Paid Leave and Tax Credit Update, CARES Act Adds Employee Benefit Mandates

By Higginbotham on April 03 , 2020

DOL Posts Regulations, Additional FAQs on Paid Leave Under FFCRA

The Department of Labor’s (DOL) Wage and Hour Division has posted more FAQs regarding paid sick and family leave under the Families First Coronavirus Response Act (FFCRA). The new regulations and FAQs offer important new details and clarifications. In addition, the DOL will post a recorded webinar on Friday, April 3, 2020 to provide employers and employees a more in-depth description and help them learn more about the FFCRA. To view the webinar, visit

Of important note in the newly released guidance:

  • Small Business Exemption. An employer, including a religious or nonprofit organization, with fewer than 50 employees (small business) is exempt from providing paid sick leave under the EPSLA and Expanded Family and Medical Leave under the EFMLEA when the imposition of such requirements would jeopardize the viability of the business as a going concern. A small business is exempt from the requirement to provide such leave when:
    • Such leave would cause the small business’s expenses and financial obligations to exceed available business revenue and cause it to cease operating at a minimal capacity;
    • The absence of the employee or employees requesting such leave would pose a substantial risk to the financial health or operational capacity of the small business because of their specialized skills, knowledge of the business or responsibilities; or
    • The small business cannot find enough other workers who are able, willing and qualified, who will be available at the time and place needed to perform the labor or services the employee or employees requesting leave provide and these labor or services are needed for the small business to operate at a minimal capacity.
    The small business claiming the exemption will need to make a determination based on the above, document it and retain it in its files for at least four years. Additionally, the exemption to provide leave doesn't exempt the small business from posting the required notice.
  • Health Providers and Emergency Responders. The regulations contain a very broad definition for determining which employees can be denied paid sick or family leave under the FFCRA. It includes any employee of a wide range of health industry employers and their contractors, including “anyone employed at any doctor’s office, hospital, health care center, clinic, postsecondary educational institution offering health care instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, any facility that performs laboratory or medical testing, pharmacy or any similar institution.” Emergency responders who may be denied paid sick or family leave are also broadly defined. However, the DOL states that “to minimize the spread of COVID-19, the DOL encourages employers to be judicious when using this definition to exempt health care providers and emergency responders from the provisions of the FFCRA.”

  • Leave Requests due to Shelter-in-Place Orders. The rules state that a quarantine or isolation order includes quarantine, isolation, containment, shelter-in-place or stay-at-home orders issued by any federal, state or local government authority that cause the employee to be unable to work even though his or her employer has work that the employee could perform but for the order. 

    However, “the question is whether the employee would be able to work or telework 'but for' being required to comply with a quarantine or isolation order. An employee subject to one of these orders may not take paid sick leave where the employer does not have work for the employee. This is because the employee would be unable to work even if he or she were not required to comply with the quarantine or isolation order. For example, if a coffee shop closes temporarily or indefinitely due to a downturn in business related to COVID-19, it would no longer have any work for its employees. A cashier previously employed at the coffee shop who's subject to a stay-at-home order would not be able to work even if he weren't required to stay at home. As such, he may not take paid sick leave because his inability to work is not due to his need to comply with the stay-at-home order, but rather due to the closure of his place of employment. This analysis holds even if the closure of the coffee shop was substantially caused by a stay-at-home order. If the coffee shop closed due to its customers being required to stay at home, the reason for the cashier being unable to work would be because those customers were subject to the stay-at-home order, not because the cashier himself was subject to the order. Similarly, if the order forced the coffee shop to close, the reason for the cashier being unable to work would be because the coffee shop was subject to the order, not because the cashier himself was subject to the order.” 

  • Documentation. The information explains the documentation that employers must obtain from employees who request paid sick or family leave and offers examples of appropriate documentation in various circumstances. Employers must document both approved and denied requests for leave and must retain those documents for four years. In particular, when requesting leave for childcare needs (for a child under the age of 18 or a child over the age of 18 who is incapable of self-care because of a mental or physical disability), the employee must first not be able to work nor telework and must provide the following to prove so:
    • The name of the child being care for;
    • The name of the school, place of care or childcare provider that closed or became unavailable due to COVID-19 reasons; and
    • A statement representing that no other suitable person is available to care for the child during the period of requested leave.

IRS Issues FAQs on Tax Credits for Employer-Paid COVID-19 Leave

The IRS has posted FAQ guidance regarding the refundable payroll tax credits available to small and midsize employers that provide paid sick and family leave as required by the FFCRA. It also posted the Form 7200 (and instructions) – this is the form employers will use when claiming advance payment of tax credits.

