Information for Clients of EbenConcepts and OrchestrateHR

Posted by Andrew Kaiser on April 2, 2020

Here’s the latest update on COVID-19, including notes on implementing Emergency Paid Leave and Emergency FMLA Extension under FFCRA as well as important information and recommendations about how to protect yourself through the process of applying for and providing information in support of a Paycheck Protection Program application in the coming days.

If you have questions please do not hesitate to send them on.

PAYCHECK PROTECTION PROGRAM

In handling a lot of calls on this topic from our clients and other employers over the last three days, and then hearing what bankers are saying to their clients, we’ve put together this update so that you are ready to submit an application to an SBA approved lender in the coming days.

REMEMBER THE OBJECTIVE
I read this this morning: “’Paycheck protection’ is the name of the stimulus game. How your business does through the next three months is a critical element in protecting the overall economy. If small firms don’t receive help, they’ll have no choice but to cut staff, if they haven’t already. Those workers would then stop spending, knocking over an endless line of economic dominos.” For that reason, there is a ton of pressure on banks and the Small Business Administration to get this right. But be careful and have realistic expectations – the banks are already warning folks that their systems could get overwhelmed and they still haven’t gotten the guidance they need to do this. And the SBA has earned a bad reputation on how they have handled other loan programs in the last few years. So having the information they need is going to be critical.

BE STRATEGIC ABOUT PICKING YOUR LOAN PERIOD
One thing that has become increasingly clear is that you need to be very thoughtful about when your loan period will begin. Getting the money as soon as possible is understandable but remember that when you do receive the money, the eight-week period to spend the money toward permitted expenses begins. You may want to stagger that receipt date to reflect how to best use it in the particular time period.

For example, we’ve spoken with numerous medical practices whose operations have effectively been closed by local or state orders restricting elective and dental procedures. Getting the money immediately will create an issue with the FTE calculation over the loan period, but we’ve advised them to go ahead and complete the application but to delay “getting” the money until mid-April or later when they have a better feel for bringing their folks back. We just don’t want you to be disadvantaged when the FTE counting starts at the end of the loan period and you are asking for forgiveness.

WE CAN HELP EXPLAIN AND JUSTIFY HEALTH CARE COSTS
We know that this is an area that we will be particularly strong and helpful to our clients because we know that bankers don’t understand the difference between fully-insured vs self-funded vs. how HRAs count toward health care cost. We have worked with our actuary and compliance team to create letters to provide employers the best possible explanation of these costs and also what they actually are.

Here are a few other questions that have come up in this process:

Are dental and vision benefits included in health care costs?
If they are integrated into your health plan costs, but that is usually not the case. If they are in a standalone insurance policy and participants have the right to enroll or not enroll in the benefits, then they would NOT be included in the calculation of health care costs for this loan. For most of our clients, we believe that dental and vision costs would not be included since they are a separate election for employees. So do not include in your costs.

How will this impact my company’s eligibility for the Delay of Payment of Employer Payroll Taxes provision?
As we mentioned in our last update, the CARES Act will allow for most employers to defer paying their share of applicable employment taxes from the time the CARES Act is signed into law through December 31, 2020. Half of this deferred amount would be due on December 31, 2021 and the other half by December 31, 2022. But this program is not available for employers who are seeking Paycheck Protection Program loans.

Is there a requirement that I spent at least 75% on payroll costs (including health care and retirements)?
While there is no requirement under the law, the SBA has clearly indicated that they expect borrowers to spend most of the money on meeting their payroll and related costs for employees. We have seen strong language in their materials about this point, so the key is that the SBA/Treasury will not view requests where the borrower has spent more than 25% on lease and mortgage obligations and utility bills with a kind eye.

Also be careful about how much you might seek from an the Economic Injury Disaster Loan – there is some immediate money available through that program, but it could interfere with your eligibility for the Paycheck Protection Program if you receive more than a threshold amount.

