Internal Revenue Service and Department of Labor Announce Quick, Comprehensive Reimbursement for Paid Sick Leave Costs; Non-Enforcement Policy

Client Alert

The Internal Revenue Service (“IRS”) and the U.S. Department of Labor (“DOL”) have announced that they will provide guidance next week concerning the details of the requirement for employers having fewer than 500 employees to provide paid sick leave in response to COVID-19 related issues. The primary message of the announcement is that employers will be reimbursed fully and promptly for providing the required sick leave benefits.

The announcement provides that under the coming guidance, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of the leave they paid, rather than depositing the taxes with the IRS and later receiving a refund. Anticipating updates to the original statute, the announcement indicates that payroll taxes that may be retained by employers include withheld federal income taxes and both employer and employee share of Social Security and Medicare taxes. This represents an important expansion of the funds available to reimburse employers for the cost of providing benefits. If those taxes do not cover the cost of leave paid, the IRS will process refund claims for the excess in two weeks or less.

Finally, the DOL will announce that it will not bring any enforcement action against any employer for violations of the Families First Coronavirus Response Act as long as an employer acts reasonably and in good faith to comply. Instead, the DOL will focus on compliance assistance for a non-enforcement period of 30 days.