Legal Alert: Dependent Care Assistance Programs, Health FSAs & COVID-19

Updated 04/01/20

COVID-19 lawIn the wake of the COVID-19 pandemic, many employers are dealing with how to handle Dependent Care Assistance Programs (DCAPs) when employees are no longer working and not in need of childcare, or alternatively, an employee’s childcare program/center/provider has closed due to the pandemic.

DCAPs, sometimes referred to as “dependent flex spending accounts” are an employer-sponsored plan to provide the exclusive benefit of dependent care assistance. Under the Internal Revenue Code (IRC) employees can exclude up to $5000 annually from the gross income for dependent care. DCAPs are subject to flexible spending arrangement rules under the IRC.

General Principles

Because of their tax favored status, DCAPs are subject to many regulations. Any common law employee can participate in a DCAP. In order to have dependent care expenses reimbursed by the program the following general requirements must be met:

  • The expense must enable the employee (and their spouse) to be gainfully employed
  • The expense must be for a qualifying individual (a child under the age of 13)
  • The expense must be for care, not education (daycare is acceptable, private school tuition is not)
  • The expense must be incurred in the coverage period (the plan year)
  • The expense must be substantiated

Exclusion from Income

An employee’s exclusion from income for payments under a DCAP in a calendar year is limited to the smallest of the following amounts:

  • $5,000 if the employee is married and filing a joint return or if the employee is a single parent ($2,500 if the employee is married but filing separately);
  • the employee’s “earned income” for the year; or
  • if the employee is married at the end of the taxable year, the spouse’s earned income

The spouse of a married employee is deemed to be gainfully employed and to have an earned income of not less than $250 per month if there is one qualifying individual, or $500 per month if there are two or more qualifying individuals in each month during which they are a full-time student, or is incapable of self-care and has the same principal place of abode as the employee for more than half the year.

Leave of Absence

If an employee takes a leave of absence they may no longer be considered “gainfully employed” and eligible for dependent care reimbursements during their leave. In general, this is determined on a daily basis, however, there is an exception to the “daily basis” rule for certain short, temporary absences (e.g. Emergency Paid Sick Leave) and part-time employment.

This exception is based on the IRS regulations establishing a “safe harbor” under which an absence of up to two consecutive calendar weeks is treated as a short, temporary absence. However, whether an absence for longer than 2 weeks qualifies as short and temporary is determined on the basis of facts and circumstances.

Likewise, when it comes to FMLA, the IRS does not agree that one’s entire absence under FMLA (which guarantees eligible employees up to 12 weeks of unpaid leave for certain purposes) is appropriate as a temporary absence safe harbor, noting that an absence of 12 weeks “is not a short, temporary absence” within the meaning of the regulations.

Reimbursements

Reimbursements are subject to the same rules as flexible spending arrangements (FSAs). The period of coverage must be 12 months unless there is a short plan year. DCAPs that are underspent lead to forfeited money, unused contributions cannot carry over from year to year. DCAPs are not subject to COBRA and the participant has no right to coverage after their plan participation terminates. Employers can provide for a spend-down provision in their plan documents to allow former employees to receive reimbursement through the end of the plan year in which they terminated employment and coverage. If the plan document does not provide for this spend down, the funds are forfeited.

Reimbursements During Leave of Absence

Although the employee may not be eligible to reimburse dependent care expenses while on leave, an employee on LOA may be able to continue to participate in (and make contributions to) a DCAP but any reimbursements from the DCAP will still be subject to the gainfully employed rule and would have to fall within the exception for short, temporary absences.

