Paid leaves under FMLA/ and now FFCRA

Someone is out sick and eligible for pay under one of these paid leave rules.  I have essentially no knowledge or expertise in what paid leaves are all about but now my client wants to know if they pay it, is it eligible compensation?  They DO exclude taxable fringe benefits.  Would this be considered a taxable fringe benefit?

I'm inclined to say it is because it seems to go beyond the normal "I get 3 sick days a year" type of policy where if someone stays home sick, its just part of their normal pay.

But I'm in the dark here...

 I have not considered this question, and have not read the relevant law.  But:

Absent a provision of applicable law or in the plan’s governing document, perhaps a plan’s administrator should apply or interpret a plan’s definition of compensation so that pay for a leave required under the Families First Coronavirus Response Act is compensation to the same extent that pay for a somewhat similar leave not required under that Act is compensation.

An administrator might be reluctant to treat a payment of wages as a fringe benefit within the meaning of the plan’s compensation definition if the benefit is not of a kind described in Internal Revenue Code of 1986 § 132 or some analogous fringe benefit.

I guess your point is be conservative and treat it as wages.  I suppose there is a lot of sense in that.  

6 hours ago, austin3515 said:

Someone is out sick and eligible for pay under one of these paid leave rules.  I have essentially no knowledge or expertise in what paid leaves are all about but now my client wants to know if they pay it, is it eligible compensation?  They DO exclude taxable fringe benefits.  Would this be considered a taxable fringe benefit?

I'm inclined to say it is because it seems to go beyond the normal "I get 3 sick days a year" type of policy where if someone stays home sick, its just part of their normal pay.

But I'm in the dark here...

Of course we will be looking for guidance, but paid leave will show as compensation on the W-2 and if that's the definition used for plan purposes (without any modifications), then the leave counts.  Also, be aware that hours will also probably count during the leave since the definition of hours includes hours for which you are paid or entitled to payment, but it is also customarily limited to no more than 500 hours for any period of time when no services are paid.   Document language will almost definitely spell out those provisions.

But is it a taxable fringe benefit?  That's the real question here.  Anyone know or have a thought?

31 minutes ago, austin3515 said:

But is it a taxable fringe benefit?  That's the real question here.  Anyone know or have a thought?

More direct: No. It's not a FRINGE. It's actual PAY.

This might help (and here's the link to IRS Pub 15-B): https://www.irs.gov/pub/irs-pdf/p15b.pdf

Understanding Fringe Benefits

Special Considerations

Valuing Fringe Benefits

Isn't paid sick leave a "welfare benefit"? Does your plan definition of compensation exclude welfare benefits?  Welfare benefits can be excluded and still meet 414s safe harbor definition.

See I KNEW this was going to happen.

20 hours ago, JRN said:

Isn't paid sick leave a "welfare benefit"? Does your plan definition of compensation exclude welfare benefits?  Welfare benefits can be excluded and still meet 414s safe harbor definition.

Not usually.  Read this:

Payroll Practice Exception The “payroll practice” exception from ERISA coverage is the most relevant exemption for employer-paid sick or family leave plans. Most often, sick, vacation, and other paid-time-off (PTO) compensation is disbursed from an employer’s general assets. Spared from the definition of an “employee welfare benefit plan” is the “payment of an employee’s normal compensation, out of the employer’s general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons (such as pregnancy, a physical examination, or psychiatric treatment).”   26 C.F.R. § 2510.3-1(b)(2)

8 hours ago, austin3515 said:

See I KNEW this was going to happen.

"What" was going to happen?  Someone not having all the complexity of our business definitions in their head?  Sure, that happens in many of the posts. ? 

Thanks Larry for the clarification.

Coming up in a few minutes in today's Retirement Plans Newsletter:

http://www.wnj.com/Publications/Act-Now-to-Determine-Treatment-of-COVID-19-Sick-an

"Starting April 1, 2020, certain employees are entitled to receive sick pay and leave pay related to COVID-19 under the newly enacted Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act. It is critical that employers quickly determine how to properly treat these payments for purposes of their retirement plans. These payments may affect both defined contribution plans and defined benefit plans. However, the impact is immediate for defined contribution plans with elective deferrals because the company payroll system must be programmed to properly account for these new types of pay before the first payroll in April 2020 that may include these new sick and leave payments.

"Whether these new sick and leave payments are compensation for contribution and accrual purposes depends on the plan’s definition of creditable or plan compensation.

[more text, omitted]