Small business community members are more alike than different when it comes to our desire to take care of each other during this time of uncertainty. As leaders of small businesses try to navigate their way through Governors’ Executive Orders, sweeping stimulus bills and keeping our economy moving, CDH’s Human Resources consultants have consistently heard similar statements from our clients, “I want to abide by my state’s ‘Stay at Home’ order and do right by my employees and customers, but I am unclear how the government’s relief measures work.” Every company has slightly different circumstances to consider when making related HR decisions. Here are the 5 most common scenarios our HR Team have been presented with and our responses.
1. Scenario: My business or part of my business is not listed as “Essential” in the Governor’s Stay at Home Executive Order, so I need to reduce my payroll.
What is the difference between a furlough, a layoff and a reduction in force (RIF)?
Response: An employer will often use a furlough when they want to retain their employees but cannot afford to do so for a short period of time and do not want to lay them off.
A furlough is a mandatory suspension from work without pay. This option requires employees to work fewer hours or no hours. Employers typically provide their employees with an expectation regarding when they will return to work and their benefits will remain intact. Employees have the right to seek temporary employment during a furlough and may have the ability to apply for unemployment. If a salaried employee works any amount of time while on furlough, the employer must pay them their normal salary. If an hourly employee works while on furlough, the employer must pay them for the time worked. They will not have the ability to receive Emergency Paid Sick Leave or Expanded Family and Medical Leave under the Families First Coronavirus Response Act (FFCRA).
A layoff is a temporary suspension of employment for business reasons not related to an individual’s performance. In this case, the company believes that this condition will change and intends to recall the person when work again becomes available. Individuals qualify for unemployment since they have been separated from employment through no fault of their own. Individuals must meet all eligibility requirements for unemployment, including the requirements that they be able and available for work. Employers will need to read their health insurance benefit plan documents to determine an employee’s eligibility to remain on the company’s plan during a layoff.
A RIF is the permanent elimination of a position also referred to as a permanent layoff. A temporary layoff may become a RIF. A RIF is not related to an individual’s performance and is considered a permanent reduction in headcount. Individuals qualify for unemployment since they have been separated from employment through no fault of their own. Again, individuals must meet all eligibility requirements for unemployment, including the requirements that they be able and available for work.
Please note, Rapid Response Services are available to employers in the case of a permanent closure or mass layoff at a plant, facility or enterprise, or in the event of a natural or other disaster that results in mass job dislocation. The State Dislocated Worker Unit coordinates with the employers to provide on-site information to workers and employers about employment and retraining services designed to help participants retain employment when feasible, or obtain re-employment as soon as possible. They will also assist with Worker Adjustment and Retraining Notification (WARN) Act compliance related questions.
Coronavirus Aid, Relief, and Economic Security (CARES) Act: Once you are on unemployment insurance, you will receive an additional $600 per week in emergency federal compensation through July 31, 2020. The bill also provides an additional 13 weeks of benefits through December 31, 2020 to help those who remain unemployed after state benefits are no longer available. In Illinois, compensation would extend from 26 weeks to 39 weeks if an “extended benefits” program is triggered.
2. Scenario: I would like to avoid furloughs, layoffs or a RIF, but I cannot cover payroll now or for the foreseeable future.
What government assistance is available to help me keep my valued employees on payroll?
Response: The CARES Act has a Paycheck Protection Program and a payroll tax deferral, and the FFCRA provides payroll tax credits for qualified leaves.
For assistance with immediate cashflow, the CARES Act defers the payment of certain payroll taxes. Social Security payroll taxes that would have been owed/due for the period of March 27, 2020 until December 31, 2020, are now deferred. The employer portion of Social Security payroll taxes, and 50% of Social Security payroll taxes incurred by self-employed persons qualify for the deferral. Half of the deferred payroll taxes are due by December 31, 2021, with the remainder due by December 31, 2022.
In addition to being able to defer payment of those payroll taxes you owed for 2020, the FFCRA allows employers to claim refundable payroll tax credits based on qualified paid leave their employees take during the period from April 1, 2020 through December 31, 2020. Tax credits can also be claimed for the costs to maintain health insurance coverage for those individuals during the qualified leave. If you pay your employees beyond the FFCRA requirements, you cannot claim or receive tax credit for any amounts in excess of the statutory limits.
The Paycheck Protection Program provides loans through the Small Business Administration (SBA) to businesses including sole proprietors, independent contractors, and other self-employed individuals to support their ongoing operations. The program is expected to grant funds to provide 8 weeks of cash-flow assistance through 100% federally-guaranteed loans to small employers who maintain their payroll during this pandemic. The covered period of the loan is from February 15, 2020 through June 30, 2020, so the program can help employers to bring valuable workers back to the payroll who may have already been laid off. The maximum loan amount is based on the employer’s average monthly payroll costs, which are calculated by looking at monthly costs incurred during the one-year period prior to the loan’s origination date, with certain exclusions. When calculating the average, payroll costs are defined to include wages, salaries, commission, retirement contributions, health care benefits, covered leave, and other expenses up to a maximum of $100,000 per employee. During the Covered Period, the employer may receive the lessor of 2.5 times the calculated average monthly payroll costs or $10 million. These program loans are eligible for forgiveness up to the total of the employer’s allowable costs during the covered period but cannot exceed the principal loan amount. Documentation is essential in this program; there is no forgiveness if there is no documentation or support. It should be noted that an employer who obtains a loan through this program will not be able to use the aforementioned payroll tax credits available.