Changes to Elections

Under the cafeteria plan regulations, elections are irrevocable unless a permitted event occurs. For DCAPs this is:

  • A change in status
  • A change in cost and coverage
  • FMLA (employees taking FMLA leave can revoke elections of non-health benefits and reinstate their benefits upon return from leave)
REMINDER: Although IRS rules govern dependent care assistance programs (DCAPs) also known as dependent care FSAs, including the requirement that elections are irrevocable except in the case of a “change event”, an employer is not required to recognize all the IRS permitted election changes when designing their FSA plan. Therefore, if an employee requests to change their dependent care FSA election, employers need to be mindful of:
  • FSA plan document language – must explicitly permit changes to elections due to a change in cost. If it does not, an employer may want to consider prospectively amending their plan to include this change event.
  • Following their plan’s rules to avoid plan disqualification
  • Refunds for dependent care FSA contributions already taken from an employee’s paycheck are not permissible.
Dependent Care Change in Status, or Cost & Coverage Events DCAP Election Change
A new childcare provider is available at a different cost than current provider. Includes someone (e.g. parent, older sibling) agreeing/able to watch the child for free. Employee may increase or decrease election amount consistent with change in qualified dependent care expenses. Employee may cancel the election if child is now being cared for at no cost.
Enrolling child at a childcare provider closer to home or new work location. Employee may increase or decrease election amount consistent with change in cost.
An employee or their spouse has a new work schedule (including to or from part-time status), and a different number of hours of childcare are required. Employee may increase or decrease election amount consistent with change in cost. 
A child who wasn’t previously enrolled in childcare now needs a childcare provider due to schools being closed. Employee may enroll in dependent care FSA. Or increase their election if they are enrolling an additional child not previously enrolled in childcare.
Child’s daycare closed Employee may decrease or cancel their election.

It is likely that many of the reasons an employee no longer needs childcare as the result of the COVID-19 pandemic would allow them to change their DCAP contributions, potentially reducing them to zero dollars, particularly if their child has been pulled from care (change in cost and coverage), or they are taking FMLA leave (including newly created FMLA leave under the new Families First Coronavirus Response Act).

Therefore, employers should be lenient and allow employees to change their DCAP contributions within the above scenarios. Employers with employees who are laid off (not expected to return to work) should consult with counsel to see if their plan documents allow for a spend down, or if that change can be made mid-plan year.

Health FSA reminder

Similar to DCAPs, health FSA elections generally are irrevocable and the IRS only permits mid-year changes when an IRS approved qualifying status change has occurred. Any change in employment status of the employee, spouse or dependent that affects eligibility for the health FSA is a qualified status change and the change in the election must be on account of the qualified status change.

REMINDER: A health care FSA may (but is not required) to permit an employee to change their health FSA election for IRS permitted qualifying change in status events.  Employers should refer to their FSA plan documents to determine which events their plan recognizes.
Change in Status Events Health FSA Election Change
Spouse (or dependent) loses health insurance coverage Employee may increase election amount
Employee changes from FT to PT Employee may revoke election if the change affects eligibility for the health FSA (Note: Employee may lose coverage automatically when hours change to PT.) COBRA paperwork may need to be provided if the account is underspent. (The health FSA balance is equal to or more than the amount of FSA premiums charged for the remainder of the plan year.)
Employee is on layoff or furlough If the employee stops getting paid, the FSA technically ends. COBRA should be offered to continue the FSA. The employer may keep the FSA active by providing contributions for the employee, having the employee send payments into the employer, or catching up the contributions upon return.
Employee is on an unpaid, unprotected leave of absence (e.g. not FMLA) If eligibility is lost, employee may revoke election. COBRA paperwork may need to be provided if the account is underspent.
Employee is on FMLA Employee may revoke election for the period of coverage provided for under FMLA (or the employer may allow the employee to continue coverage but discontinue contributions during the leave period.)
Termination of employment – employee Employee’s coverage ends. COBRA paperwork may need to be provided if the account is underspent.
Termination of employment for spouse, dependent who had health insurance or health FSA. Employee may enroll or increase election
Termination and Rehire Within 30 Days Employee’s elections in effect at termination are reinstated unless another event has occurred that allows a change.
Termination and Rehire After 30 Days Depending on the FSA plan design, the employee may reinstate elections in effect at termination or make a new election under the plan. It is possible, though for the FSA plan to prohibit an employee from re-enrolling in the plan during that plan year.

