Background

On April 1, 2020, the “Families First Coronavirus Response Act” or “FFCRA” (H.R. 6201) requires all private employers with fewer than 500 employees to offer employees two types of paid leave benefits: (1) up to 80 hours of Emergency Paid Sick Leave or “EPSL” and (2) up to 12 weeks of Public Health Emergency Leave or “E-FMLA” (although only 10 weeks are paid).  The leave may be taken only from April 1, 2020 to December 31, 2020.

Generally speaking, the payments to employees are tied to the employee’s “regular rate,” as defined by the Fair Labor Standards Act.  The FFCRA caps employer payouts on a daily basis ($511 or $200 per employee per day depending on usage) and a cumulative basis ($5,110 or $2,000 per employee for EPSL and $10,000 per employee for E-FMLA).  The federal government will refund 100% of the “qualified family leave wages” and the “qualified sick leave wages” paid by employer via federal payroll tax credit.

The Issue

Do employers who are signatories to a multiemployer collective bargaining agreement need to make “fringe benefit” contributions to fringe benefit funds on behalf of union members who are receiving paid leave under the FFCRA? 

Short Answer

To date, we have not received definitive guidance from the DOL or IRS on this specific issue for our industry. Nevertheless, based on a plain reading of the statute, together with existing rules and regulations, we can provide the following guidance:

  • There is nothing in the text of the FFCRA that requires fringe benefit payments on payments to employees for EPSL or E-FMLA.  To the contrary, the text of the FFCRA, including an amendment contained in the CARES Act, as well as the bill’s legislative history, suggest that Congress never intended for employers to make any payments beyond which they receive a dollar-for-dollar reimbursement via federal tax credit. 
  • Instead, Congress was using employers as a conduit for making direct payments to employees.
  • Notwithstanding Congress’ intent, there are two caveats to the textual analysis above:
    • First, health and welfare fringes may be due under the existing FMLA regulations and as potentially extended by the DOL (unless, of course, the CBA or plan documents make clear that no payments are required).  See 29 C.F.R. § 825.211.  Even if payment of health and welfare fringes is required, the FFCRA provides the employer with a tax credit for “qualified health plan expenses,” even if the amounts exceed the FFCRA caps.
    • Second, fringe benefit contributions are governed by the terms of the plan and the parties’ collective bargaining agreement.  29 U.S.C. § 1145.  Thus, the text of the CBA will ultimately govern whether fringe benefit contributions are required for FFCRA payments.  If, for example, the CBA refers to “hours worked,” then any fund would be hard-pressed to argue that payments are due (since no work is performed during FFCRA leave).  If, however, the CBA refers to “hours paid” (or other CBA language suggesting that the fringes are required to be paid for non-working time), then there is a chance the trustees of a fund could claim that fringes are required for FFCRA payments.  Ultimately, from the fund’s perspective, it would come down to a construction of the CBA (text, bargaining history, etc.), so a hard and fast rule is not possible.

Analysis

While the question of whether fringe benefit contributions are due will ultimately come down to whether the parties’ CBA or plan requires contributions, we believe that fringe benefit funds should not require contributions because foisting any additional, unreimbursed costs on contractors would: (1) violate the plain language of the FFCRA and CARES Act; (2) is inconsistent with the legislative intent of the FFCRA and the CARES Act; (3) could not have been contemplated by the language of any collective bargaining agreement entered in to prior to March 2020; and (4) is not supported by policy considerations.

A.) FFCRA Payments Are Tied to the FLSA’s Definition of “Regular Rate,” Which Expressly Excludes Fringe Payments.

The payments under both the E-FMLA and the EPSL are tied to the definition of “regular rate of pay” under the FLSA (29 U.S.C. § 207(e)).  See FFCRA § 3102(b), § 5110(5); see also 29 C.F.R. § 826.25 (effective April 1, 2020) (calculating “average regular rate” by “us[ing] the methods contained in 29 C.F.R. Parts 531 and 778 to compute the regular rate . . . .”).

