Layoffs and Furloughs, Tax Credit Basics, and FFCRA EE Leave Form
Posted by Andrew Kaiser on March 24, 2020
We wanted to share with you this LONG update on the state of issues related to COVID-19 including some questions that many folks have asked over the last few weeks. It has been formatted to allow you to print and read if that is easier than reading on the screen or from your mail application.
Our entire team is here to provide support to our clients and to do what we believe benefits consultants should do for their clients in good times and difficult ones, too. Do not hesitate to reach out with questions.
LAYOFFS AND FURLOUGHS
We have received tons of calls about the impact that the significant drop in economic activity and/or employers being forced to close their doors due to local government orders will have on your business or nonprofit. To assist, here are a few common questions we’ve received and answers to help guide you through some of these situations that are arising right now.
- What is the difference between furlough and layoff? Here’s a basic breakdown from SHRM:
- Layoff. A layoff is a temporary separation from payroll. An employee is laid off because there is not enough work for him or her to perform. The employer, however, believes that this condition will change and intends to recall the person when work again becomes available. Employees are typically able to collect unemployment benefits while on an unpaid layoff, and frequently an employer will allow employees to maintain benefit coverage for a defined period of time as an incentive to remain available for recall.
- Furlough. A furlough is considered to be an alternative to layoff. When an employer furloughs its employees, it requires them to work fewer hours or to take a certain amount of unpaid time off. For example, an employer may furlough its nonexempt employees one day a week for the remainder of the year and pay them for only 32 hours instead of their normal 40 hours each week. Another method of furlough is to require all employees to take a week or two of unpaid leave sometime during the year. Employers must be careful when furloughing exempt employees so that they continue to pay them on a salary basis and do not jeopardize their exempt status under the Fair Labor Standards Act (FLSA). A furlough that encompasses a full workweek is one way to accomplish this, since the FLSA states that exempt employees do not have to be paid for any week in which they perform no work. An employer may require all employees to go on furlough, or it may exclude some employees who provide essential services. Generally, the theory is to have the majority of employees share some hardship as opposed to a few employees losing their jobs completely.
- We have also provided you sample letters and notices for you to use with communicating with your employees who may be impacted by this. You can access those letters at this link.
- How would this impact benefits we offer: Under either scenario, you must treat the benefits the same. So, if you are going to furlough employees and keep them on benefits indefinitely, you must do so for all employees that are furloughed. If you are doing a layoff, but hoping to bring them back in 60 days, you may want to continue paying for their benefits for two months even though they aren’t receiving pay and would be eligible to file for unemployment. But you may need to verify that you can leave your employees on your health plan even though they are not actively-at-work. Most carriers are taking this position:
- Health plan coverage for covered employees and dependents can continue as long as (i) employers consider them to be active employees during periods of temporary layoffs and/or reduction in hours and (ii) the premiums are paid in a timely manner.
- At whatever point you quit paying for benefits, that would be a COBRA event assuming you have more than 20 employees.
- If we layoff or furlough employees, are they eligible for unemployment benefits? Yes, in most situations they are eligible when they are not working. But you will need to check the rules for unemployment benefits eligibility with the relevant state agency since every state has flexibility in how unemployment benefits work. We anticipate that there may be further enhancements to unemployment benefits forthcoming from Congress for the states in the next week, but nothing has yet passed either side of Congress. We will let you know if we hear anything new.
- If we layoff or furlough employees, are they entitled to be paid out accrued vacation or PTO? This is an issue that is very state specific. Here are the highlights from the primary states in which we do business:
- Georgia: Not addressed in state law – but if promised in handbook, would have to pay out to employees what they have earned.
- Maryland: Without a written policy in place, highlighting the forfeiture of pay for accrued, unused vacation to a separating employee, the employee must be paid a cash value for earned, unused vacation.
- North Carolina: Without a written policy in place, highlighting the forfeiture of pay for accrued, unused vacation to a separating employee, the employee must be paid a cash value for earned, unused vacation.
- South Carolina: An employer’s policy or employee contract governs whether earned, unused vacation is paid on separation.
- Tennessee: An employer’s policy or employee contract governs whether earned, unused vacation is paid on separation.
- Texas: An employer’s policy or employee contract governs whether earned, unused vacation is paid on separation.
- Virginia: An employer’s policy or employee contract governs whether earned, unused vacation is paid on separation.