 

Business Interruption Claim: What to Expect

There are several steps involved in working through a business interruption (BI) claim. Once presented, coverage on a BI claim will be evaluated based on the circumstances of the loss (fire, flood, civil authority directives, etc.) by the insurance carrier. it is possible that the carrier may issue a “Reservation of Rights” letter to protect their interests and give them time to investigate the loss and determine coverage. The period of investigation is generally not limited, if progress is being made, and the insured should cooperate by providing any requested information. The claim will either be declined in writing or accepted, and the adjustment phase will begin.

Three of the biggest barriers to BI claim resolution are failure to respond to carrier requests, inability/unwillingness to provide documentation, and lack of clarity on the details of the business in question.

The amount of each BI claim will be determined based on the circumstances of the loss, the nature of the business involved, and the documentation which can be provided. Availability and production of documentation requested by the insurance carrier is key. Again, because each business is different, documentation requirements will vary, but some basic pieces of financial information are to be expected in every BI claim. These include:

  • Income statements
  • Expense statements
  • Balance sheets
  • Production reports
  • Inventory reports (if applicable)
  • Invoices and purchase orders
  • Additional expense documentation (example: rental equipment)
  • Costs of claim preparation
  • Payroll reports

Note that it is not uncommon for carriers to request three years or more of financial information to establish trends and reduce the effects of unusual events (both positive and negative) for the business in question.

It should be anticipated that the carrier will request access to the business’s accountant to answer questions regarding any of the above items, as well as human resources to document employment records during the BI.

It is also not unusual for the carrier to hire a forensic accountant for more complex BI claims, especially if a business cannot provide adequate documentation of their loss.

Information that is advisable to prepare, in addition to the financial materials, includes:

  • A statement regarding the cause of the BI, with as much details as possible
  • A timeline of the BI, from inception to re-opening, including a summary of all relevant events that ocurred during that period
  • An overview of the business in question, and what makes it unique (example: a seasonal business that is not consistent throughout the year)
  • Any external factors that contributed to the loss and documentation of those factors (examples: civil authority actions, condemnation of building notices, etc.)

Some best practices for the insured to follow include:

  • Maintaining a record of all communications (written, phone, or electronic) with the carrier, their accountant, and any other parties involved
  • Documenting all requests from the carrier, as well as the production of documents (what, when, how transmitted)
  • A schedule of regular meetings or conversations between the insured and the BI adjuster so that the expectations of both are known. This may be frequent in the beginning, and less frequent after documentation has been submitted and is being reviewed

Finally, it is important to note that if the insured hires an attorney or accountant to assist in filing or completing a BI claim, the related expenses may not be reimbursable under the insurance policy.

Legal Alert: How Does FMLA and EFMLA Apply to Leaves?

The COVID-19 lawDepartment of Labor has released several questions and answers, with the most recent released on Saturday, March 28th. Clarification was provided on how FMLA and EFMLA apply to leaves and the 12-month period. A link to the Q&A is provided below, and this topic is addressed starting with question #44.

Do I qualify for leave for a COVID-19 related reason even if I have already used some or all of my leave under the Family and Medical Leave Act (FMLA)?

If an employer was covered by FMLA prior to April 1, 2020, the amount of Expanded Family and Medical Leave (EFMLA) available is 12 weeks total in a 12-month period. If you have already taken 12 weeks of FMLA in the 12-month period, you are not eligible for additional time under EFMLA.

It is important to note that the Emergency Family and Medical Leave Expansion Act only applies when you are on leave to care for a child whose school or daycare is closed due to COVID-19 related reasons. This would fall to the EFMLA and not under paid sick leave.

If you have already taken a portion of the 12 weeks that are available under FMLA, you may take the additional EFMLA up to the maximum of 12 weeks in a 12-month period.