Under the FLSA, the definition of “regular rate” excludes several amounts, including: “contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits for employees.”  29 U.S.C. § 207(e)(4) (emphasis added);  see also 29 C.F.R. §§ 778.214-778.215.  The definition also excludes: “payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause” as well as “other similar payments to an employee which are not made as compensation for his hours of employment.”  Id. § 207(e)(2)(emphasis added).

The DOL, through its Field Operations Handbook, confirmed that fringe benefit payments are not included in “regular rate”:

Contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age retirement, life, accident, health, or layoff (e.g., the Ford-United Automobile, Aerospace, and Agricultural Implement Workers of America Agreement) insurance or other similar benefits for employees are excluded from the regular rate of pay…

Field Operations Handbook § 32d06 (Nov. 17, 2016). In fact, the DOL also made clear in that fringe benefit payments are excludable even if they are paid in cash and directly to employees:

In some cases employers pay their employees a proportionate part of certain fringe benefits, such as vacation pay, sick leave, and holiday pay in cash on each pay day. This practice may be found in certain industries such as the construction industry where the employee usually is employed by more than one employer during the year. Such payments may be made, for example, as a certain number of cents per hour or as a percentage of the hourly rate. Such payments may be excluded from the regular rate under section 7(e)(2) provided (1) they represent bona fide fringe benefits, (2) they are the cash equivalent of such benefits, and (3) there is a clear understanding between the employer and employees that the payments are in lieu of such fringe benefits. There should also be a designation on the payroll records that such payments are in lieu of the specific fringe benefits. However, the absence of such a designation per se will not cause such otherwise bona fide fringe payments to be considered part of the regular rate provided in fact that the tests set forth above are met.

Field Operations Handbook § 32d03h (Nov. 17, 2016).  Thus, by extension, any payments due to employees under the FFCRA do not include any amounts payable to a fringe benefit fund.

It is true that the FFCRA makes plain that the act does not “diminish, reduce, or eliminate—any other right or benefit, including regarding Paid Sick Leave, to which an employee is entitled under any of the following: (i) another Federal, State, or local law, except the FMLA as provided in § 826.70; (ii) a collective bargaining agreement; or (iii) an Employer policy that existed prior to April 1, 2020.”  29 C.F.R. § 826.160(a)(1).  However, this provision simply emphasizes that employers cannot take away benefits that previously vested before passage of the FFCRA.  Indeed, as the DOL explained in comments to its new regulations:

Section 826.160(a)(1) explains that an employee’s entitlement to, or actual use of, paid sick leave is not grounds for diminishment, reduction, or elimination of any other right or benefit to which the employee is entitled under any other federal, state, or local law, under any collective bargaining agreement, or under any employer policy that existed prior to April 1, 2020.  See 29 U.S.C. 2651(b), 2652. Paid sick leave is in addition to, and not a substitute for, other sources of leave which the employee had already accrued, was already entitled to, or had already used, before the EPSLA became effective on April 1, 2020. Therefore, neither eligibility for, nor use of, paid sick leave may count against an employee’s balance or accrual of any other source or type of leave.

DOL Temporary FFCRA Rule pp. 24 (April 1, 2020).  The Department of Labor’s guidance makes clear that the language of Section 826.160(a)(1) was intended to address sick leave rights or other leave rights an employee may have accrued as a result of a collective bargaining agreement and was not intended to expand instances in which employees would receive contributions to an employee pension fund. 