The FAQs provide detailed information about the requirements, limitations and application of the credits. Of particular note:

  • Qualified Health Plan Expenses. The tax credits available to an employer are increased by “qualified health plan expenses”— the amount the employer spends to maintain group health plan coverage for employees on FFCRA-required paid sick or family leave.

  • Amount of Expenses Included. The amount of qualified health plan expenses used to determine the credits generally includes the portion of the cost paid by the employer, as well as the portion paid by the employee with pre-tax contributions. 

  • Application to Insured Plans. Employers sponsoring insured group health plans may use any reasonable method to determine and allocate plan expenses, including:
    • The COBRA-applicable premium for the employee;
    • One average premium rate for all employees; or 
    • A substantially similar method that takes into account the average premium rate determined separately for employees with self-only and other than self-only coverage.

  • Application to Self-Insured Plans. Employers sponsoring self-insured group health plans may use any reasonable method of determining and allocating expenses, including:
    • The COBRA-applicable premium for the employee; or
    • Any reasonable actuarial method to determine the estimated annual expenses of the plan.

CARES Act Employee Benefit Provisions

Congress has passed and the President has signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) intended to ease the economic impacts stemming from the novel coronavirus disease (COVID-19) outbreak by providing emergency economic relief to families and small businesses, coming on the heels of the FFCRA (see our blog post on the economic provisions). However, this legislation includes additional impacts for employer-sponsored benefit plans. Of particular note:

  • Telehealth Exemption for HDHPs. A safe harbor allows high-deductible health plans (HDHPs) to cover telehealth and other remote care services without a deductible for plan years beginning on or before Dec. 31, 2021.

  • OTC Drugs for FSAs and HSAs. The legislation removes the prescription requirement for over-the-counter drug reimbursements that previously applied to health FSAs, HRAs and HSAs. In addition, menstrual care products will now qualify as medical care for purposes of reimbursement or tax-free distribution. These changes generally apply to expenses incurred after Dec. 31, 2019; in the case of HSAs, they apply to amounts paid after that date. Additionally, this provision was added without any expiration date.

  • COVID-19 Coverage. Health plans and insurers must reimburse a diagnostic testing provider according to any negotiated rate with the provider or must pay the provider’s publicized cash price for the diagnostic test in the absence of a negotiated rate. In addition, health insurers and group health plans will have to cover, without cost-sharing, COVID-19 preventive services and immunizations that receive specified recommendations from the CDC’s United States Preventive Services Task Force (USPSTF).

  • Student Loan Repayments. The legislation amends the definition of educational assistance under Code § 127 to include repayment of a qualified education loan (generally a loan for higher education expenses) incurred by the employee for the employee’s own education, provided the employer’s payment is made after March 27, 2020 and before Jan. 1, 2021. Payment may be made to the lender or directly to the employee and is excludable from the employee’s gross income to the extent the payment doesn't cause the employee’s total benefit for the year under the employer’s educational assistance program to exceed the Code § 127 annual maximum of $5,250.

  • Retirement Distributions. The bill waives the 10 percent early withdrawal penalty on retirement account distributions for taxpayers facing virus-related challenges. Withdrawn amounts are taxable over three years, but taxpayers can recontribute the withdrawn funds into their retirement accounts for three years without affecting retirement account caps. Eligible retirement accounts include individual retirement accounts (IRAs), 401(k)s and other qualified plans.

  • ERISA Deadlines. The legislation also adds public health emergencies declared by HHS to the list of events permitting the DOL to delay ERISA deadlines by up to one year. This will hopefully extend the filing deadline for Form 5500.

New Fund Allows Employers to More Easily File For Unemployment for Terminated or Furloughed Employees

A newly created Pandemic Emergency Unemployment Compensation (PEUC) fund, part of the CARES Act, empowers states to extend federally-funded unemployment benefits by an additional 13 weeks (past the usual 26 weeks). The fund also boosts weekly benefits for those laid off, terminated or furloughed due to COVID-19 by $600 per week. The measure also reduces paperwork and speeds the claims process by empowering employers to file one mass claim on behalf of all their employees laid off because of COVID-19.

Much like disaster unemployment assistance seen in past weather-related disasters, Pandemic Unemployment Assistance (PUA) may be available for displaced workers not normally eligible for regular or extended benefits. Workers whose hours have been reduced due to the COVID-19 slowdown may qualify for Work Share, a federal short-term compensation program. Employees whose work has been impacted by COVID-19, whether by a reduction in hours or a loss of their job, are encouraged apply for unemployment benefits online. Employers can also utilize online filing for mass claims they file on behalf of employee groups laid off due to COVID-19.

Please contact us if you have any additional questions. We will continue to add resources to our COVID-19 Resource Library as they become available.


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