For example, if your employer is covered under the FMLA on April 1,2020, and you were eligible for a preexisting FMLA and you took two weeks of leave in January 2020 you would have 10 weeks available FMLA leave remaining. EFMLA is a type of FMLA leave so you would have 10 weeks of EFMLA and not 12-weeks.

If you are entitled to paid sick leave under the Emergency Paid Sick Leave Act, you are entitled to it regardless of how much leave you have taken under FMLA, as paid sick leave is not a form of FMLA and does not count toward the 12 weeks in the 12 month period. If you take paid sick leave concurrently with the first two weeks of EFMLA, which may be otherwise unpaid, then those two weeks do count toward the 12 weeks in the 12-month period.

Overlapping Leave Laws and Employer Paid Time Off

The Families First Coronavirus Response Act (FFCRA) prohibits employers from requiring an employee to exhaust accrued paid time off such as sick or vacation time or state/local paid sick leave. Employees are entitled to utilize federal emergency paid sick leave before using state or local paid sick leave or accrued employer offered PTO.

You should review any state-specific leaves that may have been implemented in response to COVID-19. The DOLs Q&A document can be found on their website and here.

Legal Alert: Congress Passes the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

COVID-19 lawOn March 27, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act comes as a continued response to the Coronavirus 2019 (COVID-19) pandemic that is significantly impacting the United States. The Act is a $2.2 trillion economic package that is meant to stabilize individuals and employers, while the nation continues to experience shelter-in-place advisories/orders and hospitals report a surge of severely ill COVID-19 patients. The Act’s Paycheck Protection Program is retroactive to February 15, 2020, which is important for businesses that have been experiencing financial hardships starting in February.

Overview of CARES Act

The CARES Act amends several laws, as well as appropriates funds to assist individuals, families, and businesses that are experiencing financial difficulties due to COVID-19. There are loans available to small businesses for paycheck protection and loan forgiveness, and other assistance for individuals and businesses as it relates to unemployment insurance and tax relief. The Act supports the health care system by providing financial assistance for medical supplies and coverage. It also provides economic stabilization and assistance for severely distressed sectors (such as airlines), as well as additional COVID-19 relief funds, expanded telehealth and COVID-19 testing provisions, and emergency appropriations for COVID-19 health response and agency operations.

HSA and Telehealth Expansion

The CARES Act includes a new safe harbor under which high deductible health plans (HDHPs) can cover telehealth and other remote care before participants meet their deductibles (i.e., without cost-sharing). This temporary safe harbor applies for plan years beginning on or before December 31, 2021, unless extended. As a result of this safe harbor, no-cost telehealth may be provided for any reason–not just COVID-19 related issues–without disrupting HSA eligibility.

Prescription Drug Reimbursement under FSA/HRA/HSAs

The CARES Act allows health flexible spending accounts (FSAs), Health Reimbursement Arrangements (HRAs), and Health Savings Accounts (HSAs) to pay for or reimburse over-the-counter medication and menstrual products without a prescription. This is a permanent repeal of the ACA’s prohibition on reimbursements under such plans for over-the-counter medication obtained without a prescription. This change is effective January 1, 2020.  The IRS may issue further guidance regarding the timing of any necessary plan amendments.

COVID-19 Testing

Under the CARES Act, COVID-19 testing and related services must be offered at no cost-sharing, until the end of the public health emergency, as declared by Health and Human Services. This also means the health plans cannot require prior authorization or medical management for COVID-19 testing and services (such as an urgent care visit associated with COVID-19). This coverage requirement for COVID-19 testing applies to all health plans, including self-funded and grandfathered plans, and expires at the end of the public health emergency.

Any future COVID-19 vaccine must be provided cost-free, similar to other preventive care vaccines, by any non-grandfathered group health plan, pursuant to the ACA’s preventive care rules.  In addition, the CARES Act requires group health plans and health insurers to cover any “A” or “B” recommended qualifying coronavirus preventive service or CDC-recommended immunization, within 15 business days after the date on which a recommendation is made.  This is a much shorter timeframe than typically allowed for new recommended preventive care services to be added to a group health plan.

