UPDATED: Documentation Requirements for Payroll Tax Credits and Employee Eligibility Under FFCRA

UPDATED: Documentation Requirements for Payroll Tax Credits and Employee Eligibility Under FFCRA

Apr 07, 2020

Client Alert

Brownstein Client Alert, Updated on June 2, 2020

Under the Families First Coronavirus Response Act (FFCRA), employers with fewer than 500 employees are required to provide certain paid sick and family leave to their employees. Refundable payroll tax credits are available, on a quarterly basis, to an eligible employer for the paid family and sick leave wages (qualified wages) required to be paid under the FFCRA. The Internal Revenue Service (IRS) recently provided guidance, in the form of frequently asked questions (FAQs), related to those refundable payroll tax credits for required paid sick and family leave. Included in the myriad of topics addressed in the FAQs is the identification of the documentation that an employer is required to collect and maintain in order to support the payroll tax credits taken by the employer. The IRS has indicated that these FAQs will be updated as necessary.

DOL Guidance Echoes IRS Guidance. We note that the U.S. Department of Labor (DOL) also issued FAQs  and temporary regulations (as corrected on April 10, 2020), in effect from April 1, 2020, through Dec. 31, 2020, (the “DOL Temporary Regs”) on the paid sick and family leave requirements under the FFCRA. In its guidance, the DOL stated that an employer must retain the same information that the employer is required under IRS guidance to maintain to support the payroll tax credit for FFCRA-required paid sick and family leave (discussed below). Moreover, if an employee fails to provide the documentation necessary to support the tax credit, an employer is not required to provide the requested paid sick or family leave.1

While the payroll tax credits for qualified leave wages apply only to qualified wages paid with respect to leave taken during the period beginning on April 1, 2020, and ending on Dec. 31, 2020, wages paid after Dec. 31, 2020, that relate to leave taken on or before Dec. 31, 2020, are eligible for the payroll tax credit.2

Small Business Exception to Leave Requirements. The DOL Temporary Regs provide a limited exception from the requirement to provide paid leave required under the FFCRA for certain employers with fewer than 50 employees.3 This exemption for small businesses is an exemption only from the obligation to provide paid leave to an employee who requests leave due to school or childcare closures. Small businesses remain obligated to provide paid leave under the FFCRA to an employee who requests leave because the employee is subject to a quarantine or an isolation order, has been advised by a health care provider to self-quarantine, is experiencing COVID-19 symptoms and is seeking a medical diagnosis or is caring for an individual who is subject to a quarantine order or has been advised to quarantine. Under the DOL Temporary Regs, an employer, including a religious or nonprofit organization, with fewer than 50 employees is not required to provide the paid leave under the FFCRA  due to school or childcare closures when the paid leave requirement would jeopardize the viability of the employer’s business as a going concern. The foregoing exemption requires that an officer of the employer determine, on a case-by-case basis, that (1) the leave requested would result in the business’s expenses and financial obligations exceeding available business revenue and cause the business to cease operating at minimal capacity; (2) the absence of the employee requesting the leave would entail a substantial risk to the financial health and operational capabilities of the business because of the employee’s specialized skills, knowledge of the business or responsibilities; or (3) there are not sufficient workers who are able, willing, and qualified and available at the time and place needed to perform the labor or services provided by the employee requesting leave and the labor or services are needed for the business to operate at a minimal capacity. The DOL Temporary Regs require that an employer who elects this exemption from the FFCRA leave requirements for an employee must document that one of the three aforementioned determinations was made and retain such documentation in its records.4 We recommend that an employer create, when such a determination is made, clear and thorough documentation of why a specific exemption was applicable and why the requirements of that exemption were satisfied. A small business, even if eligible for the exemption, still must post the notice required under the DOL Temporary Regs regarding paid leave under the FFCRA.5 We note that public agencies (such as certain governmental employers) must provide the paid leave required under the FFCRA, regardless of the number employees they have, subject only to the permitted exclusions under the DOL Temporary Regs for specified health care providers and emergency responders and certain other federal governmental employees excluded by the Director of the Office of Management and Budget.6 

Required Documentation. The chart found here identifies the documentation required to be (i) collected and maintained by an employer in order to support its payroll tax credits and (ii) submitted by the employee seeking leave, and provides practical considerations for collecting and maintaining both types of documentation.

Please contact your regular Brownstein attorney for assistance with the FFCRA and/or the CARES Act, including questions about the documentation requirements for payroll tax credits discussed below. Our employment law attorneys can help you navigate the employment law aspects of the paid sick and family leave requirements.

Click here for the chart for the required documentation. 

Click here to read more Brownstein alerts on the legal issues the coronavirus threat raises for businesses.

This document is intended to provide you with general information regarding IRS guidance on documentation requirements for payroll tax credits and employee eligibility under FFCRA. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

1 See FAQ 15 and 16 of the DOL guidance (as visited on April 6, 2020); DOL Temp. Reg. § 826.100(f).

2 FAQs 47 and 48 of the IRS guidance (as visited on April 6, 2020).

3 DOL Temp. Reg. § 826.40(b)(1).

4 DOL Temp. Reg. § 826.40(b)(2).

5 DOL Temp. Reg. § 826.40(b)(3)

6 DOL Temp. Reg. § 826.40(c)

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