The American Rescue Plan Act, passed in March 2021, offers important changes to the implementation of FFCRA (Families First Coronavirus Response Act)-like paid leave for COVID-19 related reasons. The ARPA enables both public and private sector employers to voluntarily provide paid leave for COVID-19 related reasons and receive tax credits as incentive. Since January 2021, covered employers have no longer been required to continue to provide leave under the FFCRA.
The ARPA extends the incentives for employers to provide paid sick and family leave to employees by providing tax credits for leave through September 30, 2021. Further, the ARPA contains modifications to both optional FFCRA-like leave and emergency family and medical leave to expand those programs to address leave related to testing and vaccination.
In implementing these programs, employers should be aware that the ARPA contains an explicit non-discrimination provision, prohibiting employers from discriminating in the provision of leave: (1) in favor of highly compensated employees; (2) in favor of full-time employees; or (3) on the basis of length of service. Consequently, the employer must make leave available to all employees if it is providing the benefit, including part-time employees and new hires.
Modifications to Emergency Paid Sick Leave
- Duration of Sick Leave Expanded
The ARPA will provide employers tax credits for providing an additional ten (10) days of sick leave beginning on April 1, 2021, even if the employee previously exhausted FFCRA or FFCRA-like leave. This reset will permit employers to provide an additional 80 hours of emergency paid sick leave from April to September 2021 and receive additional tax credits.
- Covered Reasons for Sick Leave Expanded
In addition to the previously covered reasons for emergency sick leave under the FFCRA, qualifying reasons for paid sick leave are expanded to include:
- Leave to obtain an immunization;
- Leave to recover from injury, disability, or illness from receipt of vaccine; or
- Seeking or awaiting the results of the diagnostic test for, or the medical diagnosis of COVID-19 or when such employee has been exposed to COVID-19 or the employer has requested the test.
- Total Tax Credits Available
Employers that provide this benefit will receive a tax credit, up to $511 a day and $5,100 in the aggregate for paid sick leave, at the employee’s regular rate of pay, if the employee is on leave because of a qualifying reasons, through September 30, 2021. The paid leave credits are tax credits against the employer’s share of the Medicare tax. IRS guidance indicates that the tax credits are refundable, meaning that the employer is entitled to payment for the full amount of the credits if it exceeds their share of the Medicare tax.
Modifications to Emergency Paid Family Leave
The ARPA also modifies the tax credits available under the Emergency Family and Medical Leave Act (“EFMLA”). After the FFCRA provisions became voluntary on January 1, 2021, employers had available to them tax credits to cover the cost of providing emergency FMLA leave when the employee was unavailable to work due to a child’s school or place of care being closed due to the pandemic. Under the ARPA, employers may now receive a tax credit for providing emergency family leave to care arising from any of the qualifying FFCRA reasons, including the three additional reasons for leave under the ARPA related to vaccination and testing. As a reminder, this entitlement is not in addition to the twelve week leave entitlement under FMLA.
The ARPA also removes the two-week unpaid waiting period for emergency leave, meaning up to all twelve weeks can be paid. The tax credits available for paid family leave are up to $200 per day, at two-thirds of the employee’s regular rate. The tax credits are increased to an aggregate of $12,000 for emergency paid family leave.
Claiming the Tax Credit
Employers may claim tax credits for sick and family leave paid to employees for the above reasons for leave from April 1, 2021, through September 30, 2021. Eligible employers will report their total paid family and sick leave wages (in addition to eligible expenses that include health plan expenses, collectively bargained contributions, and the employer’s share of social security and Medicare taxes on the paid leave wages), for each quarter on their federal employment tax return (Form 941). The Form 941 instructions have been updated to give further information on how to reflect the reduced liabilities in line with these tax credits. Self-employed individuals may claim comparable credits on their Form 1040.
Employers should consider all of these incentives in deciding whether to voluntarily adopt additional FFCRA-like leave and update their policies accordingly. Be sure to maintain documentation regarding the type of leave granted to claim the tax credits. Employers should also ensure they are complying with the new non-discrimination provision of the ARPA and make leave available across the board.
As always, as questions arise, your attorneys at Burch, Porter & Johnson, PLLC are here to assist you in interpreting and implementing new legislation. Employers should also look out for additional guidance from the Department of Labor in forthcoming weeks.