By Greta Cowart
Families First Coronavirus Response Act (FFCRA) – Employee Benefits Considerations
The FFCRA is comprised of a number of separate pieces all of which have names of individual acts which are referred to herein. The acts within the FFCRA include the:
- Emergency Family and Medical Leave Expansion Act
- Emergency Unemployment Insurance Stabilization and Access Act of 2020
- Emergency Paid Sick Leave Act
- Second Coronavirus Preparedness And Response Supplemental Appropriations Act, 2020
In addition, the FFCRA also amends a number of other federal laws and provides tools for individuals and employers to use to ride out the impact of the Coronavirus, or COVID-19, outbreak. We will refer to the viral epidemic as COVID-19 herein.
New Payroll Tax Credit to Help Defray the Cost of the Temporary Expansion of Paid Family and Medical Leave and the Emergency Paid Sick Leave Act
The FFCRA adds the Emergency Paid Family and Medical Leave Expansion Act, which expands paid leave benefits related to COVID-19 situations, and it also adds the Emergency Paid Sick Leave Act for certain situations related to COVID-19 (collectively, the “Paid Leave Acts”). The current bill does not overlook the financial burden of such mandated paid leaves. The Paid Leave Acts cover leaves for either the detection of SARS-COV-2 or for the detection of the virus causing COVID-19, and the FFCRA attempts to lessen the financial impact of such mandates by also adding a payroll tax credit. The tax credit will cover the qualified mandated leave cost for employees whose salary is less than $37.50 per hour and who work full time (the credit is up to $200 per day and the mandated pay replacement is 2/3 of pay) for leaves covered only by the Emergency Paid Family and Medical Leave Expansion Act, and permits a credit of up to $511 per day ($95.81 per hour assuming an 8 hour work day and using the mandated pay replacement of 2/3) for employees who took paid for Emergency Paid Sick Leave for:
- self-isolation due to a diagnosis of COVID-19;
- the purpose of obtaining a medical diagnosis or care because the employee was experiencing symptoms of COVID-19; or
- complying with recommendations or an order by a public official within their jurisdiction or a health care provider because the employee’s physical presence on the job would jeopardize the health of others due to the employee’s exposure to COVID-19 or having symptoms of COVID-19.
The credit is calculated on an individual employee basis, for each employee who qualifies, for up to 10 days in total of paid leave until December 31, 2020. Employers will need to keep records for each employee who qualifies for one of the leaves, noting the reason the employee qualified for the paid leave and the days taken.
Late on Friday March 20, 2020, a joint news release was issued by the Internal Revenue Service, the U.S. Treasury Department and the U.S. Department of Labor announcing that regulations would be issued the next week that will permit employers subject to the Paid Leave Act and Emergency Paid Family and Medical Leave Expansion Act will be able to offset their payroll tax deposits to recover the paid leave credits under the FFCRA. The payroll taxes which may be offset are not only the employee’s and employer’s share of Social Security and Medicare taxes for all employees, but also the federal income taxes withheld from the employees’ wages. Such employers will also be provided a form by which they can file with the Internal Revenue Service to request an expedited advance for the credit.
In addition, the Amendment to the FFCRA expands the credit to include the employer’s cost of providing health care coverage to employees during a leave under the Emergency Paid Family and Medical Leave Expansion Act and under the Emergency Paid Sick Leave Act. This applies to the amount the employer paid toward maintaining health plan coverage of an employee on such a paid leave which was excluded from the employee’s gross income for federal income tax purposes. So the cost of the group health plan coverage for an employee on such a leave is added to the wages paid for the qualifying paid leave.
The employer requests the credit on its quarterly employment tax return. The credit is applied against both the employer’s and employee’s FICA taxes (i.e., the full 7.65% that both the employer and the employee normally pay on wages 15.3% of wages subject to FICA taxes) (the “FICA Taxes”). If the employer takes a tax credit for employment of qualified veterans or for research expenditures of a qualified small business, then those credits reduce the credit allowed for the wages paid under the Emergency Paid Family and Medical Leave Expansion Act and under the Emergency Paid Sick Leave Act. If the credit exceeds the FICA Taxes for the calendar quarter, the credit in excess of the tax becomes a refund. An employer who seeks this tax credit may not also request the credit for Paid Family and Medical Leave under Code section 45S. This does not address the timing of cash flow for small employers or employers operating with reduced revenues.
Any amount that an employer receives as a credit under this new credit is also treated as income included in the employer’s gross income for calculation of income tax on the employer for the taxable quarters ending in the tax year of the employer. The statute did not address if employers that are not taxed as an entity, but which pass their income to their respective owners such as S-corporations and partnerships for federal income tax purposes are also subject to this income inclusion for the credit. Employers have the ability to elect out of requesting this credit.
If the FFCRA becomes law, an employer can apply this credit to the eligible paid sick leave wages beginning on the date the Secretary of Treasury specifies within 15 days of enactment and continuing until December 31, 2020. Employers will need to watch for the date specified and will need to separately account for qualifying paid leaves after such date.
COVID-19 Testing Coverage Mandated in Most Group Health Plans
A group health plan and a health insurance company providing group or individual health insurance, including group health plans grandfathered under the Patient Protection and Affordable Care Act (ACA) to avoid compliance with some of the ACA’s mandates, are all required to begin providing coverage effective as of the date the FFCRA is signed into law without imposing any deductible, copayment, co-insurance or cost sharing, or any prior authorization or medical management on the following items and services during the emergency period defined under the Social Security Act for testing using in vitro diagnostic products for the detection of SARS–CoV–2 or the diagnosis of the virus that causes COVID–19 that are approved, cleared, or authorized under the Federal Food, Drug, and Cosmetic Act, and the administration of such in vitro diagnostic products.