CARES ACT – Other Key Provisions

There are a couple other pieces to quickly mention:

  • Employers Can Now Assist Employees with repaying their student loans… for 2020
    The CARES Act offers tax relief for student loan repayment benefits programs by employers. Employers are now able to make tax-free contributions of up to $5,250 per employee annually toward employee student debt without raising the employee’s gross taxable income. Under prior law, both employees and employers faced tax obligations when participating in student loan repayment benefits. This is only good through the end of 2020.
  • Health Plan Changes
    There were a few changes under the law to address issues specifically related to non-retirement benefits you offer.
  • Telehealth Benefits for Health Savings Account Eligible Employees/Dependents
  • The first would allow for temporary exception to HSA rules for telemedicine/telehealth. Ordinarily, a high deductible health plan (HDHP) designed to work with Health Savings Accounts (HSAs) normally cannot cover the costs of treatment until the participant reaches the HDHP’s annual out-of-pocket deductible (with certain exceptions, such as for preventive care, dental and vision expenses). The CARES Act allows a HDHP during plan years that begin on or before December 31, 2021 to also cover telehealth services with no cost-sharing. But this is not automatic – you will have to check with carriers about implementing and also notify your employees about the addition through a summary of material modifications within 60 days of adding this benefit.
  • Using FSA dollars on over-the-counter medicines
  • Congress also repealed provisions that previously blocked the use of Health FSA dollars to purchase over-the-counter drugs without a prescription. In addition, the law now also allows tax-free funds from these accounts to pay for menstrual care products. Adopting these changes, even mid-year, is voluntary for employers, but we expect it to be a popular change for employees who participate in that program. For our clients using OrchestrateHR for FSA Administration, an update is being sent out regarding this.
  • Retirement Plan Changes
    While this is an area that we would recommend you speak to your retirement plan advisor about, we wanted to make sure that you were aware of special loan and distribution rules to be adopted out of this new law. Participants are allowed a withdrawal of up to $100,000 between January 1, 2020 and December 31, 2020. These withdrawals related to COVID-19 are exempt from the 10% early withdrawal penalty and mandatory 20% federal withholding tax. To be eligible to make such a withdrawal, the individual participant, or his or her spouse or dependent, must have been diagnosed with COVID-19, or the individual suffered adverse financial consequences due to COVID-19 such as furlough, reduction in hours, unable to work due to childcare, loss of business or other factors as determined by the Treasury Secretary. Income attributable to such distributions would be subject to tax over three years, and the individual may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.
  • There was also a change on Required Minimum Distribution (RMD) rules, waiving the requirement for any RMD that is required to be paid in 2020. This includes individuals who had not yet received their first distribution that turned 70 ½ in 2019. Also if an RMD has already been received during 2020, then the participant may roll it over and defer paying taxes, including rolling back into the plan. These changes will require a plan amendment to be put into place.

EMERGENCY PAID LEAVE & FMLA under FFCRA

With the release of additional guidance and some temporary rules, we’ll address some questions but start with a brief update.

  • Tax and Payroll Administration issues related to EPL/EFMLA
    The IRS has released a new form to go with the 941 related to reporting how paid leave benefits under the two provisions will be reported. They have also issued a broad statement addressing the issues related to using employee withholding to get immediate reimbursement to employers for these programs. There were also a few helpful reminders about this program:

    • Employers and employees are not required to pay the Social Security portion of FICA for these payments but are still required to pay the 1.45% each for the Medicare portion. Employers will be able to claim tax credit for their portion however.
      The health care expenses that can be claimed toward the credit would include both the employer and the employee portions of the health care costs (if the employee normally pays their share with pre-tax dollars).
      Benefits paid under this program are considered taxable wages to your employees and subject to income tax withholding as well. This is not a tax-free benefit for the employee.

