As the Families First Coronavirus Response Act goes into effect today, small-business owners scramble to clarify the implications, legal and otherwise, it has for their companies.
“I’d estimate that 75% to 80% of my time — on the low end — has involved advising employers on how to navigate this new world that we’re in,” said Lucas Asper, a shareholder at Ogletree Deakins. “This has been my world for the past three weeks.”
Until Dec. 31, the law requires that most small businesses offer two weeks of paid sick leave at regular pay to any employee unable to work or telework after being instructed to quarantine or isolate, developing COVID-19 or displaying COVID-19 symptoms pending diagnosis. Employees unable to work because of a quarantined individual or out-of-school child under their care can request paid sick leave at two-thirds of their typical pay rate for up to two weeks.
Most private employers with fewer than 500 employees and public employers with any employees will be expected to comply with a few exceptions for health care providers and other groups.
Under a corresponding Family and Medical Leave Act expansion, most small business employers and a few public employers must allow leave for employees prevented from working while caring for a child whose school or daycare closed for an additional 10 weeks. This leave only applies to employees who have been employed for 30 days and equates to two-thirds of their regular pay.
Emergency family leave will be enforced two weeks after an employee’s COVID-19-related absence.
Coronavirus act-paid sick leave caps at $200 per day for each qualifying employee if he or she is caring for a quarantined individual or a child whose school or child care facility is closed, according to Jamie Hedgepath, an employment law specialist at Nexsen Pruet. Employees requesting paid sick leave because they are under a quarantine or isolation order or have COVID-19 symptoms are eligible to receive up to $511 per day.
Employees are not entitled to both paid sick leave and emergency FMLA at the same time, he said. If necessary, emergency FMLA will pick up where the paid sick leave ends.
“You could have a scenario, for example, where someone had the virus or was caring for someone who was self-isolating or something like that, but they also have a child they have to provide care for — on the paid sick leave, they still only get two weeks,” Hedgepath said. “The additional 10 weeks of emergency FMLA leave is limited to child care. There is no paid FMLA leave for the coronavirus, self-isolating, quarantining, etc.”
Wages paid during leave will be reimbursed via tax credits up to determined payment caps. Employers who made payments to maintain their health insurance coverage during this time can also apply for tax credits.
“It shouldn’t have a tremendous long-term impact, but it will impact immediate cash flow, so, for some businesses, that will hit them hard,” said Asper. “For others, it may not hit them as hard, but it will really be dependent on how many employees take it, how long they take it, what they are having to do to maintain continuous operations while employees take it. For example, if they’re having to bring in temps to replace that employee, they are effectively having to pay two employees during that period of time.”
Small businesses who face constricted revenue from the COVID-19 economic shutdown may fear they can’t bridge the financial gap, especially if a number of their employees claim leave. Some of Hedgepath’s clients have hailed him with concerns that they couldn’t sustain themselves three or four weeks without assistance, especially while providing paid leave to absent employees.
“On average, every small employer I have talked to over the last 11 days has either been considering layoffs, significant reductions in hours, or has already conducted layoffs,” he said.
Still, he said the IRS has clarified that employers could petition for expedited — if not immediate — refunds for paid sick or emergency FMLA leave if the payroll tax credits do not make employers whole.
Businesses, including nonprofits, with fewer than 50 employees may be able to opt out of the FMLA expansion if they can prove 10 weeks of paid child care leave will tip them over the edge before tax credits come into effect. According to guidelines released by the U.S. Department of Labor, such businesses will have to prove that employees denied paid child care leave are irreplaceable and essential to keeping the company afloat.
“If compliance with this law would be a death sentence for your business, you can get an exception from the Department of Labor,” Asper said. Still, in the weeks leading up to today, he said exemption status guidelines still remain fuzzy.
“What they have said is, ‘If you believe you meet this criteria listed in the statute, compile the appropriate documentation and then we will be issuing regulations in the future, but don’t send anything to the DOL,’ is what they are saying. So, it kind of leaves employers in limbo that fit into that less-than-50 category, because they are taking somewhat of a chance saying, ‘I believe I meet this definition, so I’m not going to provide leave under this, but I don’t know definitely that I will ultimately prevail in that argument when the rubber meets the road,’” he said.
As new legislation that gives businesses incentive to keep existing employees and payroll comes down the wire, Hedgepath says many clients are beginning to back away from the cliff of layoffs and furloughs. For some small businesses, however, he fears compensation may not come soon enough.
“That all sounds great on paper, but when the employer has to be the one who funds that payroll, and that tax credit hasn’t arrived yet or that small-business loan hasn’t arrived yet, small employers are just going to choose to lay folks off or choose unemployment,” he said, noting that employers who conduct layoffs before today are not likely to not be held liable for COVID-19-related retaliation claims.
“I think after April 1, it’s a whole new ballgame though,” he said, as anti-retaliation measures are clarified on a rolling basis.
Both Asper and Hedgepath have counseled small and large businesses that, despite immediate financial blows to their business, have taken the extra step to make sure their employees are provided for and are able to weather the storm. Some midsize to large companies that are not eligible for the new tax credits have reassured employees that they will be paid the entire time they are in quarantine or at home without dipping into accrued time off. Asper has seen even fully shuttered retailers committing to paying employees leave without being obligated to do so.
“They’re not laying people off, they’re not furloughing them, they are just paying them, and that’s obviously a tremendous burden on the business,” Asper said. “But I think these companies recognize, a lot of them at least, that how they treat their employees in the midst of this situation will kind of define their identity for years to come.”