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New Guidance on COVID-19 Leave Laws

March 25, 2020

As we reported last week, Congress enacted new leave laws in response to the COVID-19 pandemic, including emergency paid sick leave (“EPSL”) and expanded leave under the Family and Medical Leave Act (“EFMLA”). The Department of Labor (“DOL”) and Internal Revenue Service (“IRS”) recently issued guidance to help businesses understand how those agencies will implement the new laws. In this client alert, we provide a summary of the key guidance affecting businesses.

Clarification of the Effective Date

The DOL confirmed that the new leave laws will go into effect on April 1, 2020, and will apply to leave taken between April 1, 2020, and December 31, 2020. 

Clarification on Tax Credits

Under the new law, amounts paid out as EPSL and EFMLA are recoverable through credits against the employer’s payroll tax obligations. The IRS issued guidance regarding the implementation of these tax credits. The IRS press release states “small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees.” The IRS further stated that, “To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS” by submitting a streamlined claim form. The claim form is expected to be released in the near future.

Clarification for Calculating the Number of Employees

The new laws apply to employers with fewer than 500 employees. As far as counting workers, the DOL confirmed that the following should be included:

  • Full-time employees in the United States;
  • Part-time employees in the United States;
  • Employees on leave;
  • Temporary employees who are jointly employed by two employers (regardless of whether the jointly employed employeesare maintained on only one employer’s payroll); and
  • Day laborers supplied by a temporary agency (regardless of whether you are the temporary agency or the client firm if there is a continuing employment relationship).

Independent Contractors should not be counted.

Counting Employees of Related Businesses

The DOL states that both the DOL’s joint employer rule under the Fair Labor Standards Act (“FLSA”) and the integrated employer test under the FMLA apply to determine if employees at separate, related companies should be counted together. Both the joint employer rule and the integrated employer test are multi-factored balancing tests, and employers should contact legal counsel for advice in calculating the total.

As to the first test under the FLSA, two or more entities may be a joint employer based on a four-factor balancing test that examines the direct and indirect control over an employee. The four factors are whether the potential joint employer:

  1. Hires or fires the employee;
  2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. Determines the employee’s rate and method of payment; and
  4. Maintains the employee’s employment records.

As to the integrated employer test under the FMLA, two or more entities may constitute a single employer based on an analysis of four factors:

  1. Common management;
  2. Interrelation between operations;
  3. Centralized control of labor relations; and
  4. Degree of common ownership/financial control.

If two or more entities constitute a joint employer or an integrated employer, then the total number of employees at those companies are counted together in determining whether the new law applies.

Clarification on Enforcement

In apparent recognition of the complexity of the new laws, the DOL has stated that it “will observe a temporary period of non-enforcement for the first 30 days after the Act takes effect, so long as the employer has acted reasonably and in good faith to comply with the Act. For purposes of this non-enforcement position, ‘good faith’ exists when violations are remedied and the employee is made whole as soon as practicable by the employer, the violations were not willful, and the Department receives a written commitment from the employer to comply with the Act in the future.”

For specific questions, please contact your relationship attorney or a member of Honigman’s Labor and Employment department.