deductible health plan to cover telehealth services prior to the participant reaching the deductible without causing the employee to lose eligibility for a health savings account.
Is a participant allowed to make changes to his election under a Code Section 125 (“cafeteria”) plan due to COVID-19?
There is no special provision allowing participants to change elections to add or drop coverage due to COVID-19. However, a change in status, like a reduction in hours, may arise under COVID-19 for the participant (or his spouse or dependents), which could allow for an election change. Further, it appears that a school or daycare closing that eliminates the need to pay for dependent care would be a change that permits change or revocation of a dependent care FSA election.
Any election change must be consistent with the change in status. Employers should carefully review plan documents to discern what election change options are available and how employees taking FMLA leave will pay for any coverage provided during that leave.
Other plans and agreements to consider with COVID-19 related issues.
Employers who wish to provide additional benefits or payments to support employees with living and working through the COVID-19 emergency should consider implementing a disaster relief program. Details of these programs are outlined in our separate alert, Relief Storm: Providing Tax-Free Benefits During the COVID-19 Emergency.
Employers should review their short-term disability policies to see if COVID-19 related illnesses may be covered. If so, employers should be prepared to provide participants with notices or paperwork as needed.
Employers who wish to provide some benefits to laid-off employees, without impacting their eligibility for state unemployment benefits should consider whether a supplemental unemployment benefit plan can meet their needs. Details of these programs are outlined in our separate alert, Of Furlough and Other Benefits: How Employers Can Supplement State Unemployment Benefits for Former Employees.
Employers with collectively bargained employees should refer to their collective bargaining agreements as some may create additional obligations of the employer to pay for lost time under certain circumstances.
If an employer is contributing to the repayment of employee’s student loans, certain tax benefits may be available under the CARES Act.
What is the Families First Act?
The Families First Act Coronavirus Response Act (the “Act”) was passed by Congress in response to the Coronavirus pandemic. It includes new employee leave entitlements under the Emergency Family Medical Leave Expansion Act (“EFMLA”) and the Emergency Paid Sick Leave Act (“EPSLA”). Both laws became effective on April 1, 2020 and, unless extended, will expire on December 31, 2020.
Is my business covered by the leave provisions in the new Families First Act?
Private employers with fewer than 500 employees and most public employers are subject to the leave requirements of the Act.
When counting employees to determine whether an employer is over or under the 500 employee threshold:
- You must count employees on leave; temporary employees who are jointly employed by you and another employer (regardless of whether the jointly-employed employees are maintained on only your or another employer’s payroll); and day laborers supplied by a temporary agency (regardless of whether you are the temporary agency or the client firm if there is a continuing employment relationship); and
- If two entities are found to be joint employers, all of their common employees must be counted.
- In general, two or more entities are separate employers unless they meet the integrated employer test under the Family Medical Leave Act. If two entities are an integrated employer, then employees of all entities will be counted in determining employer coverage for purposes of leave under the FFCRA.
Which employees are eligible for leave under the two laws?
Employees who have worked for an employer for at least 30 days are entitled to EFMLA leave. There is no similar requirement for EPSLA leave; employees are eligible for leave under that provision immediately upon hire.
Employers can elect to exclude health care providers and emergency responders from the benefits provided under the EPSLA and EFMLA. There is no definition of emergency responder in the Act, but guidance and proposed regulations recently issued by the DOL says an emergency responder is an employee who is necessary for the provision of transport, care, health care, comfort, and nutrition of patients, or whose services are otherwise needed to limit the spread of COVID-19. This includes but is not limited to military or national guard, law enforcement officers, correctional institution personnel, fire fighters, emergency medical services personnel, physicians, nurses, public health personnel, emergency medical technicians, paramedics, emergency management personnel, 911 operators, public works personnel, and persons with skills or training in operating specialized equipment or other skills needed to provide aid in a declared emergency as well as individuals who work for facilities employing these individuals and whose work is necessary to maintain the operation of the facility. This also includes any individual who the highest official of a state or territory, including the District of Columbia, determines is an emergency responder necessary for that state’s or territory’s or the District of Columbia’s response to COVID-19.