3. Scenario: I am self-employed and can no longer afford to pay myself.
Can I fire myself and qualify for unemployment?
Response: Unemployment is managed at a state level, so it is best to check with your state unemployment office. In Illinois, as a W-2 employee, you would be required to pay unemployment tax but you can fire yourself and collect unemployment.
The CARES Act has additional Pandemic Unemployment Assistance that extends benefits to gig workers, independent contractors and others who wouldn’t otherwise qualify for unemployment compensation but cannot work due to the coronavirus emergency. You’ll get the $600 per week, plus half the average unemployment benefit in your state.
4.Scenario: I received the Families First Coronavirus Response Act Notice and understand that I have to post it at my workplace by April 1, but I am afraid all of my employees will call in sick and expect 80 hours of sick pay. This will shut down the operations of my business deemed to be essential in the Governor’s Stay at Home Executive Order.
How do I manage the Emergency Paid Sick Leave?
Response: The majority of your essential employees will not qualify for Emergency Sick Pay, there are six specific situations listed below that qualify under the FFCRA. However, someone may become sick due to an illness unrelated to COVID-19. You will want to listen closely to the reasons provided when an employee calls in sick to know if you are recording the time-off appropriately. Your timekeeping is critical. You will want to have your payroll provider set-up a new pay code to record the Emergency Sick Pay separately from other PTO/Sick Pay. Non-qualified Emergency Sick Pay will be administered the same as you had in the past. The qualified Emergency Sick Pay will be available as a tax credit from the employer portion of Social Security on wages for the 80 hours or 10 days of required sick leave.
Emergency Sick Pay Caps
- Full-time employees receive 80 hours of sick leave. Part-time employees are eligible for the number of hours of leave that the employee works on average over a two-week period.
- The cap is $511 per day and $5,110 total if an employee is ill or subject to quarantine, either mandated or recommended.
- The cap is $200 per day and $2,000 total if the employee is caring for others, including family members affected by the illness or a school-aged child whose school or childcare center has been closed.
Situations that qualify for Emergency Sick Pay leave must be made available for employees impacted by the following situations:
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- They are subject to a state, local, or federal quarantine or isolation order due to COVID-19.
- They have been told by health care providers to self-quarantine due to COVID-19 related concerns.
- They have the symptoms of COVID-19 and are waiting for a diagnosis.
- They are caring for a family member who was advised by a health care provider to quarantine or self-isolate due to COVID-19 related concerns.
- They are caring for a child whose school or childcare facility has closed due to COVID-19.
- They are under similar orders to those above as judged by the Secretary of Health and Human Services.
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5. Scenario: My company has fewer than 50 employees, I understand there is an Emergency FMLA benefit but I have no idea how to manage FMLA.
What do I do if an employee tells me they would like to utilize their Emergency Family Medical Leave benefit?
Response: It would be helpful to review the Employer’s Guide to The Family and Medical Leave Act to become more familiar with managing traditional FMLA. Under the FFCRA, the only items that have changed from our traditional FMLA with eFMLA are the qualifying event and an associated pay benefit. Employees who have been employed for at least 30 days prior to their leave request may be eligible for up to an additional 10 weeks of partially paid expanded family and medical leave to care for their child whose school or place of care is closed (or child care provider is unavailable) due to COVID-19 related reasons. The amount of Emergency FMLA leave that an employee may take is also dependent upon whether or not they have utilized some or all of their benefit under preexisting FMLA. If FMLA has already been taken during the current 12-month period determined by a covered employer, the employee may only take the remaining portion of leave available. Again, your recordkeeping and timekeeping are critical. You will want to have your payroll provider set-up a new pay code to record the Emergency FMLA separately from other PTO. The qualified Emergency FMLA pay will be available as a tax credit from the employer portion of Social Security on eFMLA leave wages.
Emergency FMLA Pay Cap – After the initial 10 days of unpaid eFMLA leave, eligible employees must be paid at least two-thirds of the employees’ regular rate of pay based on the number of hours the employees would otherwise have been scheduled to work. These paid-family-leave benefits are capped at $200 a day (or $10,000 total). During the first 2 weeks of unpaid eFMLA, if permitted by the employer, the employee may use Emergency Sick Pay or other accumulated vacation/personal/sick leave. Additionally, if permitted by the employer, the employee may supplement the amount received from Paid Sick Leave or Expanded Family and Medical leave, up to his or her normal earnings, with preexisting paid leave.