The same steps the federal government and many state governments are taking to protect citizens from the coronavirus known as COVID-19 are — not by design but by unintentional consequence — slowing down the economy and hurting many businesses. Especially small businesses like the ones we often work with here at Stees, Walker & Company, LLP. Looking at the prospect of going for several weeks or months without revenue or with significantly diminished sales, small-business owners we work with are naturally worried about paying rent and covering payroll. Some have already had to lay off employees.

Fortunately, some relief is on the way. Here in California, on March 17 of this year, Governor Gavin Newsom signed an executive order suspending the requirement that employers provide 60-day notice for any mass layoffs. One day later, the U.S. Congress passed the Families First Coronavirus Response Act to expand the Family Medical Leave Act (FMLA) and related tax credits for employers.

In this post, we offer an overview of what the U.S. government and the State of California’s latest efforts mean for small businesses. First up, the suspending of the 60-day notice for mass layoffs.

Suspending the 60-Day Notice Requirement for Mass Layoffs

California employers required to adhere to the Worker Adjustment and Retraining Notification (WARN) Act and Cal-WARN Act are required to provide 60-day advance notice of any plans for mass layoffs or terminations. Governor Newsom’s executive order (No. N-31-20) suspends the 60-day notice requirement for forced closings, relocations, or layoffs directly related to the coronavirus known as COVID-19. The Governor’s executive order remains in effect for the duration of California’s current State of Emergency.

Note: Newsom’s executive order does not suspend WARN (Worker Adjustment and Retraining Notification act) or Cal-WARN in their entirety — employers are still required to honor their other obligations under these acts.

As a California employer, you’re still required to provide written notice to employees and relevant government agencies if you’re forced to order a mass layoff, closing, or relocation as a result of COVID-19. Your notice must include the following statement:

If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI). More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019.

The Families First Coronavirus Response Act

The Families First Coronavirus Response Act (FFCRA), which was introduced by Representative Nita M. Lowey of New York on the 11th of March, was passed and become law on the 18th of March in response to the growing health and economic crises related to the 2019-2020 coronavirus pandemic. This act includes provisions for free testing, paid sick leave and family leave, unemployment aid, and nutrition assistance.

In part, FFCRA was passed to lessen the impact of the coronavirus on small businesses and their employees. It will be in effect April 2 through December 31, 2020.

Family Leave

FFCRA expands upon the Family and Medical Leave Act (FMLA) for businesses with fewer than 500 employees. Under the act, employees employed for at least 30 calendar days can take up to 12 weeks of protected leave to care for a child under the age of 18 when the child’s school or daycare is closed due to a public health emergency related to COVID-19. Additional stipulations include the following:

  • The first 10 days may be unpaid, but employees can use accrued paid leave (vacation or sick days, for example)
  • After the initial 10 days, pay for each workday is based on the employee’s normal hours calculated at a rate of 2/3 the employee’s regular pay, not to exceed $200 per day or $10,000 for the duration of the family leave
  • In businesses with 24 or fewer employees, the employer is exempt from providing job protection under certain conditions; for example, if the employer is forced to eliminate the employee’s position due to economic conditions or other factors that impact the business due to the public health emergency
  • If requirements under the Act would jeopardize the business, the U.S. Secretary of Labor could exempt businesses with fewer than 50 employees

Employers can claim a tax credit equal to 100 percent of qualified family-leave payments made by the employer under FFCRA. The tax credit is first used to offset the employer’s portion of Social Security taxes and can be claimed quarterly. If the tax credit exceeds the employer’s portion of Social Security taxes, the excess credit is refundable to the employer.

The Problem with the Tax Credit Reimbursements

Although we applaud Congress and the current administration for their efforts at providing financial relief to small businesses, the problem with this plan is that many small businesses do not have any money, since all of their sales have just flown out the window. So, how does a company pay its employees and then get the money back later? Even worse, if the sick employee is the only employee, enough payroll tax won’t be withheld to reimburse the employer. They will have to wait for a refund, which results in more financial burden.