Although more broadly defined in earlier guidance, the new DOL guidance from September 16, 2020 clarified and narrowed the definition of “health care provider.” Employers of health care providers can exclude these employees from coverage. The new definition focuses on the skills, roles, and duties of the employee to ensure that employees whose roles are not related to providing healthcare services are excluded from the definition of “health care provider.” The revised rule recognizes that individuals who fall under the definition of a “health care provider” may work, among other places, at a doctor’s office, hospital, health care center, clinic, post-secondary educational institution offering health care instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, a facility that performs laboratory or medical testing, pharmacy, or a similar institution, employer, or entity. Under the revised rule, individuals who may fall within the definition of “health care provider” include:
- A doctor of medicine or osteopathy who is authorized to practice medicine or surgery by the State in which the doctor practices;
- Podiatrists, dentists, clinical psychologists, optometrists, and chiropractors authorized to practice in the State and performing within the scope of their practice;
- Nurse practitioners, nurse-midwives, medical technicians, clinical social workers and physician assistants who are authorized to practice in the State and performing within the scope of their practice;
- Christian Science Practitioners listed with the First Church of Christ, Scientist in Boston, Massachusetts;
- Any health care provider from whom an employer or the employer’s group health plan’s benefits manager will accept certification of the existence of a serious health condition to substantiate a claim for benefits;
- A health care provider listed above who practices in a country other than the United States, who is authorized to practice in accordance with the law of that country, and who is performing within the scope of his or her practice as defined under such law;
- Any other employee capable of providing health care services, which includes:
- Diagnostic services (taking or processing samples, performing or assisting in the performance of x-rays or other diagnostic tests or procedures, and interpreting test or procedure results);
- Preventative services (screenings, check-ups, and counseling to prevent illnesses, disease, or other health problems);
- Treatment services (performing surgery or other invasive or physical interventions, prescribing medication, providing or administering prescribed medication, physical therapy, and providing or assisting in breathing treatments);
- Any other services that are integrated with and necessary to the provision of patient care and, if not provided, would adversely impact patient care (bathing, dressing, hand feeding, taking vital signs, setting up medical equipment for procedures, and transporting patients and samples);
- An employee who provides the services described above under the supervision, order, or direction of, or providing assistance to a health care provider; and
- An employee who may not directly interact with patients and/or who may not report to or directly assist another health care provider, but still provide services integrated with the provision of patient care (for example, a laboratory tech).
This includes any permanent or temporary institution, facility, location, or site where medical services are provided that are similar to such institutions. Positions no longer covered by the definition of “health care provider” include but are not limited to IT professionals, building maintenance staff, human resource personnel, cooks, food service workers, records managers, consultants, and billers.
This definition also includes any individual employed by an entity that contracts with any of the above institutions, employers, or entities to provide services or to maintain the operation of the facility. This also includes anyone employed by any entity that provides medical services, produces medical products, or is otherwise involved in the making of COVID-19 related medical equipment, tests, drugs, vaccines, diagnostic vehicles, or treatments. This also includes any individual who the highest official of a state or territory, including the District of Columbia, determines is a health care provider necessary for that state’s or territory’s or the District of Columbia’s response to COVID-19, and this determination must depend on the skills, role, duties, or capabilities of the employee. Best practice for employers seeking to exclude employees based on the employee’s health care provider or emergency responder status is to adopt a written policy specifically identifying positions that are excluded.
Additionally, the EFMLA contains a provision empowering the Secretary of Labor to exempt small businesses with fewer than 50 employees from the requirements of the EFMLA if it would jeopardize the viability of the business. The Secretary of Labor has proposed regulations addressing this potential exemption. The proposed regulations provide that an employer, including a religious or nonprofit organization, with fewer than 50 employees is exempt from providing (a) paid sick leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons and (b) expanded family and medical leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons when doing so would jeopardize the viability of the small business as a going concern. A small business may claim this exemption if an authorized officer of the business has determined that:
- The provision of paid sick leave or expanded family and medical leave 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;
- The absence of the employee or employees requesting paid sick leave or expanded family and medical leave 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
- 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 paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.
