Council Post: Families First: Understanding The FFCRA For Payroll

Sean Manning is CEO and Founder of Payroll Vault Franchising LLC, as well as a CPA, and Thought Leader in the Financial Field.

If I’ve learned anything in my years of working with payroll, it’s that even under normal circumstances, payroll is difficult enough for the average small-business owner. The past six months, however, have been anything but normal. We all saw the Covid-19 outbreak send businesses of all sizes into uncertainty, forcing them to reconcile decreasing revenues with increasing employee needs — all seemingly in an instant.

And as Congress worked to find the best solutions to these near-immediate issues, they’ve done so in the hopes of finding a way to support employees and employers alike. Workers require the ability to care for themselves — and their families — without the worry of what may happen to their jobs. Businesses require the ability to provide that time off while having the security to withstand the drastic changes in their financials.

One of the clearest examples of striking this balance came when the Families First Coronavirus Response Act (FFCRA) was signed on March 18. It became essential for business owners and payroll service providers to understand the ins and outs of the FFCRA, so I wanted to break down the basics of what you need to know.

Understand the fundamentals of the FFCRA.

When the FFCRA went into effect on April 1, it began requiring employers to provide family leave or sick pay to their employees who were unable to work for the following reasons:

• They are ill with Covid-19.

• They are required to quarantine due to Covid-19.

• They are caring for someone with Covid-19.

• They are caring for a child who is not able to attend school or daycare due to mandated closures.

To balance this, the FFCRA provides a payroll tax credit for employers to offer two weeks of fully paid sick leave for employees who are personally unable to work due to the virus or quarantine orders, or two weeks of paid sick leave at two-thirds the employee’s normal rate for those caring for the needs of others. It also credits employers for offering up to 10 additional weeks of paid extended family or medical leave at two-thirds the regular pay rate of an employee needing to care for a child whose school or childcare provider is closed.

Who has to do what?

Private employers with fewer than 500 employees, and even some public companies, are required to provide family or sick leave in the instances listed above. Small businesses, however, may be exempt from the requirement with regard to childcare duties due to closures, given that the employer can demonstrate the payments would jeopardize the business’s viability.

The refundable tax credits apply to wages paid for qualified sick and family leave between April 1 and December 31, 2020. In some instances, wages may come after December 31, 2020, but are payments for leave taken within the period? In that case, those paid wages are still eligible for the credit.

Organized record keeping is paramount.

Maintaining organized, detailed data is critical to ensure your business or businesses not only comply with the FFCRA requirements but that you also get the credits for which you qualify. In this aspect, employers and employees share a responsibility to demonstrate their eligibility.

To satisfy both of these needs, you as an employer will essentially need to document which employee needed sick or family leave, the dates for which they were covered and a statement of the reason related to Covid-19 that leaves the employee unable to work. Employees should provide this information when requesting leave.

In addition to the employee-provided information, you will need to provide further documentation to substantiate your eligibility for the credit. You’ll have to demonstrate how you determined the amount of paid sick or family leave that is eligible for the credit, as well as how you determined the amount of qualified health plan expenses that were allocated to wages. If you are utilizing a robust payroll solution, this information should be readily available.

Efficient payroll is already one of the foundations of running a business successfully. And ensuring the ability to cover your employees as the current health crisis affects their ability to work is essential. As workers and employers both battle continuing uncertainties, transparency and cooperation will be the key to receiving the benefits offered by the FFCRA.

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