The CARES Act also clarifies how plans must pay for COVID-19 testing when performed by an out-of-network provider. Providers who offer COVID-19 testing must post a cash price on their website. Plans may pay out-of-network providers based on their posted cash rate for COVID-19 testing. Providers who do not post the cost for COVID-19 testing face a potential penalty of up to $300 per day. This provision is effective retroactively to March 18, 2020.

Assistance for Businesses – Payroll Protection Program

The Act implements small business loans for employers that have fewer than 500 employees. An employer classified as hospitality and dining under the North American Industry Classification System (NAICS) with multiple locations may obtain loans on a location-specific basis, so particular locations may qualify for a loan. The loans are 100% federally-backed and can be utilized to pay for specific, operational costs. The interest rates for these loans cannot exceed 4%, and no subsidy recoupment or prepayment penalty is permitted. Any small business administration disaster loan admitted after January 31, 2020 can be refinanced into the new loan program. This loan is capped at $10 million, and requires a good-faith certification that: the loans are needed to continue operations during the emergency; funds will be used to retain workers and maintain payroll; pay for mortgage, lease, and utility payments; that there is no other application pending for the same purpose; and that from February 15, 2020 to December 31, 2020 the applicant has not received duplicate amounts. The facts and circumstances should be closely reviewed when applying for and utilizing a small business loan. The Department of Treasury and Small Business Administration is likely to release additional guidance for these applications.

There is also assistance made for larger companies, which provides $500 billion in loans, loan guarantees, and investments for air carriers, cargo air carriers, businesses critical maintaining national security, and facilities that are established by the Federal Reserve to support lending. Loan forgiveness is not allowed for these loans. Again, employers should consult with counsel when availing themselves of these loans, and the Department of Treasury will likely release additional guidance.

Assistance for Individuals

The Act also addresses assistance for individuals and their families who qualify for unemployment benefits. In states that adopt it, an additional federal unemployment benefit of $600 per week is added to what is provided under state law, through July 31, 2020 (unless extended). Individuals unemployed or underemployed due to COVID-19 reasons may also be eligible for an additional 13 weeks of extended unemployment benefits, once state unemployment benefits end.

Additional funding is also available for states that waive the waiting period for unemployment benefits, and states are authorized to enter into agreements with the federal government to initiate short-term compensation agreements to help subsidize payments to employees that have hours reduced due to COVID-19.

Individuals will also be eligible to receive a recovery rebate up to $1,200 ($2,400 for joint filers), including an additional $500 per child. This will phase out for taxpayers making $75,000 or more ($150,000 for joint filers, and $112,500 for heads of household), with the rebate completely phasing out for those earning in excess of $99,000 ($198,000 for joint filers). The rebates will be made available even if a taxpayer had no income, as long as a return is filed. Furthermore, 2018 tax filings will be utilized if filers have not yet filed 2019 taxes. Similarly, there is waiver of taxes for premature distributions of certain accounts, such as retirement and IRAs. Individuals wishing to exercise this waiver will need to confirm it is due to a COVID-19 financial hardship and are urged to consult with a personal tax advisor.

Student Loan Relief

Under the CARES Act, employers may use an educational assistance program to reimburse employees for qualifying student loans up to $5,250 on a tax-free basis (state or local taxes may still apply). This provision applies to loan payments, including principal and interest, made between March 28, 2020 and December 31, 2020, unless extended. Educational assistance programs are subject to Section 127 of the Internal Revenue Code and must be offered pursuant to a written plan document, be communicated to employees, and comply with certain nondiscrimination requirements.

Amendments to Families First Coronavirus Response Act (FFCRA) and Health Benefits

The CARES Act made several clarifications to the FFCRA. For purposes of the expanded FMLA provision, employees will be considered rehired if they were laid off by their employer on or after March 1, 2020, had worked for the employer at least 30 days in the last 60 days prior to layoff, and are rehired. This means that employees that are rehired after March 1 may be eligible for expanded FMLA immediately without having to re-satisfy the 30-day employment requirement under expanded FMLA.  The CARES Act also clarifies that employers can receive an advance tax credit from the Treasury instead of waiting to be reimbursed.