What are the reasons employees can take leave?
Under the EFMLA, eligible employees who are unable to work (or telework) because they need to care for a child under 18 because the child’s school or place of care has been closed, or the childcare provider is unavailable due to the COVID-19 emergency, can take up to 12 weeks of leave. Employees who need to take leave for other reasons not covered by EFMLA, including leave to care for themselves or a family member due to COVID-19 may still be eligible under the FMLA’s standard provisions for unpaid leave.
Under the EPLSA, eligible employees can take 2 weeks of paid leave for the following reasons:
- If the employee is subject to a federal, state, or local quarantine or isolation order related to the Coronavirus;
- If the employee has been advised by a health care provider to self-quarantine due to concerns related to the Coronavirus;
- If the employee is experiencing symptoms of the Coronavirus and are [is] seeking a medical diagnosis;
- If the employee is caring for an individual who is subject to a federal, state, or local quarantine or isolation order related to the Coronavirus, or who has been advised by a health care provider to self-quarantine due to concerns related to the Coronavirus;
- If the employee is caring for their son or daughter if the school or place of care of the son or daughter has been closed, or their child care provider is unavailable, due to Coronavirus precautions; and/or
- If the employee is 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.
How much leave are employees entitled to, and what portion is paid?
Under the EFMLA, employees who have worked for an employer for at least 30 days are entitled to up to 12 weeks of job-protected leave. The first 10 days of EFMLA leave are unpaid. The employee has the option, but cannot be required, to use vacation, paid time off, or EPSLA (if eligible) to receive pay during the first 10 days of EFMLA. After 10 days of unpaid EFMLA, where additional leave is needed, employees will receive paid leave for the remaining ten weeks that will be no less than two-thirds of the employee’s usual pay based on the employee’s regular work schedule, up to $200 per day and no more than $10,000 total. For employees with varying schedules, the EFMLA provides that the pay will be equal to the average number of hours per day that the employee was scheduled to work over the previous six-month period.
Under the EPSLA, full-time employees are entitled to up to 80 hours of job-protected leave. Proposed regulations guidance from the DOL clarifies that a full-time employee is one who is regularly scheduled to work at least 40 hours per week. Therefore, if an employee is regularly scheduled to work fewer than 40 hours, they are a “part-time employee” and their entitlement under the EPSLA is the number of hours the employee is regularly scheduled to work in a two week period. Proposed regulations have added new guidance for computing the number of hours of EPSLA for a part-time employee with a varying schedule.
The Emergency Family and Medical Leave Expansion Act requires you to pay an employee for hours the employee would have been normally scheduled to work even if that is more than 40 hours in a week. However, the Emergency Paid Sick Leave Act requires that paid sick leave be paid only up to 80 hours over a two-week period. For example, an employee who is scheduled to work 50 hours a week may take 50 hours of paid sick leave in the first week and 30 hours of paid sick leave in the second week. In any event, the total number of hours paid under the Emergency Paid Sick Leave Act is capped at 80.
Employers cannot require employees to use other paid leave prior to or concurrent with EPLSA leave. EPSLA leave is paid at a rate that is the greater of the employee’s regular rate of pay or the minimum wage rate in the employee’s jurisdiction, up to $511 per day and $5,100 total, for leave taken for the employee’s own condition. For employees using EPSLA to care for an individual or for childcare reasons, EPSLA is paid at a rate that is equal to two-thirds of the applicable EPSLA rate, up to $200 per day and $2,000 in the aggregate.
Pay does not need to include a premium for overtime hours under either the Emergency Paid Sick Leave Act or the Emergency Family and Medical Leave Expansion Act.
Note that employers are not required to pay the 6.2% employer portion of FICA tax on wages required to be paid under either the Emergency Paid Sick Leave Act or the Emergency Family and Medical Leave Expansion Act. These amounts are still subject to the 1.45% employer-paid Medicare tax. In addition, employee-paid portion of FICA/FUTA still applies.
