Employee Benefits Compliance, COVID-19

COVID-19 — FAQs for Your Plans and Sick Leave Policies

The COVID-19 Benefits Environment 

There are a lot of questions surrounding how testing, prevention, and treatment for COVID-19 will be handled under your employee benefits plan, and how employment environment changes and related events will be handled from a compliance perspective. These are the Frequently Asked Questions (FAQs) on these employee benefits compliance issues.

Testing, Treatment, and Prevention 

Question #1Are health plans required to pay for testing and treatment?  

Answer: It depends, but likely yes.  

INSURED PLANS: Many states, such as California, are requiring insured health plans to waive co-pays and other out-of-pocket expenses for COVID-19 testing and treatment. This includes waiving costs for emergency room, urgent care, and office visits when the purpose is related to COVID-19; based on medical necessity. 

SELF-INSURED/LEVEL-FUNDED PLANS: While no mandate as been issued to-date for self-funded plans, there are developments. High-deductible Health Plans (HDHP) now provide for testing and treatment for COVID-19 without a deductible or with a deductible below the minimum annual deductible otherwise required.  

ESSENTIAL HEALTH BENEFITS. FAQs published on Essential Health Benefits (EHB) provides that diagnosis and treatment of COVID-19 is generally covered under EHB-benchmark plans. Quarantine outside of a hospital setting is not an EHB per this guidance. 

Paid Sick Leave 

Question # 2: Is paid sick leave available if workers are forced to stay home due to illness related to the coronavirus or children being out of school? 

Answer: The Families First Coronavirus Response Act was passed by the House of Representatives on March 13, 2020, and is working it’s way through the Senate. [UPDATE: Since original writing, this Act was passed by the Senate and was signed by the President. Additional analysis will come separately.] Other bills are also being considered. Here are the highlights, based on the content at this stage (subject to many changes): 

  • Private employers with fewer than 500 employees would be required to provide 14 days of paid sick leave; and  
  • Three months of paid family and medical leave to most employees.  
  • Only 2/3rds pay required to family and medical leave, whereas normal wages for paid sick leave. 

Question #3: How will employers pay for paid sick leave? 

Answer: The Act includes several payroll credit provisions to assist employers and employees. These credits will apply against the 6.2% social security tax and claimed quarterly. Employer / taxpayers need to claim these credits in gross income to avoid double-dipping into the government coffers. Including: 

  • Self-employed Tax Credit will provide a credit against the self-employment tax for their sick leave equivalent amount.  
  • Family Leave Credit will be available at $200 per day per employee while the employee is receiving paid family and medical leave, up to $10,000 aggregate in paid wages per employee. 
  • Sick Leave Credit will provide a maximum of $511 per day per employee paid to employees who receive paid sick leave.

Question #4: Are leave-sharing programs available? 

Answer: There are two types of crisis leave sharing programs with already developed guidance by the IRS. 

DISASTER LEAVE SHARING PROGRAM. IRS guidance permits employees to deposit leave into an employer leave bank for other employees affected by a major disaster. 

Major Disaster  

(a) A major disaster as declared by the President that warrants individual assistance or individual and public assistance from the federal government under that Act, or  

(b) A major disaster or emergency as declared by the President  

Since the President declared a national emergency, this program is available. Employers can set one up under the rules established in the guidance. Any leave deposited can only be used for this disaster—COVID-19. Ensure there is a written program plan laying out the specifics. 

CATASTROPHIC MEDICAL EMERGENCY LEAVE SHARING PROGRAMGuidance has shown that employees donating leave will not be charged taxes, transferring tax treatment to the recipient. In order to comply, the program must: 

  1. Restrict the program to medical emergencies. Defined as a prolonged absence resulting in a substantial loss of income. 
  2. Exhaustion of paid leave required. 
  3. Pay donated leave at recipient’s normal rate of compensation or accruable leave. That means, excess leave is not permitted if above what would be the employee’s normal compensation. Otherwise an ERISA plan could be set up, requiring many other compliance requirements.  
  4. Ensure there is an administrative process or mechanism for the transfer and recordkeeping of donated leave and include a written application with any tax implications laid out. Any written plan should include nondiscrimination and privacy considerations.  

Ensure when setting up a leave bank program that all details are considered and put into the leave sharing program policy. 