The CARES Act also expands upon the types of COVID-19 testing that are required to be covered, which include in-vitro testing from any developer that has requested or intends to request emergency authorization from the FDA, or diagnostic tests authorized by a state.

Miscellaneous

The Act also provides additional funding for other federal departments to help continue to support industries during this time, as well as increase manufacturing and approval efforts for vaccines and other supplies. Likewise, some adjustments (generally technical corrections) were made to the 2017 Tax Cuts and Jobs Act.

What Employers Should Expect Next

We expect additional guidance at the federal level with regard to applying for and receiving a business loan. Further information from the IRS regarding individual payments is likely to be released in the coming weeks. Employers may also refer to state unemployment websites for questions regarding unemployment, as many states have been updating consistently in response to the pandemic. In addition, employers need to be cognizant of local and state emergency regulations that may affect how employers in certain industries, such as food services, operate during a public health emergency.

Legal Alert: The CARES Act – Retirement Plan Provisions

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  The CARES Act includes several provisions impacting retirement plans.

Withdrawal Provisions
The CARES ACT waives the 10% early withdrawal penalty tax on “Coronavirus Related Distributions” from a retirement plan or IRA.  A “Coronavirus Related Distribution” is a distribution taken prior to December 31, 2020, for an individual who:

  • Is diagnosed with COVID-19;
  • Whose spouse or dependent is diagnosed with COVID-19;
  • Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
  • Other factors determined by the Treasury Secretary

The administrator of the plan can rely on an employee’s certification that the employee satisfies one of the conditions for a coronavirus Related Distribution.Coronavirus retirement

The maximum amount an individual can withdrawal as a Coronavirus Related Distribution is $100,000.  In addition to avoiding the penalty, under the law individuals can pay the income tax on the amount of the withdrawal ratably over a 3-year period.  In addition, the law permits individuals to repay the amount distributed tax-free back to the plan.  Any repayment will not be subject to the retirement plan contribution limits. When a participant repays the hardship distribution, they will need to file an amended tax return.

We recommend that any withdrawals should be discussed with a participant’s accountant and financial advisor prior to taking such withdrawals.

Loan Provisions
The CARES Act enhanced the regular plan loan provisions for a loan taken by an individual that meets the requirements for a “Coronavirus Related Distribution”.  Under the CARES Act, a participant who meets the requirements can take up to the lesser of 100% of their vested balance, up to $100,000, for loans taken within 180 days of March 27, 2020.

The Act also provides that for “qualified individuals” any repayment that would otherwise be owed on a plan loan through the end of 2020 may be delayed for up to one year.

Minimum Required Distributions
The CARES Act waives the required minimum distributions (RMD) from retirement plans and IRAs for 2020.  This applies to the RMD for 2020 but also to the RMD that is required to be taken before April 1, 2020, for individuals who turned 70½ in 2019.

Our Insight
The withdrawal provision is helpful to participants who need access to money because of the impact of the Coronavirus.  The waiver of the 10% penalty tax and allowing the regular income tax to be paid over three years, are both very beneficial provisions for participants.  However, here are consequences participants should consider:

  • Perhaps most important, the longer-term impact that taking money out of the retirement plan will have on retirement savings;
  • The impact of taking a withdrawal after a steep market decline.  The participant may be selling when the fund values are low and thereby locking in losses;
  • Whether paying all the tax in the current year is more advantageous than spreading the tax over three years;
  • Other sources of liquidity to consider using first

Participants contemplating taking a loan should also consider the impact the loan will have on their retirement savings and the potential loss of future positive returns should the market recover from the significant market decline we have recently experienced.

Plan recordkeepers are in the process of setting up procedures for implementing this provision.  Under the CARES Act, plans can implement the changes immediately and have until the last day of the first plan year beginning on or after January 1, 2022, to make the required amendment.