Note that employers are not required to pay the 6.2% employer portion of FICA tax on wages required to be paid under either the Emergency Paid Sick Leave Act or the Emergency Family and Medical Leave Expansion Act. These amounts are still subject to the 1.45% employer-paid Medicare tax. In addition, the employee-paid portion of FICA/FUTA still applies.
Can employees take qualified sick leave or expanded family medical leave intermittently?
Employers are not required to permit intermittent leave. Whether an employer may permit intermittent leave depends on whether the employee is working on-site or teleworking and the reason for the leave.
If the employee is teleworking, then an employer may allow its employees who are unable to work their normal schedule of hours due to one of the qualifying reasons in the EPSLA to take intermittent leave. You may permit intermittent leave in any increment. For example, if you may permit employees to take leave in 90-minute increments, an employee could telework from 1:00 PM to 2:30 PM, take leave from 2:30 PM to 4:00 PM, and then return to teleworking.
If the employee is working on-site then and employer may permit employees to take intermittent leave only if the employee is taking leave to care for a minor child whose school or place of care is closed, or whose childcare provider is unavailable, because of COVID-19 related reasons. Employers may permit employees to take this intermittent leave in partial or full-day increments.
The September 2020 Revised Final Rule made clarifications that will be important to employers as schools are reopening. The revised rule states that the employer-approval condition would not apply to employees who take FFCRA leave in full-day increments to care for their children whose schools are operating on alternate day or other hybrid attendance because such leave is not considered “intermittent leave.” For the purposes of the FFCRA, each day of school closure would be considered a separate reason for FFCRA leave that ends when the school opens the next day.
Leave cannot be taken intermittently if the employee works on-site and takes leave because he or she is subject to quarantine or isolation order, has been advised by a health care provider to self-quarantine due to concerns related to COVID-19, is experiencing symptoms of COVID-19, and seeking a medical diagnosis, is caring for an individual who is subject to a quarantine or isolation order or has been advised by a health care provider to self-quarantine, or is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services. In that case, the employee must take the entire day off and continue taking paid sick leave each day until the employee either (1) uses the full amount of paid sick leave or (2) no longer has a qualifying reason for taking paid sick leave.
Do I have to give employees paid leave if I furlough or layoff employees because we don’t have enough work for them, or if my worksite is closed by a Federal, State or local directive (e.g. “stay at home” or “shelter in place” order)?
No. If an employer furloughs employees because it does not have enough work or business, those employees are not entitled to then take paid sick leave or expanded family and medical leave. Similarly, if an employer closes a worksite or is forced to close a worksite, affected employees are not entitled to paid leave under the Act after such closure even if the employee had already begun taking paid leave under the Act.”
Can employees use paid leave under the Act to make up for reduced hours schedule?
No. If you reduce employees’ hours, they are not entitled to take paid sick leave or expanded family and medical leave to make up for those lost hours. The employees may, however, take paid sick leave or expanded family and medical leave if a COVID-19 qualifying reason prevents the employees from working their full schedule, and the amount of leave each employee is entitled to will be based on the employee’s work schedule before it was reduced.
How does this new paid EPSLA/EFMLA leave interact with my current leave policy?
Employers are permitted to require employees to use accrued leave that would be available to an employee to care for a child, such as vacation, personal leave or paid time off concurrently with EFMLA leave, in order to bring the employee’s pay up from the 2/3 level provided by the EFMLA to 100 percent. In addition, employees may elect to use such leave even if the employer does not require it.
Do I get any tax breaks for providing paid time off to employees due to COVID-19?
Yes, the Act provides a refundable tax credit for certain leave provided to employees. Most employers with fewer than 500 employees may take a tax credit for 100% of the qualified sick leave and qualified family leave wages they pay to employees. You cannot claim a tax credit for any paid leave you provide in excess of the amounts required to be paid under the Act or for any leave provided before April 1, 2020 (or after December 31, 2020).
An employer’s tax credit for qualified sick leave wages paid to an employee cannot exceed $200 ($511 if the employee is the one quarantined or sick) for each day (or portion thereof) for which the employee receives qualified sick leave wages, capped at 10 days per employee.
Similarly, the tax credit for qualified family leave wages paid to an employee cannot exceed $200 for each day (or portion thereof) for which the employee receives the qualified family leave wages, capped at $10,000 per employee.