We are hopeful that we get news soon from the American Institute of Certified Public Accountants (AICPA) that they were able to negotiate a deal so that the payroll services can be funded to help finance this newly mandated employee leave. 

Sick Leave

FFCRA also includes provisions for allowable sick leave under the Emergency Paid Sick Leave Act. In businesses with fewer than 500 employees, employers are required to provide paid sick leave to any worker who is:

  • Sick with or quarantined due to COVID-19
  • Experiencing symptoms of COVID-19 and seeking medical attention
  • Caring for a child due to a school closure or unavailable childcare

Under the sick leave provision FFCRA, all workers, regardless of how long they have been employed, are covered by the following sick leave provisions:

  • Full-time employees — entitled to 80 hours of sick leave
  • Part-time employees — entitled to sick leave equal to the average number of hours they work over a two-week period
  • The employer may not terminate an employee who takes paid sick leave
  • The employer may not require employees (as a condition of receiving paid sick leave) to search for or find a replacement to cover for them

Pay and payment caps for sick leave differ depending on whether the leave is used for the employee’s own illness or quarantine or to care for a family member:

  • If the employee is sick or quarantined or is experiencing symptoms of COVID-19 and seeking medical diagnosis, the pay rate is based on the employee’s regular pay rate or the federal, state, or local minimum wage (whichever is greater) and the number of hours the employee would have been scheduled to work. Total payment is capped at $511 per day or $5,110 total.
  • When sick leave is used to care for a a child whose daycare or school or is closed due to COVID-19, or for a family member, the rate is two-thirds of the employee’s regular pay rate. Total payment is capped at $200 per day or $2,000 total.

Employers can claim a tax credit equal to 100% of qualified sick leave payments made by the employer under FFCRA. The tax credit is first used to offset the employer’s portion of Social Security taxes and can be claimed quarterly. If the tax credit exceeds the employer’s portion of Social Security taxes, the excess credit is refundable to the employer. The following limitations apply:

  • $511 per day per employee if the sick leave was taken due to employee’s own illness or quarantine due to COVID-19
  • 10 days of leave per qualifying employee
  • Available only for Q2 through Q4 of 2020

Note that businesses with 49 employees or fewer are exempt from the paid sick leave requirement if it threatens the viability of the business. Also, any sick leave provided under the Families First Coronavirus Response Act expires on December 31,2020 and does not carry over.

Benefits for the Self-Employed

If you are self-employed, the Families First Coronavirus Response Act allows you to claim a tax credit against your regular income taxes for sick or family leave, but the following limitations apply:

  • Daily amount is limited to the lesser of your daily self-employment income or $511 per day (for sick leave) or $200 per day (for caring for a child).
  • You can claim tax credits for up to 10 days of sick leave and 50 days of family leave.

We here at Stees, Walker & Company, LLP realize this is a lot of information to take in all at once. And really, that’s why we’re here. We understand the fluid nature of what’s happening in our state and nation and we’re built from the ground up to interpret these sorts of developments and rules in real time. If you have questions about any of what we’ve shared above, please reach out to us using the contact information on our website, our secure client login section of our website, or the Contact Form here on our blog.

Luckily, time is on your side right now, so if we take a day or two to reply, it’s only because it’s tax season, we’re hard at work with existing obligations, and many extensions have been offered for both businesses and individuals when it comes to the timing associated with tax filings.

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About the Author: Laura Stees, CPA is a Partner and Business Strategist with Stees, Walker & Company LLP — a San Diego, Calif.-based boutique tax consulting firm focused on personalized tax and financial guidance to individuals and businesses.

Disclaimer: The information in this blog post about COVID-19 relief for small businesses and their employees is provided for general informational purposes only and may not reflect current financial thinking or practices. No information contained in this post should be construed as financial advice from the staff at Stees, Walker & Company LLP, nor is this the information contained in this post intended to be a substitute for financial counsel on any subject matter or intended to take the place of hiring an Certified Public Accountant in your jurisdiction. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking the appropriate financial planning advice on the particular facts and circumstances at issue from a licensed financial professional in the recipient’s state, country or other appropriate licensing jurisdiction.