Contact your recordkeeper or plan advisor for details.

Legal Alert: What Employers are Subject to the Families First Coronavirus Response Act (FFCRA)?

Which Employers Are Subject To The Act?
The Families First Coronavirus Response Act (FFCRA) was signed into law on March 18, 2020. That law includes the new Emergency Paid Sick Leave Act (EPSL) and the Emergency Family and Medical Leave Expansion Act (EFMLA). The benefits and eligibility of those Acts are discussed in a separate document.

The effective date of FFCRA is April 1, 2020. Over the past week, the Department of Labor (DOL) has issued a series of Questions and Answers to explain how they plan to administer the new EPSL and EFMLA.

Which Employers Are Subject to EPSL and EFMLA?
Generally, private employers with fewer than 500 employees and public sector employers of any size are subject to these laws. Some employers with fewer than 50 employees may be exempt for the Act, see below.Families First Coronavirus Response Act

Public sector employers include States, Cities, Municipalities, Townships, Counties, Parishes, the District of Columbia, a Territory or possession of the United States government, school districts, or similar entities.

Most federal employees are not entitled to benefits under EFMLA, since the Act amended Title I of the FMLA and most federal employees are covered instead by Title II of the FMLA.

Counting Employees
The 500-employee threshold is determined at the time your employee requests to take EPSL or EFMLA. If an employee files for leave on April 3rd, then the employer would look at the employee count on April 3. There is no averaging over the past 30 days, it is based on the employee count on the day that the employee requests leave. It is possible that an employer could have more than 500 employees on one day, fewer than 500 the next day, and then be back over the 500-employee threshold on the third day.

Both the EPSL and EFMLA use the employee definition provided in the Fair Labor Standards Act (FLSA). The employee count includes:

  • Full-time and part-time employees working in the U.S. and its Territories.
  • Employees on leave.
  • Temporary employees who are jointly employed by two employers (regardless of whether the jointly employed employees are maintained on only one of the employer’s payroll).
  • Day laborers supplied by a temporary agency (regardless of whether it is the temporary agency or the client firm if there is a continuing employment relationship).

Independent contractors as defined under the FLSA, are not considered employees for purposes of the 500-employee threshold.

A corporation (including its separate establishments or divisions) is a single employer and all its employees are included in establishing the 500-employee threshold. If a corporation has an ownership interest in another corporation, the two corporations are separate employers unless they are joint employers under the FLSA.  If two entities are joint employers, all of their common employees must be counted in determining whether EPSL and EFMLA must be provided.

If an employee performs work for an employer that also benefits another individual or entity, the FLSA has a four-factor balancing test to determine whether the employer is directly or indirectly controlling the employee: 

  1. Who hires or fires the employee;
  2. Who supervised and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. Who determines the employee’s rate and method of payment; and
  4. Who maintains the employee’s employment records.

Determining whether employers are joint or separate, is based on fact and circumstances tests as outlined by the FLSA. Employers who don’t know how they are categorized under the FMLA integrated employer rules or still have questions need to discuss these issues with their legal counsel. 

Small Employer Exemption
Small employers with fewer than 50 employees may be exempted from providing EPSL and EFMLA benefits if doing so would jeopardize the viability of the business as an ongoing concern. Small employers can claim an exemption if an authorized officer of the business has determined that:

  1. Providing EPSL or EFMLA benefits would result in the small business’s expenses and financial obligations exceeding business revenues and cause the business to cease operating at a minimal capacity;
  2. The absence of the employee or employees would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge or the business or responsibilities; or
  3. There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting EPSL or EMLA, and these labor or services are needed for the business to operate at a minimal capacity.

Healthcare Workers Are Exempted From EPSL and EFMLA Benefits
FFCRA also stated that employers could exclude healthcare providers and emergency responders from being able to receive leave under EPSL and EFMLA.