The Act also provides for a credit to employers for certain qualified health plan expenses that are allocable to such qualified sick leave wages or qualified leave wages—essentially incentivizing employers to continue to pay the employer-portion of group health insurance. In addition, the credit is increased for the 1.45% Medicare tax owed by the employer on qualified sick leave wages or qualified leave wages.
See the question below on how employers practically claim the tax credits.
If I’m self-employed (or a partner in a partnership or a 2% owner of an S-corporation), are there any tax benefits if I’m unable to work due to COVID-19?
Yes, if you are regularly carrying on your trade/business, and you would be entitled to the sick and or family leave described for employees, then you are allowed a tax credit equal to the “qualified sick leave equivalent amount” and “qualified family leave equivalent amount.”
If you would be entitled to qualified sick leave if you were an employee, then your qualified sick leave equivalent amount is equal to the number of days you are not able to work during the year due to COVID-19 for a reason that would have entitled you to qualified sick leave if you were an employee (capped at 10 days total for all tax years) x the lesser of $200 ($511 if you are the one quarantined or sick) or 67% of your average daily self-employment income (100% if you are the one quarantined or sick).
If you would be entitled to qualified family leave if you were an employee, then your qualified family leave equivalent amount is equal to the number of days you are not able to work during the year due to COVID-19 for a reason that would have entitled you to qualified family leave if you were an employee (capped at 50 days total for all tax years) x the lesser of $200 or 67% of your average daily self-employment income.
In both cases, your average daily self-employment income is your net earnings from self-employment divided by 260.
Do I have to continue benefits for employees while they are on leave under the Act?
If an employee is enrolled in group health coverage when they begin leave, then you must allow employees to continue group health coverage during paid leave under the Act on the same terms as if they had continued to work.
Employers should review the terms of all other benefit arrangements to determine when each benefit coverage will end.
While employees are on paid leave, employers generally should continue taking benefit deductions from that pay.
Do these laws change the amount of leave an employer has to provide an employee after the COVID-19 crisis ends?
No, both the EPSLA and EFMLA expire on December 31, 2020. If the public health emergency ceases prior to December 31, 2020, PHEL leave will no longer be available.
Is there a Notice Requirement?
Yes, employers are obligated to post the applicable notice (for private or federal employers, as applicable). For remote employees, the posting obligation may be satisfied by emailing or direct mailing this notice to employees or posting this notice in a conspicuous place on an employee information internal or external website. Other FAQs on physical posting can be found here.
The notice must be provided to current employees and newly hired employees. You do not have to provide the notice to anyone who was recently laid off or to anyone who is merely an applicant.
What documentation do employees have to provide to qualify for the leave?
Employees must provide documentation in support of the need for EFMLA or EPSL. Employers should retain this documentation in order to support the tax benefits related to EFMLA and EPSL leave. Documentation must include:
- The employee’s name;
- The date(s) for which leave is requested;
- The COVID-19 qualifying reason for leave; and
- A statement representing that the employee is unable to work or telework because of the COVID-19 qualifying reason.
If an employee is requesting leave 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 or advised to self-quarantine is not the employee, that person’s name and relation to the employee.
In the case of leave requested based on a school closing or childcare 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 EFMLA or EPSL 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 during daylight hours, a statement that special circumstances exist requiring them to provide care.
When does the Families First Act become effective?
April 1, 2020.
Are employees eligible for FMLA based on Coronavirus fears?
An employee who is simply afraid, but has no underlying medical conditions that make him or her vulnerable to COVID-19, is not eligible for the new paid leave. However, an employee who has been advised by a health care provider to self-quarantine due to concerns related to COVID-19 is eligible for EPSLA.
If an employee has previously used FMLA for other reasons, does that affect the amount of paid sick leave the employee is entitled to under the Families First Act?
The EFMLA provides an additional reason for FMLA and does not increase an employee’s usual 12 week per 12-month allotment. So, if an employee has previously used FMLA, he or she is entitled to EFMLA only for the remaining balance of their 12-week allotment. This limitation does not apply to EPSLA, and an employee with a qualifying reason is entitled to ESPLA regardless of how much FMLA has already been used. Similarly, an employee who uses EFMLA will have the amount used counted against the amount of FMLA he or she has available in the future for traditional FMLA purposes.
