Have you ever read a new law and despite something like your 68th reading of the darn thing (which might as well be in a foreign language), it’s still clear as mud?
Let me introduce you to the American Rescue Act.
More specifically, let’s chat about those provisions revising and extending tax credits to employers that provide paid sick leave and paid FMLA leave to their employees.
Whew Doggie! This is one mess of a bill, isn’t it?
And I know y’all are struggling with interpreting what leave under the Families First Coronavirus Response Act (FFCRA) means, even after reading all these law firm online summaries.
To unpack this new law, I break down my feedback for you in three parts:
- General information about the new FFCRA;
- What seems clear to me about the provisions of the new FFCRA; and
- What is unclear, but also what I believe to be true based on my read of the statute, review of initial IRS off-the-cuff remarks about the law, and my ongoing discussions with my fabulous Littler colleagues who are in the trenches with me as we try to make sense of the new FFCRA and its impact on employers.
Here’s what we know is true about the new FFCRA:
- It continues to apply only to employers with fewer than 500 employees.
- It is effective from April 1, 2021 through Sept 30, 2021.
- It effectively continues as a tax credit statute. IT IS NOT MANDATORY ON ANY EMPLOYER. Period. Employers are not required to provide paid sick (EPSL) or paid FMLA leave (EFML), but if they do within the parameters of FFCRA, they are entitled to certain tax credits.
What Seems Clear about the new FFCRA
That first section was short, wasn’t it? This is where it starts getting a bit murky.
The following also seems clear about the new FFCRA:
- An employee obtains a new entitlement of 10 days of EPSL from April 1, 2021 through September 30, 2021. This is so even if they burned through EPSL (or had EPSL remaining) at any time before April 1, 2021. Similarly, if an employee burned through all his EPSL already, the employer cannot take the tax credit for any additional EPSL provided prior to April 1, 2021.
- All the old reasons to take EPSL remain the same, but the new law has expanded the reasons for leave to also include an employee who is:
► Obtaining a COVID-19 immunization;
► Recovering from an injury, disability, illness or condition related to COVID-19 immunization; or
► Seeking or awaiting the results of a COVID-19 test or diagnosis because either the employee has been exposed to COVID or the employer requested the test or diagnosis.
- The new FFCRA expands the definition of qualifying EFML to allow EFML tax credits to be claimed for all uses of EPSL, including the old and new EPSL reasons identified above. Put another way, the reasons for EPSL and EFML are now identical.
- The new law increases the limit on the tax credit for EFML wages, allowing the credit on up to $12,000 in paid family leave wages. (Currently, the tax credit for EFML is limited to $200 per day, and $10,000 total per employee.)
- For the 10 days of EPSL, employees will receive either 100% (max of $511/day) or two-thirds (max of $200/day) of pay, depending on the reason for leave. As of Day 11 (when EFML begins), employees receive two-thirds of their pay with a max of $200/day.
- Currently, government employers, including state and local government employers, are not allowed to claim paid leave payroll tax credits. However, it seems apparent that the new FFRCA provides that certain state and local governments, as well as 501(c)(1) federal government entities, are tax-credit eligible. As I read the new FFCRA, employers can take the credit against Medicare taxes (but any excess is treated as an overpayment that would be refunded), so this opens the door to public sector employers at the state/local level taking the tax credit for EPSL and EFML.
- Employers are prohibited from discriminating in favor of highly compensated employees, full-time employees, or employees on the basis of employment tenure. As such, employers cannot provide different levels of EPSL or EFML on these bases.
- Similarly, if an employer wishes to take tax credits for leave provided, it must generally comply with the requirements of the FFCRA’s paid leave mandates (as if it were 2020) when providing the employee time off.
What is Unclear, but What I believe to be True
This is where we get neck deep in muck. Nevertheless, let me take a stab at the most difficult issues arising out of this new law:
- The new law explicitly states that employees get a new bucket of EPSL as of April 1. But do employees also receive a new bucket of EFML as of April 1? The statutory language is not clear, but it seems apparent that Congress intended for a new bucket of EFML to be provided as of April 1, 2021, even if the language doesn’t explicitly say as much. If Congress did not intend for a new allotment of EFML, the inclusion of this section of the Act seemingly makes no sense. By its own terms, the Act indicates that employers may take the tax credits for up to 12 weeks of EFML as of April 1, so until the DOL or IRS tells us otherwise, I read this section as a new allotment of EFML. For what it’s worth, Sydney Gernstein, director of labor tax in the IRS Office of Chief Counsel, seems to agree with my take. Yesterday, Mr. Gernstein suggested that EFML begins anew as of April 1, commenting that the new FFCRA is “like getting in a new $ 12,000 from the second quarter of 2021.”
- Can employers provide EPSL but not EFML? Again, there is no language indicating either way, but given that this Act allows employers to voluntarily provide paid leave, it follows that employers could provide one and not the other, so long as they follow the statutory language of the leave they are providing.
- Can employers provide just a portion of EPSL or EFML, but not the entire allotment? Nothing seems to stand in the way of providing, for instance, six weeks of EFML instead of 12 weeks. But if you’re going to stop short, I strongly encourage you to set this limit up front and communicate it to your employees. If you change midstream, you face potential claims of discrimination. Avoid this hassle and set it at the outset.
Put aside for a moment all this madness above, here’s the most difficult question for me: Do employers run EFML against an employee’s classic FMLA entitlement? On one hand, one can argue that this is a tax credit statute only, and not a substantive leave statute, so there is no exhaustion of FMLA classic unless the absence is covered by an FMLA classic reason. After all, the new FFRCA clearly speaks in terms of tax credits. On the other hand, it makes no sense that Congress would have intended eligible employees to obtain a bucket of 12 weeks of FMLA classic and a separate bucket of 12 weeks of EFML. The practical solution here points to treating EFML as we did in 2020 — that is, if leave is taken for a reason covered by EFML, it also counts against FMLA classic. Having said that, I am not so sure that the Department of Labor is on board with my take here, as the agency seemingly views the December amendments to FFCRA and last week’s enactment of the new FFCRA as a tax credit statute.
We are in desperate need of DOL guidance on my Section Three above, and in particular: 1) Do we get a new bucket of EFML as of April 1? and 2) Does EFML exhaust FMLA classic?
So, let’s all say it together [channeling our inner Princess Leia], as if it’s going to help: “Help me, DOL, you’re my only hope!”
But really, DOL. We’re calling for you. Please help us get this right.