May 26, 2020

This paid piece is sponsored by Eide Bailly LLP.

By Julie Kafka, CPA, HCCP, NCP-E, partner, and Sinda Reichelt, bookkeeping manager

As the COVID-19 pandemic continues to bring about new changes and challenges, new legislation also is being passed and enacted into law to help businesses and their employees stay afloat during this time.

One piece of legislation that has a direct impact on an organization’s payroll is the Families First Act, which requires paid time off for employees who have been impacted by COVID-19.

Families First Act payroll implications

The Families First Act, which went into effect April 1, requires employers to provide expanded family and medical leave and paid sick time for any employees who may have been impacted by COVID-19.

The payment to employees is to be at the usual rate. For hourly employees, employers must pay the regular hourly rate for hours worked in a normal workweek. This leads to the employer receiving a dollar-for-dollar tax credit for payment to employees.

Along with pay for hourly employees, the act also has elements which require a two-third rate of pay for employees who miss work to take care of a family member who is ill with COVID-19.

Once the impacted employee has been paid, the employer can do an instant credit against the federal tax payment. The employer can fill out Form 7200 and fax it to the IRS to get a refund if the tax payment doesn’t cover the tax credit. It also is important to note that the Families First Act is exempt from Social Security tax. The tax credit is the wages paid under the act, Medicare tax and qualified health plan expenses.

Steps to ensure compliance

There are steps employers should take to ensure payroll is set up correctly. Proper setup and reporting will be important for documentation in relation to the relief provisions.

1. Set up earning codes

Setting up earning codes can help track which employees are on leave and how much pay is allocated for those hours. Use the following codes to set up Families First Act and department reporting:

• COVID 19 Sick: This code can be used to track employees who are out on FFCRA with options 1-3 of the qualifying reasons and are paid at a full rate of pay up to $511 per day.
• COVID 19 Sick 2/3: Use this code to track employees out on FFCRA with options 4-6 and are paid at two-thirds the rate of pay, equal up to $200 per day.
• COVID 19 Leave: Use this code to track employees who are out for option 5 to have an additional 10 weeks of pay at two-thirds the rate, again up to $200 per day.

2. Plan out accruals

Setting up accruals can help when it comes to documentation and leave pay, as well as ensuring that employees are getting the proper amount of pay. Consider setting up accruals as follows:

• Full-time sick leave equal to 80 hours.
• Part-time sick leave equal to the average number of hours in two weeks.
• Leave time equal to 400 hours — based on full-time hours.

3. Review time sheets

Setting up time sheets can help employees outline which option they are using and ensures the correct number of hours are taken. When requesting FFCRA wages, the employee must provide the employer with the dates requested, reason for the leave and a statement that they are unable to work for FFCRA reasons. If leave pay is requested, the employee also must provide the name of the child, along with the child care or school name that is no longer available to provide care. It is best to have the employee sign an acknowledgement of these documents.

4. Keep accurate records

Record keeping is an important part of tracking payroll in relation to relief provisions. The IRS has stated that records must be kept for at least four years. Records include:

• Documentation showing how you calculated the amount of qualified health plan expenses allocated toward wages.
• Documentation showing how you calculated the amount of family and sick leave wages eligible for the credit.
• Documentation of the process of determining employees were qualified for sick and family leave wages.
• Documentation of eligibility for the employee retention credit based on decline or suspension of operations, shown in gross receipts.
• Copies of any completed Form(s) 7200 that have been filed with the IRS.

Relief provisions, including the Families First Act, contain elements that impact an organization’s payroll process. Knowing and understanding the impact of these acts will be crucial in making sure you have proper records and documentation.

While these acts have many pieces and may seem complicated, they don’t have to be. Reach out to an Eide Bailly professional and visit Eide Bailly’s COVID-19 web page, which is full of resources to help you and your business navigate these uncharted waters. Eide Bailly is here to help your organization stay on track and keep your employees safe during the COVID-19 pandemic.