My business has suffered a significant decline in business or has had to close due to a COVID-19 “Stay At Home” or other executive order. Is there any tax credit that will help me continue to pay some of my employees?
If you were operating a business in 2020 (including a non-profit) and your business either (a) is fully or partially suspended during a calendar quarter due to a government order limiting commerce, travel, or group meetings due to COVID-19 or (b) has a significant decline in gross receipts for a calendar quarter, then you may claim a tax credit equal to 50% of the qualified wages you pay to employees that quarter (up to a maximum of $10,000 for each employee total for all quarters).
A significant decline in revenue will be deemed to have occurred beginning with the quarter in which the business’s gross receipts are less than 50% of gross receipts in the same calendar quarter in the prior year and ending with the quarter in which the business’s gross receipts are greater than 80% of the business’s gross receipts in the same calendar quarter in the prior year.
What constitutes qualified wages depends on the number of employees you have. If you had an average of more than 100 full-time employees in 2019, then qualified wages are only the wages you are paying to individuals who are not performing services due to the COVID-19 order or significant decline in gross receipts. If you had an average of 100 or fewer full-time employees in 2019, then qualified wages are wages paid to any employee during the calendar quarter in which the COVID-19 order or significant decline in gross receipts applies. The amount claimed as qualified wages may not exceed the amount the employee would have been paid for working equivalent hours during the immediately preceding 30 days. Full-time employees are determined in the same manner as they are for the Affordable Care Act. Certain employers will be aggregated for purposes of determining whether the 100 employee threshold is met.
Like the Families First Act tax credits, these tax credits are claimed against the employer’s employment tax liability, and the employer can claim a refund if the tax credit exceeds the employer’s tax liability. The credits apply to wages paid between March 13, 2020, and December 31, 2020. In addition, most employers will be permitted to defer payment of payroll taxes owed for March 27, 2020, through December 31, 2020. Half those deferred taxes will be due December 31, 2021, and the other half due December 31, 2022. Guidance regarding claiming refunds in the meantime will be needed.
Naturally, employers cannot claim credits for the same wages under both this provision and the Families First Act. These tax credits also are not available if for any employer that is the Government of the United States, the government of any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing. These also are not available for certain employers taking a small business interruption loan.
How do I claim these tax credits for qualified sick leave, family leave, and employee retention?
The credit is taken quarterly by offsetting the social security tax that you, as an employer, pay. If your credit exceeds your tax liability for the quarter, then the excess is treated as an overpayment and will be refunded to you.
However, because the tax is also refundable to help support businesses in the short-term, the IRS is putting in measures to provide for more rapid payments.
- You should retain an amount of the employment taxes owed (counting both the employee and employer shares of SS and Medicare taxes and federal income tax withholdings) equal to the amount of tax credit for which you are eligible, rather than depositing these amounts with the IRS.
- If there aren’t sufficient employment taxes to cover the tax credit, you can file Form 7200 to request an advance payment from the IRS.
You will need to reconcile your advanced credits and reduced deposits on your employment tax return.
Also, under the CARES Act passed on March 27, 2020, most employers also will be permitted to defer payment of payroll taxes owed for March 27, 2020, through December 31, 2020. Half those deferred taxes will be due December 31, 2021, and the other half due December 31, 2022. Guidance regarding claiming refunds in the meantime will be needed.
An employee comes to work with respiratory illness symptoms—can I send them home?
Yes, the EEOC guidance on pandemic response specifically permits this. That guidance can be found here and was updated on March 19, 2020, to address COVID-19. The EEOC has issued additional guidance on COVID-19 and the ADA here. (updated April 17, 2020).
Do I need a written document on how my company will address COVID-19?
OSHA recently issued guidance recommending that employers develop an Infectious Disease Preparedness and Response Plan, addressing potential exposure for employees based on the particular workplace, procedures for prompt identification and isolation of sick employees, and development of workplace protections. The guidance can be found here.