 

  • Updated Employee Leave Request Form and Related Information
    Under the IRS guidance issued yesterday, employers are required to maintain records related to requests for EPL/EFMLA from your employees. We have modified our FFCRA EE Leave Form (now v3) to reflect this additional information. Here are a few key points:

    • Employees are not required to request in advance the leave but should complete the form and provide the required information (e.g. doctors note or information about school closings) to support the request.
    • The guidance dramatically increased the amount of information required when an employee is requesting leave to care for their child due to school or day care closings. For example, the employee must state that no other person will be providing care for the child(ren) during the period of leave. They also want the employee to provide child name, age and school or day care name, and an explanation for why the employee needs leave to care for a child who is 14 or older. We added a second page (back for double-sided printing) to collect this information.
    • The IRS indicates that you should maintain this information in the employee’s employment file as proof of the request in case of an audit or other investigation into compliance. For our clients using Blue Ocean, you can upload that information in the relevant section within their employee record (Employees/HR Information/Virtual or Confidential).

 

  • If we are subject to a shelter-in-place or remain-at-home order by the state or local government, is that the same as a quarantine under the Emergency Paid Leave?
    • No. A Quarantine Order applies to a specific person who may have been exposed to or tested positive for COVID-19. Doctors will produce notes for these. When the governor or a local government issues their shelter-in-place or remain-at-home orders, they do not qualify as a quarantine under EPL. We understand that a number of law firms have provided incorrect information about this question, so we’ve forwarded this out to a couple different clients who needed back-up (these come from the USDOL FAQs):

 

  • If my employer closed my worksite before April 1, 2020 (the effective date of the FFCRA), can I still get paid sick leave or expanded family and medical leave?
    • No. If, prior to the FFCRA’s effective date, your employer sent you home and stops paying you because it does not have work for you to do, you will not get paid sick leave or expanded family and medical leave but you may be eligible for unemployment insurance benefits. This is true whether your employer closes your worksite for lack of business or because it is required to close pursuant to a Federal, State, or local directive. You should contact your State workforce agency or State unemployment insurance office for specific questions about your eligibility. For additional information, please refer to https://www.careeronestop.org/LocalHelp/service-locator.aspx.
    • It should be noted, however, that if your employer is paying you pursuant to a paid leave policy or State or local requirements, you are not eligible for unemployment insurance.

 

  • If my employer closes my worksite on or after April 1, 2020 (the effective date of the FFCRA), but before I go out on leave, can I still get paid sick leave and/or expanded family and medical leave?
    • No. If your employer closes after the FFCRA’s effective date (even if you requested leave prior to the closure), you will not get paid sick leave or expanded family and medical leave but you may be eligible for unemployment insurance benefits. This is true whether your employer closes your worksite for lack of business or because it was required to close pursuant to a Federal, State or local directive. You should contact your State workforce agency or State unemployment insurance office for specific questions about your eligibility. For additional information, please refer to https://www.careeronestop.org/LocalHelp/service-locator.aspx

 

  • If I have less than 50 employees, am I automatically exempt from this law?
    • No, you are still required to provide Emergency Paid Leave for employees who are sick with or under quarantine due to COVID-19 or who are caring for family members who are quarantined or sick due to COVID-19. But small employers with less than 50 employees can claim exemption – there is no federal agency receiving or issuing those exemptions – under guidance issued Monday. We have of course provided a form (which is attached) to be completed and maintained as an important company record.
    • To be eligible, you must state that the employer employs fewer than 50 employees (including any integrated employer considerations), that the exemption is limited to leave requested because the child’s school or place of care is closed, or child-care provider is unavailable, due to COVID-19 related reasons, and that the leave would impact the business’s viability in one of the following three ways:
      • Broad Business-Wide Impact: Complying with this part of the leave would cause the business’s expenses and financial obligations to exceed available business revenues;
      • Specific Employee Reason: That a particular employee/employees absence would threaten the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or
      • Allowing would Leave Too Few Workers: Not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.

If you claim this exemption, you might also provide the attached exemption notice to your employees to go along with the poster (or to post where you hung it) that we sent last week.

We have also created an employee eligibility tool for you to use when looking at each request.

Important documents:

 

Share this: