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Budget and Policy Post
March 27, 2020

COVID-19

Federal Paid Leave for Workers Impacted by COVID-19

On Wednesday, March 18, 2020, the President signed the Families First Coronavirus Response Act (H.R. 6201), the federal relief act aimed at mitigating the economic and public health consequences of COVID-19. H.R. 6201 includes several actions related to federal paid sick leave and family/medical leave. The law goes into effect April 1, 2020. In this post, we summarize the two forms of paid leave required under H.R. 6201, discuss how these interact with other state benefit programs, and highlight key issues for the Legislature to consider as it responds to the ongoing crisis. We are accurate to the best of our ability given the urgent response needed and the rapidly changing situation. We will track the situation and update this post as needed.

Two Weeks Emergency Paid Sick Leave

H.R. 6201 requires private employers with fewer than 500 employees, as well as all public sector employers, to provide two weeks paid sick leave for any employee who is:

  • Subject to federal, state, or local isolation order (full normal pay);

  • Told by a healthcare provider to self-quarantine (full normal pay);

  • Suffering from COVID-19 symptoms (full normal pay);

  • Caring for someone subject to an isolation order or healthcare provider’s recommendation to self-quarantine (two-thirds normal pay);

  • Looking after a child if the child’s school or childcare facility is closed (two-thirds normal pay);

  • Experiencing any similar conditions, as specified by federal agencies (two-thirds normal pay).

Key Details. The new federal law caps paid sick leave at $511 per day for employees taking sick leave to care for themselves and $200 per day for those caring for others, including their children. Federal paid sick leave applies to employees who have worked for any duration. (Under other sick leave policies, employees are eligible once they have worked a certain period of time.) The law prohibits employers from asking employees to use sick leave or other leave accrued under existing employer policies before using emergency paid leave. The law will be in effect until the end of the calendar year.

Businesses Would Receive Federal Tax Credits to Cover Paid Sick Leave Costs. Employers that provide paid sick leave under H.R. 6201 would receive refundable tax credits each quarter that reduce their federal Social Security payroll taxes by the amount of paid sick leave provided. (Employers are required to pay a federal tax of 6.2 percent of their payroll to fund Social Security.)

12 Weeks Emergency Paid Family and Medical Leave

H.R. 6201 amends the federal Family and Medical Leave Act (FMLA) to require private employers with fewer than 500 employees, as well as all public employers, to provide 12 weeks of paid family and medical leave to employees who are unable to work (or telework) because their child’s school or childcare is closed. Employees are not eligible for paid family and medical leave for other reasons related to COVID-19, including quarantines or sickness. To be eligible, employees must first have worked at least 30 calendars days for the employer. Additionally, employers may require employees to take the first ten days of leave unpaid, or to use other accrued paid leave—including sick leave and vacation leave—for these ten days. After ten days, an employer must provide a leave benefit equal to at least two-thirds of the employee’s normal pay, up to $200 per day.

Allows Exclusion of Small Businesses and Certain Health and Emergency Employees. H.R. 6201 allows employers to exclude healthcare workers and emergency responders from paid family and medical leave. The U.S. Department of Labor may also exempt small businesses—those with fewer than 50 employees—if providing paid family and medical leave would “jeopardize the viability of the business [...].”

Businesses Would Receive Federal Tax Credits to Cover Leave Costs. Employers that provide emergency family and medical leave would receive refundable tax credits each quarter that reduce their federal Social Security payroll taxes by the amount of leave provided. The law limits credits to $10,000 in total per employee (this equates to ten weeks of the maximum daily leave pay, $200).

Analysis

Less Than Half of Workers Covered by Federal Leave, Due to Employer Size and Exemptions. Due to various exemptions, H.R. 6201 probably does not apply to between 50 percent and 75 percent of private-sector employees in California. (Private-sector employees make up 80 percent of the state’s workforce.) First, H.R. 6201 does not apply to businesses with 500 or more employees nationwide. Based on nationwide data, roughly half of California private-sector employees work for businesses of this size. Second, as noted above, businesses with fewer than 50 employees may seek an exemption from the U.S. Department of Labor. Roughly one-quarter of California private-sector employees work for these businesses. Finally, an unknown number of health and emergency workers also may be exempted from paid leave under H.R. 6201.

State Alternatives Exist for Many Employees Not Covered by Federal Leave. For employees not covered by federal paid leave, most notably those who work for large employers, several other options exist. First, workers who stay home to care for a child may be eligible for unemployment insurance, even while they remain employed. These benefits cover a portion of wages for up to 26 weeks (or 39 weeks under a likely forthcoming federal extension). Second, workers who must care for a sick or quarantined family member may be eligible to take up to 6 weeks leave under the state’s Paid Family Leave program. (Applications filed after July 1, 2020 will be eligible for up to 8 weeks paid leave.) Under paid family leave, most workers receive 60 percent of their normal weekly earnings. Third, workers who are themselves sick or quarantined may be eligible for state short-term disability insurance. Disability insurance provides most workers 60 percent of their normal wages for up to a year. More information about these benefits can be found at the Employment Development Department’s COVID-19 resource page.

Employees Could Combine Federal Paid Sick Leave and Paid Family Medical Leave. With the state’s schools closed, the most common use of paid leave under H.R. 6201 at this time will be to look after a child whose school or childcare is closed. Although not stated in H.R. 6201, employees in this situation may use the ten days of paid sick leave provided under H.R. 6201 to cover the ten-day unpaid period of family and medical leave. By combining the two federal leave programs, these employees would be eligible for up to $200 per day for 12 weeks.

Emergency Federal Leave Goes Further Than State’s Leave Laws. Under state law, employees may take up to 12 weeks of unpaid job-protected leave to care for themselves or a family member who is ill. Regarding paid sick leave, in 2014, the state enacted Chapter 317 (AB 1522, Gonzalez), which requires employers to provide employees a minimum of three days paid sick leave. Employers may offer their own paid sick leave policies, as long as they meet or exceed the requirements of AB 1522. H.R. 6201 does not affect the availability of sick leave under AB 1522. Instead, H.R. 6201 provides additional paid leave benefits on top of those currently provided by AB 1522 or employer policies. Most workers likely will find it advantageous to use the federal leave benefits because the federal leave benefit provides up to 12 weeks paid time off. (Current state law guarantees 12 weeks of job-protected unpaid leave.) Doing so will provide most workers a longer period of paid time off and allow them to save accrued sick leave under AB 1522 or employer policies for future needs.

Federal Paid Leave Not Available to Independent Contractors, Even Those Who Are Employees Under State Law... Under H.R. 6201, businesses must provide federal paid leave for workers who meet the federal definition of employee under FMLA. Employer-paid federal leave is not available to individuals who, under federal rules that outline the employee-employer relationship, are deemed to be independent contractors. The federal test to determine whether a worker is an employee or an independent contractor is different than the state test. As a result, some California workers, including those who work for app-based companies, may be employees under California law but independent contractors under federal law. These workers likely are not eligible to receive employer-paid federal leave benefits under H.R. 6201.

…But Self-Employed Workers and Independent Contractors May Claim Tax Credit for Federal Leave. H.R. 6201, nonetheless, provides some assistance to self-employed workers and independent contractors who need to take leave due to COVID-19. Should these workers need to take leave, they are able to claim a refundable personal income tax credit for the same amount of leave benefit a covered employee can receive under H.R. 6201.

Tax Credits May Not Be Enough for Some Businesses to Cover Paid Leave Costs. One major concern about the federal paid leave requirements under H.R. 6201 is that some businesses, during the statewide shelter-in-place order and while awaiting quarterly federal tax credits, may not have sufficient cash flow to continue paying employees during their leave. These businesses may reduce hours and wages, temporarily furlough or permanently lay off employees, or close altogether. Recent guidance from federal tax agencies and the Department of Labor seeks to minimize this concern. Typically, businesses are required to withhold (from employee paychecks) federal income taxes and the employee’s share of Social Security and Medicare payroll taxes, and submit those payroll taxes at the end of each quarter. Under the recent federal guidance, businesses are directed to redirect their withheld payroll taxes to cover costs associated with providing paid leave under H.R. 6201. At the end of each quarter, business payroll taxes owed will be reduced by the amount of paid leave provided to employees. Although this guidance may help improve some businesses’ fiscal position, the concern nevertheless remains that many businesses will be unable to cover the costs to provide paid leave benefits to their otherwise eligible employees.

Third Relief Package Includes Forgivable Loans That May Help Businesses Cover Paid Leave. On March 25, congressional leaders and the White House reached agreement on a third COVID-19 relief package, which includes “paycheck protection” loans for businesses to cover their existing payroll, healthcare costs, interest payments, rent, and utilities. A portion of these loans—essentially eight weeks of the business’s payroll and operations costs, up to $10 million—would be forgiven if the business keeps their employees on payroll or rehires them before June 20. Forgivable business loans are available to businesses with fewer than 500 employees, as well as some larger businesses in the hospitality sector, which has been heavily impacted by COVID-19. (The federal relief package also includes loan programs for larger businesses.) These federal business loans should help improve businesses’ fiscal positions, helping them to maintain payroll and provide paid leave for workers affected by COVID-19. In the coming days, our office plans to publish a more detailed assessment of business loans included in the third COVID-19 relief package.