Employers should also implement a written EPSLA and EFMLA policy, and comply with posting requirements detailed in these FAQs.
What information do North Carolina employers have to provide their employees upon separation?
In addition to federal law notice requirements under COBRA, following a recent update to North Carolina unemployment regulations, employers are now required to provide the following information to employees upon separation:
- Unemployment insurance benefits are available to workers who are unemployed and who meet the State’s eligibility requirements;
- Employees may file a claim in the first week that employment stops, or work hours are reduced;
- Employees may file claims online at des.nc.gov or by telephone to (888) 737-0259.
- Employees must provide DES with the following information for DES to process the claim: full legal name, social security number, and, authorization to work (if the employee is not a U.S. citizen or resident).
- Employees may contact DES at (888) 737-0259 and select the appropriate menu option for assistance.
This provision is contained in a subchapter titled “Unemployment Compensation Due to Public Health Emergency or Disaster Declaration,” so it appears that it may only be effective for the duration of the COVID-19 public health emergency. Although the regulation explicitly requires this notice if an employee is separated from employment, based on (2) above, employers should also provide this notice to employees whose hours are reduced. The regulations do not address penalties for failure to comply with this notice obligation.
In North Carolina, will laid off employees or employees whose hours are cut be able to apply for unemployment?
Maybe, depending on the amount of the cut. Under North Carolina unemployment laws, if an employee’s hours are cut 50% or more or pay is cut 15% or more, the employee can quit because of the decrease in wages and potentially be eligible for unemployment benefits. If an employee’s hours are cut below three regular full-time workdays (a 60% or more reduction in the employee’s schedule), the employee can apply for and receive partial unemployment even though the employee is still employed. Additionally, the North Carolina Division of Employment Security may modify these requirements during the COVID-19 pandemic but has not yet published guidance to that effect. On March 17, 2020, Governor Cooper announced he will lift some restrictions on unemployment. These include:
- The removal of the one-week waiting period before someone who lost a job can apply for benefits.
- Those unemployed and seeking benefits will not be required to seek additional work during the outbreak.
- Employees who lose their job, or in certain cases have their hours reduced, because of the COVID-19 coronavirus are eligible to apply for benefits.
- Businesses with workers seeking unemployment will not have losses counted against them.
On April 20, 2020, Governor Cooper signed Executive Order 134, authorizing employers to make COVID-19 Support Payments to furloughed employees (employees performing no work for an employer) without reducing or delaying employees’ unemployment benefits if certain conditions are met. “COVID-19 Support Payments” are defined as voluntary payments to the employee where there is no obligation to repay or perform work in exchange for the payments and they are made pursuant to a COVID-19 Support Payment Plan filed by the employer with North Carolina Division of Employment Security (NCDES). These payments do not obligate the employee to return to work for the employer, and the employer is under no obligation to make the payments identified in the Plan. In order to qualify, employers must submit employer-filed unemployment insurance claims for each employee receiving COVID-19 Support Payments. Additional guidance on the COVID-19 Support Payment Plans and other forms will be published on NCDES’s website.
How much unemployment will my employees get?
In North Carolina, eligible employees receiving full unemployment benefits are generally entitled to $350 per week for 13 weeks.
Federal legislation temporarily provides supplemental unemployment benefits to employees. Specifically, the Pandemic Unemployment Assistance Program (effective through December 31, 2020) provides up to 13 weeks of unemployment benefits beyond the maximum weeks of benefits available under state law to workers who are unemployed or unable to work due to COVID-19. Individuals who qualify for unemployment under state law can also receive an additional $600 per week for up to 13 weeks beyond the maximum weeks available under state law (effective through July 31, 2020). For example, the current maximum unemployment benefit under state law is $350 for 12 weeks. The federal supplement would allow employees to receive up to $950 for 12 weeks plus $600 for an additional 13 weeks, for a total of 25 weeks of benefits.
If an H-1B or E-3 employee’s worksite changes, including working from home, what does the employer need to do, if anything?
