Unanswered Questions About Paid COVID-19 Leave and Employer Tax Credits

The American Rescue Plan Act (ARPA) offers tax credits for employers that provide emergency paid sick leave, emergency family leave and paid time off to receive COVID-19 vaccinations, but there are some gray areas. Must emergency paid leave, if offered, be provided on an all-or-nothing basis? Does emergency paid family and medical leave time off exhaust an employee's unpaid 12-week Family and Medical Leave Act (FMLA) allotment? Employers' answers to these questions may depend on their willingness to risk liability for not following the law correctly and losing their tax credits.

ARPA Tax Credits

ARPA allowed employers to voluntarily extend emergency paid sick leave (EPSL) and emergency Family and Medical Leave Expansion Act (EFMLEA) provisions of the Families First Coronavirus Response Act (FFCRA) to employees and receive tax credits through Sept. 30.

The FFCRA had two major provisions, the EPSL Act and the EFMLEA. Under the EPSL Act, private employers with fewer than 500 employees and some public employers had to pay sick leave of up to 80 hours, or roughly 10 days, to employees who needed to take leave for certain coronavirus-related reasons.

Under the EFMLEA, employees were eligible for an additional 10 weeks of family leave paid at two-thirds of their regular wages to care for a child whose school or place of care is closed or whose child care provider is unavailable because of COVID-19. The FFCRA does not have requirements for private-sector employers with 500 or more employees, and ARPA did not change that.

Employers that last year said they weren't covered by the FFCRA but that want to claim a tax credit under ARPA should be prepared to explain what in their business changed or else risk liability under the  FFCRA and jeopardize their ARPA tax credits, cautioned Stan Hill, an attorney with Seyfarth in Atlanta.

"While ARPA does not mandate that covered employers continue to provide EPSL and EFMLEA to employees as the FFCRA provided in 2020, it does broaden the qualifying reasons for the tax credit and provides a new bank of EPSL," said Donna Glover, an attorney with Baker Donelson in Baltimore.

Employers that choose to voluntarily provide FFCRA benefits under ARPA also must continue to comply with the original FFCRA rules governing benefit payments and tax credits and the new rules under ARPA.

The FFCRA's original six qualifying reasons include:

• The employee is subject to a federal, state or local quarantine or isolation order related to COVID-19.
  
• The worker is subject to the advice of a health care provider to self-quarantine related to COVID-19.
• The employee is experiencing COVID-19 symptoms and is seeking a medical diagnosis.
• The worker is caring for an individual subject to an order described in the first two qualifying reasons listed above.
• The employee is caring for a child whose school or place of care is closed—or child care provider is unavailable—for reasons related to COVID-19.
• The worker is experiencing any other substantially similar condition identified by the secretary of Health and Human Services.

ARPA added additional qualifying reasons as follows:

• The employee is obtaining a COVID-19 vaccination.
• The worker is recovering from an injury, disability, illness or condition related to a vaccination.
• The employee is seeking or awaiting the results of a COVID-19 test or diagnosis because either the employee has been exposed to COVID-19 or the employer requested the test or diagnosis.

"Before ARPA, EFMLA [emergency family and medical leave] was available only for reasons related to the need to care for a child due to the unavailability of a child care provider or the closure of a school or place of care," said Fiona Ong, an attorney with Shawe Rosenthal in Baltimore. "ARPA expanded the reasons to include all of those for sick leave, which is quite an extensive list."

All-or-Nothing Approach?

Can an employer choose to offer paid leave only for workers who get COVID-19 vaccinations and for recovery time from adverse effects but not for other paid leave?

"This is still somewhat uncertain, absent guidance from the IRS or the DOL [Department of Labor]," said Sarah Platt, an attorney with Ogletree Deakins in Milwaukee. "Some commenters believe that employers must offer leave for all reasons covered under the EPSL or EFMLA respectively to qualify for the tax credit. I do not think that is the case, but the conservative approach for an employer relying on the tax credit would be to take an all-or-nothing approach."

Nonetheless, "employers are not required to provide both EPSL and EFMLA," she said. "EFMLA provides a longer period of leave—12 weeks—so employers may choose the more limited period under the EPSL to avoid having workers off for as long a period of time."

EPSL reimburses employers at a higher rate for some employees; the cap is $511 for some of the reasons for leave under EPSL versus $200 per day under EFMLA, she noted.

Providing 10 days of paid sick leave and not an entire bucket of paid FMLA leave "is far more palatable for many employers," said Jeff Nowak, an attorney with Littler in Chicago.

Coordinating Paid FMLA with Classic FMLA

"One overarching issue remains—does paid FMLA exhaust an employee's 12-week classic FMLA allotment?" Nowak asked. ARPA "does not address the issue and neither the DOL nor IRS has offered any guidance to employers."

An employer must determine its risk tolerance, he said. "If it wants to play it conservatively, the employer should provide paid FMLA on top of any FMLA classic leave. This is a ton of leave, but this approach ensures no liability."

If the employer's risk tolerance is higher, it might consider including paid FMLA as part of the classic FMLA bank and paid FMLA would draw down the employee's FMLA classic leave, Nowak said. "It is incomprehensible that Congress would have intended eligible employees to obtain one bucket of 12 weeks of classic FMLA and a separate bucket of 12 weeks of paid FMLA," he reasoned.

[Related SHRM resource: Answers to the Most Common Coronavirus Questions]