Cafeteria Plans 

Question #5: Can employees change their cafeteria plan election in response to COVID-19 related illness, treatment, or childcare issues related to children being out of school? 

Answer: Some legislation is being considered to expand qualifying events for change in status. Specifically, expanding the special enrollment periods to up to 60 days for individuals diagnosed with COVID-19 who require a corresponding change in election, such as enrolling in an Exchange qualified plan. As it stands today, a reduction in hours that affect eligibility or cost of coverage would fit into the IRC section 1.125-4 qualifying changes allowing a corresponding revocation or change in elections.  

DEPENDENT CARE FLEXIBLE SPENDING ACCOUNTS. As a general rule, DCAP elections must remain in place the full plan year unless there is a qualified change in status (see IRC 1.125-4 above). However, school closures do not fit neatly within the existing regulatory framework. A change from one provider to another resulting in cost change is a permitted reason. If hours were reduced, allowing the parent to take care of the child, this is a permitted election change related to their salary reduction. The reverse is also true. If there is an increase in hours, the parent could prospectively change their election to increase the DCAP election. When working from home, if able to work and expected to work full time without a schedule reduction, no DCAP election changes are permitted. Legislative intervention would be welcome in this area. 

LEAVEEmployees absent from work due to their own or family member’s illness may be eligible for FMLA or other state laws that protect them from termination and continue their benefits during the leave period. Treat employees as you would any other leave situation. If an unpaid leave, employees may revoke their elections altogether and employers may terminate benefits. If a paid or protected leave, benefits must continue for the allotted 12 weeks or more. If premiums must be paid during leave, employers may continue to require such; terminating coverage for nonpayment, where applicable. Employers should ensure their procedures are consistent and written in the plan documents. 


Question #6: Does HIPAA still apply to my self-funded / level-funded plan? 

Answer: Yes. The Department of Health and Human Services (HHS) published guidance for waivers of certain HIPAA requirements when such waiver is issued by HHS. Waivers from sanctions or penalties are available for: 

  1. The requirements to obtain a patient’s agreement to speak with family members or friends involved in the patient’s care. See 45 CFR 164.510(b).  
  2. The requirement to honor a request to opt out of the facility directory. See 45 CFR 164.510(a). Id. 
  3. The requirement to distribute a notice of privacy practices. See 45 CFR 164.520. 
  4. The patient’s right to request privacy restrictions. See 45 CFR 164.522(a). 
  5. The patient’s right to request confidential communications. See 45 CFR 164.522(b). Id. 

While these waivers will mostly apply to health care providers, there may be added benefit to health plans as well. Plans may see a relaxing of the Notice of Privacy Practices penalty if distribution was affected by the COVID-19 crisis. An application for waiver would be required to qualify but the Trump Administration has indicated a willingness or a relaxing of some rules or penalties in this crisis. 

In February, HHS released guidance specific to addressing HIPAA during the COVID-19 crisis; reminding plans and providers that the minimum necessary standard still applies to require the use of reasonable safeguards to protect information against impermissible uses and disclosures. 

Bills In Consideration 

Safeguarding Americans from Epidemics (SAFE) at Work Act of 2020 (HR 6219)
To amend the Internal Revenue Code of 1986 to allow a credit against tax for telework, and for other purposes. 

Emergency Family and Medical Leave Expansion Act (HR 6220)
To amend the Family and Medical Leave Act of 1993 to provide for leave with respect to a public health emergency, and for other purposes. 

HR 6245
To prohibit the Secretary of Labor from implementing or enforcing the final rule on joint employer status. 

HR 6254
To require the Securities and Exchange Commission to extend exemptions for securities offered as part of employee pay to other individuals providing labor or services for remuneration, to temporarily preempt certain provisions of State law with respect to wage rates and benefits, and for other purposes. 


It is important to remember to be consistent with compliance policies and compliance during these times. In most cases, the rules remain the same, with the added complexity of adding more leaves, layoffs, and changes to plan elections. Leavitt Group is here to help you navigate these complex waters. To receive our compliance alerts, subscribe here. 

To keep abreast of the latest IRS news on regulatory responses to COVID-19, see: https://www.irs.gov/coronavirus


This is not intended or provided as legal or tax advice. Consult your legal professional to ensure compliance with all applicable dates in this ever-changing environment.