As the pandemic continues, employers are asking a lot of questions around what they need to do when an employee tests positive or is unable to work due to COVID-19. Is the employer required to pay the employee? Is there assistance available to businesses paying for sick leave when an employee tests positive? While some of the nuances should be advised by a lawyer or HR representative, below we dive into what types of relief are available for employers from an accounting perspective.
Are employers required to pay sick leave for COVID-19?
The answer is yes. The Families First Coronavirus Response Act (FFCRA) requires certain employers to provide employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. Learn more about employee paid leave rights.
Is there assistance available for employers?
Yes. To help employers pay employees who are unable to work due to COVID-19, the FFCRA tax credit and disaster relief payments are available.
Families First Coronavirus Response Act (FFCRA)
When an employee is unable to work (including telework) due to COVID-19, the FFCRA provides a 100% credit against the company’s payroll tax liability. Companies and not-for-profits with less than 500 employees are eligible for FFCRA.
The credit is limited to the maximum amount that needs to be paid based on the sick leave cap of $511 per day for up to 10 days, or $5,110 per employee.
How does FFCRA work?
Employers pay the employee up front and take a dollar-for-dollar tax credit by reporting their total qualified leave wages and the related credits for each quarter on their federal employment tax returns.
The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
FFCRA Example
An eligible employer paid $5,000 in sick leave for a quarantined employee and is otherwise required to deposit $8,000 in payroll taxes. The employer would only be required to deposit $3,000 on its next regular deposit date.
For more information about the FFCRA, refer to the U.S. Department of Labor or IRS.
Disaster Relief Payments
With COVID-19 being declared a national emergency by President Trump, employers can now take advantage of the Robert T. Stafford Disaster Relief and Emergency Assistance Act. The Act, also known as Section 139 of the Internal Revenue Code, allows employers to provide tax-free payments or reimbursements to affected employees as “qualified disaster payments”.
How do the disaster relief payments work?
Disaster relief payments must be to pay or reimburse an employee for reasonable and necessary personal, family, living or funeral expenses. This does NOT include payments that would be covered by insurance or other reimbursements and income replacement payments. Since this assistance Act has never been used during a global pandemic, it’s still open to interpretation on what expenses are qualified, but Section 139 “reasonably suggests” these expenses would qualify:
- Over-the-counter medications, co-pays, deductibles and other medical expenses not covered by insurance
- Funeral costs of an employee or family member of employee
- Costs associated with enabling employees to work-from-home
- Cost of employee’s childcare or tutoring for family members
- Commuting expenses
- Caregiver and domestic services
- Legal and accounting expenses
Payments are tax-free to employees, but fully deductible to the employer. Employers may provide assistance directly to the employee or through a non-exempt fund established to receive contributions from the employer as well as employees.
What should employers document?
Documentation for payment is not required as long as it’s considered “reasonable and necessary”, but Section 139 recommends employers document:
- Their intention for making the payments
- The amounts paid and to whom
- Start and end date of any Section 139 assistance
- Listing of expenses paid or reimbursed
- Any maximum amount per-employee or total combined amount employer will pay
Learn more about Section 139.
Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential impacts and benefits. Visit our COVID-19 Resource Center for more resources. To discuss how we can best assist you and the associated fees, contact an Anders advisor below.
Agnes M. Rybak, Associate + Outsourced Accounting and Ryan T. Knudsen, Senior Accountant + Outsourced Accounting were contributors to this post.
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