Section 826.160(a)(1) does nothing to provide a fund with a right to additional payments that are not payable under the FFCRA.  Indeed, the Supreme Court has confirmed that an employment contract or collective bargaining agreement cannot “change” or “alter” the calculation of the “regular rate” under the FLSA.  As the Supreme Court has explained, “the regular rate of pay cannot be left to a declaration by the parties as to what is to be treated as the regular rate for an employee[;] it must be drawn from what happens under the employment contract.” Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 464 (1948); see also 29 C.F.R. § 778.108 (same).  Instead, “Once the parties have decided upon the amount of wages and the mode of payment the determination of the regular rate becomes a matter of mathematical computation, the result of which is unaffected by any designation of a contrary ‘regular rate’ in the wage contracts.”  29 C.F.R. § 778.108 (quoting Walling v. Youngerman–Reynolds Hardwood Co., Inc., 325 U.S. 419 (1945)).

In summary, the employer payments to employees pursuant to the provisions of the FFCRA, by definition, exclude amounts payable to a pension fund or payments to other vacation funds or similar funds.[1]  Thus, no such payments are due under the FFCRA or otherwise, regardless of whether a collective bargaining agreement uses the term “hours paid” or “hours worked.”

[1] There is a potential exception for health and welfare fund contributions.  This is because existing FMLA regulations require employers to continue to make contributions to a multiemployer health plan on behalf of employees taking FMLA, unless the plan has adopted an explicit FMLA provision for maintaining coverage.  See 29 C.F.R. § 825.211.  The DOL appears to have adopted this same requirement for Emergency PSL.  See DOL FAQ #30 (“If you elect to take paid sick leave, your employer must continue your health coverage.”).  Thus, the exemption applies with respect to both types of leave, but only with respect to health and welfare fund payments (and not any other fringes).  It is important to remember, too, that the FFCRA allows employers to claim a tax credit for amounts that exceed the caps discussed above for “qualified health plan expenses.” This means that, if a contractor pays these amounts into a health and welfare fund for an employee who has taken E-FMLA or EPSL, those amounts are 100% recoverable by the employer pursuant to the FFCRA.

B.) As Amended by the CARES Act, the FFCRA Expressly Limits an Employer’s Required Payout.

The amounts payable by an employer are expressly capped at the following amounts: (1) for E-FMLA, employer payments are capped at $200 per day ($10,000 total) and (2) for EPSL, the employer payments are capped at $511 per day or $200 per day ($5,110 or $2,000 total), depending on usage.  Thus, paying additional amounts in terms of fringes would violate the FFCRA’s expressed payment caps.

In fact, the CARES Act, which passed on March 27, included the following clarifying amendments to the FFCRA.  The amendments provide that an employer “shall not be required to pay more” than the expressed statutory caps:

  • CARES Act § 3601 (amending FMLA § 110(b)(2)(B), as amended by FFCRA)
    • LIMITATION — An employer shall not be required to pay more than $200 per day and $10,000 in the aggregate for each employee for paid leave under this section.
  • CARES Act § 3602 (amending FFCRA § 5102)
    • LIMITATIONS — An employer shall not be required to pay more than either
      1. $511 per day and $5,110 in the aggregate for each employee, when the employee is taking leave for a reason described in paragraph (1), (2), or (3) of section 5102(a); or
      2. $200 per day and $2,000 in the aggregate for each employee, when the employee is taking leave for a reason described in paragraph (4), (5), or (6) of section 5102(a).

Thus, any claim that a contractor is required to pay more than the amounts specified in the FFCRA would violate the FFCRA’s expressed payment caps.[2]

[2] As noted above, the FFCRA allows employers to claim a tax credit for amounts that exceed the caps discussed above for “qualified health plan expenses.”

C.) Legislative History and Regulatory Guidance Confirms that Congress Did Not Intend for Employers to Make Non-Reimbursable Fringe Payments under the FFCRA.

During and after the passage of the FFCRA, Congress did not intend to require employers to make additional, non-reimbursable payments.  To the contrary, Congress made clear that it was simply using employers as an easy means for depositing federal money into the paychecks of eligible employees.

