The current global health crisis is shifting the way businesses are able to operate. Many are having to adjust their practices and strategies, and are facing abrupt and devastating changes to their financial stability. There’s been a lot of concerns from our clients about what they should be doing with employees during the COVID19 pandemic. Employers have a few options, which we’ve explained here.
Different options when it comes to payroll during COVID19 – reduction in hours, layoff, furlough, keep on employing people and apply for a loan – not sure what’s right for us and our employees. If we reduce salaried or hourly employees to below FT (below 32 hours/week), employees could lose their benefits What should we say to our employees? How to manage sick leave – what’s mandated, and what should we do? Are business owners eligible to receive unemployment?
Different Options for payroll reductions: Leave of Absence, Furlough, Layoff
Reduce pay / Voluntary Leave of Absence
- Some companies are speaking to employees about cutting out days of work/week, and some employees are volunteering to take time off – depending on how employers report that on payroll could make a huge difference in impact to the company and employees
- Work closely with your payroll company to get advice and the latest information – if you think your sales rep lacks a full understanding, ask to speak to a payroll benefits expert
- Employee can offer to take time off without pay, called a voluntary leave of absence
- The employer can accept the employee’s offer and continue to pay for the employee’s health, dental, vision, life insurance and 401k benefits, if the employer chooses to do so
- employer should check with their insurance agent for any specific restrictions and advice
- When an employer temporarily furloughs its employees, it can mean a reduction in hours, or a short term “layoff” – the important thing to note here is that a furlough should only be used if the “layoff” is temporary.
- An example of reduction of hours would be if the employer normally pays a 40-hour week and reduces employees to a 32 hour week; an employer could ask employees to take a few weeks off unpaid; An employer can require all employees to go on furlough, or exclude employees who provide essential services
- When furloughing exempt employees, take care regarding reduction in hours that would jeopardize the employee’s exempt status under FLSA; Exempt employees who drop below 32 hours become reclassified as non-exempt and eligible for overtime if hours jump above the company’s threshold for overtime
- Employer must maintain benefits for employees if benefits were originally offered
- Employer is responsible for tracking and reporting hours worked for both hourly and exempt employees, such that the unemployment agency can calculate the number of hours for which it will provide coverage
- Employees can collect unemployment while on partial or full furlough. See below: what do employees receive from the state
- Furloughed employees a banned from doing any work for their employer, this includes answering the phone, checking emails, etc.; a salaried employee who does any work while on furlough must be paid the salary equivalent of one day, hourly employees must be paid for time worked
- A temporary separation from payroll – typically because there is not enough work at present; the employee remains eligible for, and should receive preference over, additional new hires when it comes to getting additional hours of work when the business turns back up. This is different from a situation where an employee is fired; in the case of termination there is no expectation for rehire.
- A layoff typically occurs when companies restructure, downsize, or go out of business.
- The employer will decide how to handle benefits – usually maintaining coverage for a certain period. In some cases, employees who have been laid off may be entitled to severance pay.
- Employees can collect unemployment while on an unpaid layoff. See below: what do employees receive from the state
Paid Sick Leave
- Families First Coronavirus Response Act (FFCRA): paid sick leave and expanded family and medical leave provisions of the FFCRA apply to certain public employers, and private employers with fewer than 500 employees.
- This act is continually changing. For up to date information go to: https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave
What do employees receive from the state?
Employees who are laid off or furloughed are eligible for unemployment benefits from their state – since unemployment is a state benefit each state will have different reimbursement rules and amounts – check your state unemployment website for specifics
What to say to your employees when you need to execute layoffs/furloughs:
This is never an easy conversation to have with employees. As a business owner you need to do what is right for the longevity of your business, while also taking into consideration the needs of the team that have helped you grow the business along the way.
Be as transparent about the situation as possible. Be open with your team about the state of business and the economy. Know what the right decision for your company is before you discuss with employees. Can you afford a reduction of hours, or do you need to do a total layoff? Figure out what level of staffing is necessary, and which employees are essential to running the business. Give employees tools needed to succeed if being laid off
Can a business owner collect unemployment? The rules are different depending on how a business is set up and how an owner is paid
- A sole proprietor is not required to pay unemployment insurance tax for themselves, so the owner is not eligible to receive unemployment benefits. Employees of sole proprietorships are eligible for unemployment.
- If the business owner pays themselves a salary or wages in addition to receiving dividends, the business owner can qualify for unemployment. If the owner receives a paycheck along with the employees, the owner is paying income taxes, Social Security, Medicare, and unemployment insurance tax from their earnings.
- For S-Corps – a shareholder in the corporation who works in the business is considered an employee, and is entitled to receive employee benefits such as unemployment; based on salary received not distribution amount
Other Things to Note
To collect unemployment – employees typically need to have lost their job due to no fault of their own – people who are fired are less likely to receive unemployment. Have a form letter to provide to employees that employees can submit for unemployment that states they are eligible for unemployment, and list the cause as COVID19
Document everything: Whether it’s a reduction in hours, furlough, layoff, etc., be sure to keep your employee documentation up to date; the employer is responsible for documenting what adjustments to payroll were as a result of COVID19 business interruption. The process of rehiring an employee can cost money for the employer, a reduction of hours or furlough can help avoid those costs
Depending on the industry – an employer may need to notify the state of changes regarding employment, this is the case for industries like armed security, chauffeured transportation (in some states), and trucking (check for DOT regulations)