How To Determine If An Employer Has "Fewer Than 500 Employees" For COVID-19 Federal Paid Sick And Family Leave Mandates

The Families First Coronavirus Response Act (H.R. 6201) became law on March 18, 2020. Among other things, the Act requires employers with “fewer than 500 employees” to provide two new benefits: (1) federal emergency paid sick leave and (2) federal emergency paid family and medical leave (FMLA). As a result, employers need to know immediately how to determine if they have “fewer than 500 employees.”

Questions remain about how to calculate whether an employer has “fewer than 500 employees” and which measurement period or date should be used. These questions are particularly important, as many employers are currently making difficult decisions, which could lead to dramatic cuts to their employee headcount due to the COVID-19 pandemic.
 

Counting Employees for Federal Paid Sick Leave

No controlled group concept. The Fair Labor Standards Act (FLSA) definition of “employer” applies for federal emergency paid sick leave. FLSA does not seem to have a controlled group concept. Likewise, the new legislation simply says “employer” and does not include references to any sections of the Internal Revenue Code that would require all entities under common control be treated as if they were a single employer. Often (but not always), the Code requires related employers to be treated as if they were a single employer (for example, see Sections 1563 and 414(b), (c), (m), etc.). Also, the Code often (but not always) imposes ownership attribution rules (for example, under Sections 267(b) or 318). Congress certainly knew about the controlled group and ownership attribution concepts, which were used most recently in the SECURE Act and the Tax Cuts and Jobs Act, as well as many other laws. By not specifically including cross-references to any of those existing Code sections, it seems Congress did not intend for controlled group or ownership attribution concepts to apply when determining whether an employer has “fewer than 500 employees” for purposes of the new federal paid sick leave mandate. We have submitted this question to the IRS as needing priority guidance.

As of what date should the headcount be made? Since H.R. 6201 does not specify the date for the employee count and the FLSA applies to almost all employers all the time, guidance is needed to determine as of which date employers would be treated as having “fewer than 500 employees” for purposes of the new federal emergency sick leave benefit.
 

Counting Employees for Federal Paid FMLA Leave

Integrated employers. The FMLA definition of “employer” applies for federal emergency paid FMLA leave. That definition includes an “integrated employer” concept, which is similar to (but not the same as) the Code’s “controlled group” concept. Employers would apply the following four factors to determine if common law employers are required to be aggregated for FMLA purposes:

• Common management
• Interrelation between operations
• Centralized control of labor relations and
• Degree of common ownership/financial control

FMLA regulations say that no single factor is determinative. Rather, the entire relationship must be reviewed in its totality. In other words, do the two entities work “hand in glove” so to speak? Do they share the same leadership? Ownership? The more intertwined, the more likely they are “integrated employers” for purposes of the new federal paid FMLA mandate.

For purposes of determining employer coverage under the FMLA, the employees of all entities making up the integrated employer must be counted.

 

There is no “one size fits all” answer, since there is no bright-line, numerical ownership percentage test (like tax professionals are used to analyzing). It seems that FMLA may treat entities as employers, even if they are disregarded entities for tax purposes (such as partnerships or limited liability companies taxed as partnerships).

 
Who counts as an employee?

Employees who must be counted include:

• Any employee who works in the United States, or any territory or possession of the United States
• Any employee whose name appears on payroll records, whether or not any compensation is received for the workweek
• Any employee on paid or unpaid leave (including FMLA leave, leaves of absences, disciplinary suspension, etc.), as long as there is a reasonable expectation the employee will return to active employment
• Employees of foreign firms operating in the United States
• Part-time, temporary, seasonal, and full-time employees

Do not count:

• Employees with whom the employment relationship has ended, such as employees who have been laid off
• Unpaid volunteers who do not appear on the payroll and do not meet the definition of an employee
• Employees of United States firms stationed at worksites outside the United States, its territories, or possessions
• Employees of foreign firms working outside the United States

 

As of what date should the headcount be made? Generally, a private sector employer is subject to FMLA if it employs 50 or more employees for each working day during each of 20 or more calendar workweeks in the current or preceding calendar year. Although it is not clear, the same measurement period could be used to determine if an employer has “fewer than 500 employees” for purposes of the federal emergency paid FMLA leave. Guidance from the U.S. Department of Labor would be helpful in this regard, which hopefully would be more lenient, to take into account the rapid reduction in workforce that came without much warning for many employers, due to COVID-19.