The employer must normally post the required notice at the new worksite, file a new Labor Condition Application with the US Department of Labor, and file an amended petition with US Citizenship and Immigration Services unless the employee will be working within a “normal” commuting distance of 50 miles. Longer commutes have been approved as “normal if it can be proven to be a common commuting distance for that geographic area.” Another exemption to the aforementioned onerous refiling requirement is a short-term placement exemption to a changed worksite if less than 30 consecutive days or 60 days in a single calendar year.
What happens to an employee’s visa status if they are laid off or terminated?
Termination requires notification to the relevant government agency. For example, a student with an F-1 visa working under Optional Practice Training (OPT) authorization, must notify the Designated School Officer (DSO) at the student’s educational institution to make changes to the student’s Form I-20 and notify SEVIS – the Student and Exchange Visitor Information System. For an H-1B employee, termination would also require an employer to pay for the reasonable costs of return transportation to the employee’s home country, something to which the employer agreed on the Form I-129 which forms part of an H-1B visa petition.
Can a foreign employee be placed on unpaid furlough?
No, an H-1B or E-3 visa employee cannot be placed on unpaid furlough because of the prevailing wage requirement for both of those visa categories. Other categories like an L-1 intracompany transferee do not have such a wage requirement. (However, the employer did attest that it will maintain an office as part of the L-1 visa petition. Although unlikely, USCIS can verify by an on-site compliance review which the employer must be prepared to address with counsel should this occur.)
H-1B or E-3 employees should either be exempted from furlough or continue to be paid their normal wage. While an employer cannot require such a furloughed employee to take vacation, this is permissible if the employee decides to do so.
How will CDC travel advisories affect an employer’s ability to get employees into the US on H-1B visas?
Not all H-1B workers need to travel and come back in order to be able to be in H-1B status. If they were/are already in the US on an H-1B visa or are in any status that allows them to change to H-1B, such as an F visa holder on OPT, then they are not forced to travel and return to get an H-1B visa stamp in order to able to work in H-1B status.
Can a Chinese nonimmigrant visa holder who is an employee currently return to the US if out of the country?
No, unless they are citizens of Hong Kong, Macau, and Taiwan. Chinese citizens may be able to stop in a third country, wait 14 days and try to enter the US from that location, but this is risky. Moreover, other countries may have travel bans prohibiting their entering. However, permanent US residents like US citizens, also known as green card holders, may enter the US from China through designated airports: LAX, SFO, JFK, EWR, SEA, HNL, ORD, ATL, IAD, DFW, and DTW.
Form I-9 compliance
The designated representative of the company, which also can be a duly authorized agent, must physically review the documents supplied by the employee for completion of the form I-9. Any errors or omissions by the designated representative or authorized agent will be attributed to the employer, so be sure this person is adequately trained. Have a copy of the Handbook for Employers M-274 Guidance for completing Form I-9 (Employment Eligibility Verification Form) on hand to guide in completing the form and refer to examples of acceptable documents, as needed. https://www.uscis.gov/i-9-central/handbook-employers-m-274
The attorneys at Poyner Spruill will continue to monitor these developments and provide additional information as it becomes available. Information on North Carolina’s response to COVID-19 is available here. If you have questions about any of the above, contact an employment or benefits attorney.
¹A health care provider is defined under the FMLA as either:
- A doctor of medicine or osteopathy (a form of alternative medicine) who is authorized to practice medicine or surgery by the state where the doctor practices.
- Any other person determined by the Secretary of Labor to be capable of providing health care services.
The regulations clarify that health care providers include: podiatrists; dentists; clinical psychologists; optometrists; chiropractors (limited to treatment consisting of manual manipulation of the spine to correct an x-ray verified spinal problem); nurse practitioners, nurse midwives, and clinical social workers and physician assistants (to the extent these individuals are authorized to diagnose and treat physical or mental health conditions); Christian Science practitioners listed with the First Church of Christ, Scientist in Boston, Massachusetts; a health care provider who practices in a foreign country and who is authorized to practice under the laws of that country; and any health care provider from whom an employer or the employer’s group health plan’s benefit manager will accept certification of the existence of a serious health condition. 29 C.F.R. § 825.125.