On December 22, 2020, Congress passed the 2021 Consolidated Funds Act (CAA2021), which provides for an optional extension of FFCRA benefits – yes, “optional”.
The FFCRA urged all employers with fewer than 500 employees and all government employers to grant their employees Emergency Paid Leave (EPSL) and Extended Family and Sick Leave (FMLAX) to address certain COVID-19-related situations. Non-governmental employers could receive a tax credit on labor costs for providing vacation. The vacation right expired on December 31, 2020.
CAA2021 stipulates that employers subject to the law can continue to grant this vacation and receive the tax credit through vacation until March 31, 2021. Employers don’t have to do this. There are a few considerations employers should consider when making a decision:
- The law does not extend the vacation regime – e.g. For example, if the employee has exhausted his entitlement to EPSL in 2020, it appears that the employer cannot receive a tax credit for the respective employee for additional vacation in 2021.
- The tax credit is contingent on the vacation being granted substantially on the terms granted under the FFCRA.
- CAA2021 does not cover how to handle FMLA conflicts. For example, if the employee was unable to use FMLAX for 12 weeks between April 1, 2020 and December 31, 2020 because the employee used FMLA for another purpose (assuming the birth of a child), the employer can provide the employee with a paid service FMLAX and take a tax credit in 2021? As written, the CAA2021 suggests that this could be the case.
- CAA2021 deals with the tax regulations for EPSL and FMLAX separately. It seems, therefore, that one employer might choose to grant one paid vacation right but the other would not. DOL and IRS guidance on this point is helpful.
- It is unclear whether the employer who decides will have to grant the vacation rights by March 31, 2021. Could the employer change their mind mid-term and still get a tax credit? Presumably this is possible, but employers should also consider whether such action creates a discrimination claim – it does not appear that this constitutes disruption or retaliation under CAA2021, but could create other discrimination claims under disability laws, possible FMLA claims, or even OSHA challenges .
Employers should also consider the interaction of state law with the extension of paid leave under CAA2021. Several states have created comparable vacation rights. If an employer is required by state law, it may be beneficial to opt for the CAA2021 extension.
As we learned in Spring 2020, the Congressional resolution raises both questions and answers, and the problems caused by CAA2021 require employers to be nimble and keep an eye on the updates.
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