  • From the Democratic Majority’s Statement released upon passage of HR 6201:
    “Our paid family leave credit offsets 100% of employer costs for providing mandated paid family leave. The credit also offsets, uncapped, the employer contribution for health insurance premiums for the employee for the period of leave.” 
  • House Ways and Means GOP Ranking Member Kevin Brady’s Statement:
    “This division would provide 100% refundable tax credits to employers with regard to two categories of paid sick and family leave (described below) that employers must grant to employees under the bill to address employment interruptions related to COVID-19. The provision sunsets on December 31, 2020.”
  • White House Comments:
    “I fully support H.R. 6201: Families First Coronavirus Response Act, which will be voted on in the House this evening,” Trump tweeted. “I have directed the Secretary of the Treasury and the Secretary of Labor to issue regulations that will provide flexibility so that in no way will Small Businesses be hurt.”

IRS Tax Credit Form:
The recently-released instructions for IRS Form 7200, which provides for advance payment of employer credits due to employers, also supports the interpretation that the government intended employers to be reimbursed for all costs associated with emergency sick leave and extended family leave.  Specifically, the instructions for Form 7200 state:

FFCRA is intended to help the United States combat COVID-19 by requiring certain businesses to provide paid leave to workers who are unable to work or telework due to circumstances related to COVID-19, and offsets the costs of providing the required leave with refundable tax credits against employment tax. 

D.) Nothing in a Contractor’s Collective Bargaining Agreement Contemplated Contributions Based on Subsequently-Enacted, Unreimbursed Mandates.

Even if the CBA contains language requiring payments based on “hours paid,” the parties could not have intended that this would have included payments outside of the CBA, such as subsequently-enacted, unreimbursed mandates.[3] 

Bargaining history could be important.  For example, if the fund had not required fringe benefit payments for other paid-leave mandates outside the CBA, such as California Paid Sick Leave, Arizona’s Paid Sick Leave law, or other municipal leave laws, then this would suggest that non-CBA paid leave mandates do not require payments under the parties’ CBA.  Again, there will need to be an analysis of each situation.

[3] Bargaining history may be important.  For example, if the fund has not required fringe benefit payments for other paid-leave mandates, such as California Paid Sick Leave, Arizona’s Paid Sick Leave law, or other municipal leave laws, then this would suggest that such mandates do not require payments.

E.) Policy Considerations Confirm that Signatory Contractors Should Not Be Required to Make Unreimbursed Payments to a Fund.

Whether and which fringe benefits the government intended to include as part of the financial benefits under the FFCRA and CARES Act are expressly delineated by the Act.  For instance, with respect to payment of emergency sick leave or extended family medical leave act benefits under the FFCRA, the FFCRA specifically provides for dollar-for-dollar reimbursement of payments made to health and welfare funds, but does not include contributions to other fringe benefit funds as part of the benefits provided to employees or the amounts reimbursed to employers.  See FFCRA §§ 7001(d)(2) (allowing a tax credit for  “qualified health plan expenses”), 7003(d)(1) (same).

On the other hand, in the CARES Act, the law allows for inclusion of additional fringe benefit amounts when calculating the amount of a payroll protection act loan as well as the amount which will be forgiven.  Specifically, the CARES Act uses a definition of “payroll costs,” which expressly includes “payment of any retirement benefit”:

  • The term ‘payroll costs’— . . . (I) means —
    • (aa) the sum of payments of any compensation with respect to employees that is a —
      • (AA) salary, wage, commission, or similar compensation;
      • (BB) payment of cash tip or equivalent;
      • (CC) payment for vacation, parental, family, medical, or sick leave;
      • (DD) allowance for dismissal or separation;
      • (EE) payment required for the provisions of group health care benefits, including insurance premiums;
      • (FF) payment of any retirement benefit; or
      • (GG) payment of State or local tax assessed on the compensation of employees . . .

CARES Act § 1102(a) (amending 15 U.S.C. § 636(a)(36)(A)(viii))

The consistent principal in both instances is that the federal government did not intend to impose a burden upon employers without also providing a corresponding benefit of an equal amount.