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Will Payroll Tax Credit Extensions Beget Further Paid Leave Under The FFCRA?

December 31, 2020

On December 21, 2020, Congress approved the Consolidated Appropriations Act, 2021 (“CAA”). The CAA was signed into law on December 27, 2020, effectively extending certain pandemic stimulus benefits into 2021, four days before benefits were set to expire. However, the CAA does not extend all pandemic benefits. This article highlights the CAA provision extending benefits under the Families First Coronavirus Response Act (“FFCRA”) at the federal and select state levels.

Background

In March 2020, the FFCRA was passed and required employers (with less than 500 employees) to provide paid leave for employees unable to work due to certain Covid-19 circumstances. The FFCRA permitted employers to utilize payroll tax credits to offset the cost of paid leave, which benefited both employers and employees. Employees were assured that they will continue to earn income despite being unable to work from Covid-19 reasons, and employers were assured that the tax credits will cover the costs in providing such paid leave. Before the CAA was enacted, employers were left to speculate whether paid leave benefits under the FFCRA would indeed expire as planned on December 31, 2020.

The speculation is now over: the CAA does not extend an employer’s obligation to provide FFCRA paid leave benefits beyond the 2020 expiration date. Consequently, on January 1, 2021, employees are no longer entitled to paid leave despite qualifying reasons and documentation requirements. However, the CAA does extend the FFCRA tax credit through March 31, 2021, and invites employers to voluntarily extend FFCRA paid leave benefits through that date. From January 1 through March 31, 2021, therefore, employers may voluntarily choose to continue providing FFCRA paid leave up to the maximum individual entitlement per employee. Employers that voluntarily provide FFCRA benefits will still be reimbursed for the cost of providing leave through payroll tax credits.

Significance at the Federal Level

The new legislation does not change any of the six qualifying reasons entitling employees to take FFCRA paid leave. The amount of leave will also not change, i.e., up to 80 hours of emergency paid sick leave at 100% of the employee’s regular rate, and up to 10 additional weeks of paid leave at 2/3 the employee’s regular rate for child care related reasons. Importantly, employees who have already used their maximum amount of paid leave in 2020 are not entitled to additional leave in 2021, unless the FFCRA is later amended. Similarly, employers currently cannot claim a second tax credit for employees who already took leave in 2020.

One exception may depend on how employers calculate its 12-month calendar year. For example, if an employer calculates the calendar year on a yearly basis under the FMLA, then an employee who used all 12 weeks of leave in 2020 may start 2021 anew with another 12 weeks of leave. This may entitle employers to claim a second payroll tax credit for the 2021 leave benefits paid to the employee. This remains an open question of law and we will continue to monitor guidance or relevant case law.

In the meantime, employers must decide whether to stop FFCRA leave entirely or voluntarily provide leave (through the tax credit incentive) to employees who have not yet exhausted their individual paid leave entitlements. Before making this decision, employers must consult applicable state laws to ensure compliance with pandemic leave laws that may not expire in 2020, such as New York.

Significance in New York

New York’s Covid-19 Quarantine Leave Law, requires employers to provide job-protected sick leave to employees unable to work – and telework – from a quarantine or isolation order (whether mandatory or precautionary). This requirement does not expire on January 1, 2021. Therefore, New York employers deciding to stop FFCRA leave benefits must continue to satisfy all requirements under the state quarantine leave law.

In the quarantine leave law, eligible New York employees who are also covered by the FFCRA may receive the difference between what is available under the federal and state legislation. It remains unclear how this carve-out provision will be effectuated once FFCRA leave expires. We are attentively examining guidance from the NYS Department of Labor and will continue to provide updates once further guidance on this issue is published.

In the interim, New York employees can continue to expect compensation for leave benefits provided by the quarantine leave law. However, New York employees who qualify for benefits under both state and federal law will no longer be eligible to receive the available difference unless their employers voluntarily choose to continue providing FFCRA leave.

Significance in California

California’s Covid-19 leave law (AB 1867) is set to expire on December 31, 2020 (or upon expiration of the paid sick leave provisions of the FFCRA). As mentioned above, the federal relief bill allows employers to claim a tax credit for paid sick leave provided until 2021. However, as discussed in more detail above, the federal relief bill does not appear to change the expiration date of the paid sick leave provisions of the FFCRA. Therefore, unless the California State Legislature amends the state law or issues guidance to the contrary (see below), California’s leave law will likely expire on December 31, 2020. It is worth noting that if an employee is taking Covid-19-related leave before December 31, 2020, then the employee is allowed to complete their leave, even if this extends the leave period past December 31, 2020.

Notably, pre-filing bills for the upcoming legislative session began on December 7, 2020. This was the date wherein the California State Legislature convened to swear in members and introduce the first bills of the 2021-2022 legislative session. Although Covid-19-related Tenant Protections were introduced, no California legislator, as of the time of writing, has submitted a proposal to extend the duration of the Covid-19-related paid sick leave law discussed above. The state legislature does not reconvene until January 4, 2021, after the laws expire.

Please note that some counties within the state may have implemented their own extended Covid-19-related leave laws that are not discussed here.

Significance in Colorado

Colorado’s Healthy Families and Workplaces Act (“HFWA”), which took effect on July 15, 2020, serves to fill in the gaps left by the federal FFCRA in order to make pandemic-related paid sick leave benefits available to all Colorado employees. Specifically, HFWA makes FFCRA’s Covid-19 pandemic-related paid sick leave requirements applicable to employers of any size (not just employers with less than 500 employees). This provision is set to expire on December 31, 2020, the same date that FFCRA’s paid sick leave benefits expire. However, Colorado’s new paid sick leave program under HFWA will then take effect from there.

Beginning on January 1, 2021, employers with more than 15 employees will be required to provide employees with up to six paid sick days a year (on an accrual basis). Of note, this amount may be increased by up to an additional two weeks of paid sick leave in relation to a public health emergency. For employers with 15 employees or less, these requirements take effect on January 1, 2022. HFWA also details the various bases under which an employee may take paid sick leave (including supplemental paid sick leave in relation to a public health emergency), the process for accrual of paid sick leave, and employees’ and employers’ rights in relation to accrued paid sick leave.

Conclusion

Although vaccines are being distributed across the country, the pandemic will not end on December 31, 2020 and employees’ need to take paid leave for Covid-19 reasons will remain after the new year. The decision to cease providing FFCRA leave despite the ongoing tax credit may result in negative consequences for both employers and employees, so employers should make decisions carefully in this regard. Employees may go to work despite Covid-19 qualifying reasons lest losing income. In turn, employers may struggle to eliminate Covid-19 spreads throughout the workplace. Employers should also be cautioned that, although it will be lawful in 2021 to extend FFCRA leave for certain segments of workers and not others, the risk remains that employers will be accused of making those determinations for discriminatory reasons. Employers are cautioned to take a fair, equitable, and defensible approach to any apportionment that may be under consideration, erring in favor of an all-or-nothing approach if at all possible.

The attorneys at WSHB will continue to monitor pandemic relief guidance and help navigate through this ever-changing landscape.

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