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Payroll Considerations Under FFCRA

March 24, 2020 Finance

Please make sure that you are up to speed on the latest payroll procedures, so you don’t overpay your payroll taxes! On March 20, the IRS issued a release on the mechanics of recovering the sick, family and medical leave paid under Families First Coronavirus Response Act (FFCRA) from the IRS. (See our post, “FACT SHEET – The Family First Coronavirus Act Law“)

While this article doesn’t describe the precise calculations under the FFCRA, it does highlight areas to consider as you implement this process.

A Few Important Notes:

  • Extra leave payments are reimbursable by reducing FICA tax payments or getting refunds if the amount of leave paid is in excess of FICA tax liability.
  • Additional specifics are due from the IRS this week.
  • One issue that is not yet 100% clear is how to calculate “regular pay rate” where an employee’s pay varies each week. We expect there will be some sort of “lookback” period required to calculate. Currently, this is anticipated to be a 6-month average of hours worked.

FFCRA Summary

Keiter, a Virginia based CPA firm we do business with, prepared this excellent summary of the IRS release. The full article can be found at here, but highlights follow:

  • Employers with less than 500 employees generally qualify for the credit. There is a small employer exception (50 or less employees) for the paid sick/childcare rules.
  • Paid Sick Leave – Employers are required to provide 2 weeks (80 hours) of paid sick leave at 100% of employees pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis.
  • Child Care Leave – Employers are required to provide 2 weeks (80 hours) of paid sick leave at 2/3 of employees pay where the employee is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee’s pay.
  • Employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
    • It appears that this credit is claimed on the 941 – first applied to payroll tax obligations and then balance refunded.
    • Health insurance costs are included as part of the credit.
  • Employers may receive a refundable childcare leave credit for childcare leave at 2/3 employee’s regular rate of pay, up to $200 per day and $10,000 in the aggregate, for a total of up to 10 weeks for qualifying leave.

Here is the full IRS release.

A Few Additional Notes:

  • Extra leave payments are reimbursable by reducing FICA tax payments or getting refunds if the leave paid is in excess of FICA tax liability. This is not an out of pocket expense for the business.
  • Businesses should contact their payroll provider about the appropriate way to set up new earnings codes for this COVD-19 related pay.
  • Additional specifics are due from the IRS this week.

About the Author
Doug Jones provides fractional CFO and senior financial management services to small and midsize organizations. In addition to improving his clients’ accounting and finance operations, Doug frequently serves as the link between company owners and outside advisors including attorneys, CPAs, investment bankers, appraisers, and personal financial advisors. He is skilled in identifying and integrating the full range of financial and non-financial business issues in contract negotiations and resolution of business decisions. He can be reached at djones@fahrenheitadvisors.com

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