New Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act provisions under the FFCRA take effect on April 1, 2020. In general, the law mandates that small businesses with less than 500 employees provide employees with sick and/or paid family medical leave (see our article https://www.schneiderdowns.com/our-thoughts-on/tax-impact-of-coronavirus-bill-part-2). However, there is an exemption from these rules for employers, including tax exempt organizations, with less than 50 employees.
Small Employers with Less than 50 Employees
The IRS, on its website, has provided some guidance for small employers who may be exempted from the small business provisions of the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act. As you may recall, the FFCRA requires smaller employers (generally with less than 500 employees) to pay for employee benefits they were not required to pay prior to enactment.
However, there is potential exemption from these rules for employers with less than 50 employees. What was unknown was how the exemption would work. Finally, there is some guidance. The IRS recently updated its website providing questions and answers to the requirements of the FFCRA. In questions 58 and 59, the IRS provides the following:
58. When does the small business exemption apply to exclude a small business from the provisions of the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act?
An employer, including a religious or nonprofit organization, with fewer than 50 employees (small business) is exempt from providing (a) paid sick leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons and (b) expanded family and medical leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons when doing so would jeopardize the viability of the small business as a going concern. A small business may claim this exemption if an authorized officer of the business has determined that:
The provision of paid sick leave or expanded family and medical leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;
The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or
There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.
59. If I am a small business with fewer than 50 employees, am I exempt from the requirements to provide paid sick leave or expanded family and medical leave?
A small business is exempt from certain paid sick leave and expanded family and medical leave requirements if providing an employee such leave would jeopardize the viability of the business as a going concern. This means a small business is exempt from mandated paid sick leave or expanded family and medical leave requirements only if the:
Employer employs fewer than 50 employees;
Leave is requested because the child’s school or place of care is closed, or child care provider is unavailable, due to COVID-19 related reasons; and
An authorized officer of the business has determined that at least one of the three conditions described in Question 58 is satisfied.
The Department encourages employers and employees to collaborate to reach the best solution for maintaining the business and ensuring employee safety.
It does not appear, at this time, that an employer needs to file any documents with the DOL (they should confirm with their legal advisors) but based upon the guidance published in the questions and answers, the small business can claim the exemption if an authorized officer of the business made the determination based upon the 3 requirements. It’s recommended that the business and officer specifically document how the 3 requirements were met. Question 4 in the Q&A indicates that more details will be provided in forthcoming regulations. But these questions and answers provided by the IRS begin to lay the foundation upon which certain small businesses can place reliance.
Please contact your Schneider Downs tax advisor if you have any questions or would like to discuss the provisions of the CARES Act and or the Families First Coronavirus Response Act.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.