Explaining the Families First Coronavirus Response Act

What it means for small businesses and their employees

A second phase of legislation designed to provide relief during the COVID-19 crisis moved swiftly through both houses of Congress and was signed by the president Wednesday, March 18. The Families First Coronavirus Response Act (H.R. 6201), implements a number of measures to protect individuals and businesses affected by coronavirus quarantines, symptoms, and isolation orders. The bundle of appropriations and measures takes effect April 2.

Mark West, national vice president of business solutions for Principal®, says that while the law mostly is focused on paid sick leave and other provisions for workers, small- to medium-sized employers also are provided relief through payroll tax credits to cover what businesses are being required to pay employees.

“Financial crises—whether as extreme as 2008 or more of a typical recession—don’t really compare to coronavirus,” West says. “This is something I’ve never experienced in my lifetime, because we don’t really know whether this will last one month, or six.”

Highlights of the new coronavirus law

The emergency benefits are aimed at businesses with fewer than 500 employees:

  • Emergency sick leave pay is provided for employees unable to work or telework as a result of COVID-19, or caring for certain individuals sick with the disease.
  • Family medical leave pay applies only to individuals caring for a child under 18 whose school (or daycare) is closed due to COVID-19.
  • Employer tax credits are provided to employers paying such benefits by allowing them a credit (within limits) against quarterly payroll tax payments.

The section of the law called the Emergency Family and Medical Leave Expansion Act allows employees who are unable to work (or telework) to take up to 12 weeks of job-protected leave due to a need to care for a son or daughter under 18, if the child’s school or daycare has been closed, or the child-care provider is unavailable, due to COVID-19.

The first 10 days of leave can be unpaid; your employee can choose to use vacation time, personal leave, or permitted medical or sick leave, if available. After 10 days, you must provide paid leave based on two-thirds of the employee’s regular pay, subject to a maximum of $200 per day (or up to $10,000 over 10 weeks), based on the number of hours your employee would normally be scheduled to work.

These leave requirements apply to employers with fewer than 500 employees (including businesses with fewer than 50 employees, unlike the Family and Medical Leave Act of 1993) and affect workers who’ve been employed for at least 30 days. However, the DOL is authorized to issue regulations that may exempt certain health care workers and first responders, as well as employers with fewer than 50 employees, if the requirements would jeopardize the viability of the business.

You’re generally required to reinstate employees, but if you have fewer than 25 employees, if the position the employee left no longer exists, and reasonable efforts to reinstate the employee to a similar position fail, you’re only required to contact the employee within one year if an equivalent position becomes available.

The expansion of the Family Medical Leave Act expires at the end of 2020.

As an employer, you’re provided tax credits for benefits paid under both the sick leave and family medical leave provisions described above. The credit is for 100% of amounts paid (within the limits), increased by the hospital insurance tax attributable to them, and by health plan expenses allocable to the sick-leave wages.

It’s first applied against payroll taxes due in the calendar quarter in which the wages were paid. If not used in the current quarter, the CARES Act allows you to obtain an advance refund of the credit. (The credit doesn’t apply to government employers.)

If you’re self-employed, there’s a similar tax credit provided against the self-employment tax. This credit is subject to the same limits and is calculated as if the taxpayer were an employee receiving the sick pay or paid leave from his or her business.

The law includes emergency funding for a wide range of needs, including:

  • COVID-19 testing, at no cost to the patient.
  • SNAP federal and state emergency food assistance, nutrition assistance for the elderly, school meal programs, and unemployment insurance funding.
  • Liability protections were expanded for makers of face masks.
  • Medicaid funding to states was expanded.

In a separate development, the IRS has announced relief for taxpayers owing income tax on April 15. The deadline for payments due April 15 is extended to July 15. For individuals, this applies to up to $1 million, and for C corporations it applies to up to $10 million of taxes owed.

Worried about your bottom line? Three things to remember about coronavirus legislation

West says that while the law is more focused protections for workers that add requirements for business owners, keep these three key points in mind:

  • Tax credits to businesses cover the cost of additional leave protection.
  • The law authorizes the DOL to exempt businesses with fewer than 50 employees from the family and medical leave expansion if their viability would be jeopardized. Check back for more information as soon as regulations are issued. Initial plans by the DOL in implementing the coronavirus-related leave provisions and a coronavirus resources page both are available at dol.gov.
  • The reinstatement requirement for employees who take family leave is less stringent for the smallest businesses—those with fewer than 25 employees.

It’s widely expected, West says, that additional legislation providing more comprehensive relief for businesses will arrive with “phase three” of Congress’ coronavirus response.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

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