If the FFCRA is signed into law without change, coverage must also be provided (without any of the above cost sharing or prior approval or medical management) for items and services furnished to an individual during health care provider office visits, urgent care center visits, and emergency room visits that result in an order for or administration of an in vitro diagnostic product described above, but only to the extent such items and services relate to the furnishing or administration of such product or to the evaluation of such individual for purposes of determining the need of such individual for such product.
While the FFCRA, as currently proposed, does not extend to retiree only retiree medical plans which are exempt from the ACA, the FFCRA would amend Medicare, Medicaid, and Tri-Care (among other governmental health programs) to mandate each of those programs also cover such care and treatment for this emergency period.
While this applies, if enacted, to all group health plans subject to the ACA, employers with collectively bargained group health plans for current employees need to consult with their respective collective bargaining agreements to determine what procedures must be followed to implement the required amendments, if applicable.
Group health plans will need to be amended to provide all of this coverage as of the date the FFCRA is signed into law, if it remains the same as when reviewed. Retiree medical plans that cover only retirees and no current employees are not prohibited from providing such coverage, nor are they required to add such coverage. Retiree only retiree medical plans that are subject to a collective bargaining agreement need to refer to their respective collective bargaining agreement to determine what options the employer has, if any and what procedures must be followed to implement an amendment.
COVID-19 Coverage Under High Deductible Health Plans
Many employers also offer high-deductible health plans (HDHP) that can only cover the specified preventive care until an individual or family satisfies the high deductible set by the health plan.
The Internal Revenue Service provided relief for employers who want to cover the cost of the COVID-19 diagnostic test and treatment, but who offer health benefits through an HDHP. This relief was provided prior to FFCRA being introduced as a bill. Notice 2020-15 permits an employer to amend its HDHP to cover all medical services received and items purchased associated with testing for and treatment of COVID-19. It can do so without requiring the individual to meet the HDHP’s deductible or other cost sharing, and it can implement this process without causing the HDHP to fail to qualify as an HDHP and without denying the employee the ability to contribute to a Health Savings Account. FFCRA, if enacted, will require group health plans and individual insurance policies to cover additional services related to a COVID-19 test beyond just the test, such as emergency room or urgent care visit related charges. Since FFCRA introduced these as changes to the mandated coverage under the ACA, presumably coverage of the mandated coverage in the ACA added by the FFCRA will also be permitted preventive coverage under the ACA and permissible preventive coverage under the rules applicable to High Deductible Health Plans, but this may require further guidance, unless the FFCRA is revised to change the requirements for high deductible health plans before it becomes law.
When the Internal Revenue Service issued this Notice, the change was not required under federal tax law. After the enactment of the FFCRA, the coverage of the diagnostic testing is mandated coverage without cost sharing. If the FFCRA is enacted, Employers with High Deductible Health Plans will need to be amended to adopt coverage for treatment of COVID-19, as required under the FFCRA, without imposing cost sharing as of the time of this writing. If the FFCRA becomes law, Employers with self-insured plans will need to amend their plans to cover the benefit mandates for COVID-19 in the FFCRA without cost sharing as required and must comply with all of the normal requirements for a change in the benefit plan coverage, such as amendment, SMM distribution, and working with the third-party administrator and any insurance carrier. Employers with fully insured health plans will need to communicate the change in the insurance policy to their employees.
FFCRA Highlights Existing Provision for Assistance to Employers in Efforts to Stabilize Employment
The Internal Revenue Code of 1986, as amended (the “Code”) contains a number of tools that an employer can use in times of natural disasters and for some emergencies. The FFCRA highlights one of those tools that relate to unemployment. The FFCRA, as currently drafted, requires employers to notify employees of the availability of unemployment compensation to an employee who separates from employment using a model notice that is to be provided by the Secretary of Labor.
In addition, the Secretary of Labor is directed to assist in increasing employer awareness of a well-hidden tool related to unemployment compensation, the “short-time compensation program.”
An employer who establishes a “short-time compensation program” may be able to access funds from a fund established under State law which is administered by a State agency. An employer who voluntarily establish a “short-time compensation program” may become eligible for obtaining this financial assistance. The funding may be available if the employer has a program that qualifies and is located in a State that qualifies. The short term compensation program is a program whereby an employer reduces the number of hours worked by employees instead of laying off the employees, among other requirements. The employees whose hours were reduced at least 10%, and not by more than a certain percentage set by the State are not disqualified from unemployment compensation. The employee must meet the availability for work and work search requirements while collecting the short-time compensation and unemployment compensation. The employees may participate in training to enhance job skills if the State approved such training programs. The employer must have a written plan submitted to the State for approval among other requirements. This permits access to government funds to assist employees transition to new work while their hours are reduced. An employer facing a need to lay off employees might consider this alternative to assist such employees.
The focus of this alert is to provide information on the legislation for your consideration. Watch for further alerts addressing tools that already exist that employers can use to help employees through the current disruption of their lives.
- View additional insights and related insights on COVID-19 »
- Pending Coronavirus Legislation May Impact FMLA and Paid Leave »
Greta E. Cowart has counseled employers for more than 30 years on best practices in human resources and employee relations issues related to benefits and executive compensation. In her practice, Greta routinely develops strategies for effective administration of claims and other disputes, including defense of grievances, and in litigation considering implications under ERISA, while also considering applicable labor and employment laws. Greta also provides fiduciary training and review of fiduciary operations to improve the documentation of the fiduciary process. Greta is a former chair of the Employee Benefits Committee of the ABA Section of Taxation, and has served on the U.S. Department of Health and Human Services CHIP Working Group.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.