A healthcare provider is anyone employed at any doctor’s office, hospital, healthcare center, clinic, post-secondary educational institution offering healthcare instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home healthcare provider, any facility that performs laboratory or medical testing, pharmacy or any similar institution employer or entity.

This definition includes any individual employed by an entity that contracts with any of the above employers to provide services or to maintain the operation of the facility. Included in this list is anyone who provides medical services, produces medical products, or is otherwise involved in the making of COVID-19 related medical equipment, tests, drugs, vaccines, diagnostic vehicles, or treatments.  The list was not intended to be all inclusive. It also includes anything that the highest state or territory official determines to be a health care provider necessary to responding to COVID-19.

An emergency responder is an employee necessary for the transport, care, healthcare, comfort, and nutrition of patients with COVID-19 or whose services are needed to limit the spread of COVID-19. The list includes but is not limited to military or national guard, law enforcement officers, correctional institution personnel, fire fighters, emergency medical services personnel, physicians, nurses, public health personnel, emergency medical technicians, paramedics, emergency management personnel, 911 operators, public works personnel, and persons with skills or training in operating specialized equipment or other skills needed to provide aid in a declared emergency as well as individuals who work for such facilities employing these individuals and whose work is necessary to maintain the operation of the facility.

Recordkeeping

Private sector employers are eligible for reimbursement of the costs of EPSL and EFMLA leave through refundable tax credits. Employers intending to claim a tax credit should retain appropriate documentation. The Internal Revenue Service will be providing forms, instructions and procedures to apply for those credits.

For employees who take the EFMLA to care for their child(ren) whose school or place of care is closed due to COVID-19, in addition to typical FMLA forms, they should also provide proof the school or care center was closed. This could include a notice posted on a school or daycare website, notice in a newspaper, or an email from an employee or official at the school, care center or child care provider.

The DOLs Q&A document can be found on their website and here.

Legal Alert: FFCRA Employee Notice

The Department of Labor (DOL) released the notice that employers are required to post in their workplaces in relation to the Families First Coronavirus Response Act (FFCRA). A copy of the notice can be downloaded by clicking here.

While the notice technically must be posted in a “conspicuous place in the physical workplace,” we understand that many people’s offices are voluntarily or involuntarily closed or that it may not be safe to go into an office. While the notice still should be posted when it is prudent to do so, in the meantime we recommend (where possible) distributing the notice electronically and/or placing it on a company intranet.

The Department of Labor is still in the process of drafting regulations, on which we will advise shortly after they are released.

As always, please let us know if you have any questions or need additional information.

Legal Alert: Collecting Premiums During Employee’s Leave of Absence

When an employee takes an unpaid leave of absence, the question arises on how an employer should collect benefit premium payments to continue benefits during that time. The only regulatory guidance on this comes from the original Family and Medical Leave Act (FMLA) regulations.Collecting Premiums COVID-19 absence

Following those, employers have three choices, they can utilize just one method, two methods or all three:

  1. Pay in advance. Employers can collect a lump sum payment for missed payroll deductions in advance of the leave of absence. Employees should consult with their personal tax advisor on any credits or deductions they might receive for paying premiums post-tax.
  2. Pay as you go. Employees can remit payment post-tax, with payment deadlines coinciding with pay periods. Employers should set firm guidance on where to remit payment, when it is due, and warn employees that missed payments will subject the employee to plan termination retroactive to the due date of the payment; which could expose the employee to claims if they seek healthcare services during that time.
  3. Pay upon return.  Employers can allow employees to pay premiums pre or post-tax upon return. It is highly encouraged to give employees a certain amount of pay periods to pay back each missed premium payment. All employees should be provided the same amount of time to pay back missed premiums. For example, employees could be provided 2 pay periods to pay back one missed premium payment. Employees who do not return to work and do not pay back their premiums can either have coverage terminated retroactively to the last date paid, or the employer can treat the missed payment as a debt. Counsel should be consulted on how to handle this debt. Employers should clearly communicate the ramifications of not returning to work on the employee’s coverage.