- Are employees eligible for Emergency Paid Leave or Emergency FMLA benefits if we have done layoffs or furloughs prior to April 2, 2020? Under the Families First Coronavirus Relief Act (FFCRA), being laid off or furloughed is not a reason for someone to be eligible for paid leave benefits under either aspect of this new law. If someone is not working when the law goes into effect (April 2, 2020), then it is impossible for them to use one of the reasons provided in the law to receive pay.
- What if we shut down completely – what do we need to do? There are key issues to keep in mind to remain complaint with ACA and other laws:
- If you do not have any active employees, you cannot offer your employees COBRA. This is a key issue that has to be handled very carefully. Our advice has been to either keep at least one employee active or to consider all of your employees to remain active employees who are out of work due to layoff or furlough.
- If you shut down completely with the intent of closing your business, you must provide notice to your employees about benefits. Under the ACA and some state laws, you are required to provide up to 60 days notice to your employees if terminating group health plan benefits. We can assist with those notices but some states like North Carolina consider the failure to provide that notice a criminal offense.
- Do not forget ACA Employer Mandates. If you do not offer benefits during a month, we will need to include this in our assessment of ALE status, reporting and satisfying mandate to offer coverage. Obviously this will be a key consideration as we get toward the end of the year.
OTHER IMPORTANT QUESTIONS THAT HAVE COME UP
In addition to the layoff/furlough questions, we’ve also received a number of other questions that we hope will help you as you deal with different situations in your own workplaces.
- What do we do if an employee tests positive for COVID-19? You should send home all employees who worked closely with that employee for a 14-day period of time to ensure the infection does not spread. Before the employee departs, ask them to identify all individuals who worked in close proximity (three to six feet) with them in the previous 14 days to ensure you have a full list of those who should be sent home. When sending the employees home, do not identify by name the infected employee or you could risk a violation of confidentiality laws. If you work in a shared office building or area, you should inform building management so they can take whatever precautions they deem necessary. The CDC has also provided recommendations for most non-healthcare businesses that have suspected or confirmed COVID-19 cases: https://www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html
- How will the tax credit work for paid leave and benefits costs under FFCRA? This has been a big question for many employers, and the IRS offered some guidance on Friday. We are expecting additional information later this week about additional details but here are the highlights:
- Under guidance that will be released this week, eligible employers can recoup any money they have paid out from payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.
- For this purpose, “payroll taxes” include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
- If there is not sufficient payroll taxes, employers will be able file a request for an accelerated payment from the IRS, which they expect to process in two weeks or less.
- Here’s the example that the IRS used about how this will work:
- If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
- If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
- When the process is released, we will get it out to you ASAP but expect to see a revised Form 941 and a request for reimbursement along with long list of do’s and don’ts to work through. But the good news is that the recoupment is from more than just FICA but also employee withholdings as an offset.
- Can I get a form to have an employee complete to receive paid leave benefits under FFCRA? Yes, you can! We’ve created the attached form for you to use in receiving requests from your employees who are requesting leave on or after April 2, 2020. We’ve included suggestions on the type of proof that you would need for each of the eligible types of leave and a place for you to complete to determine if they can receive paid leave.
- How can employers with less than 50 employees request to be exempt from the FFCRA’s mandates? Unfortunately the IRS has not yet provided that information. But again, as we learn more, we will let you know and be prepared to provide detailed guidance about what is necessary.
- What process would we need to follow to say to medical providers and emergency responders who work for us to not be eligible for FFCRA paid leave benefits? We know that FFCRA includes a provision that would allow an employer to say to employees who meet one of these two categories to NOT be eligible for leave, but we have not yet received any further guidance. As soon as we receive details, we will send out to our clients.
- If our state or local government issues a “shelter in place” order, what do we do? Many states, counties and cities have already done this and more may be coming. Because they have not been uniform in terms of their requirements, here are a few points to use when looking at what you must do to comply:
- Could employees work from home? If so, see what is necessary to make sure that they can securely access systems and other resources they might need – and keep in mind that you will have to continue to pay them as if they are still working from their normal workplace.
- Are we exempt from this as an essential business? Again, you would need to look carefully at the order and see if your business falls into one of the defined types of businesses that is either allowed to continue to operate or is required to stay open under the order. Some governments are being very strict about the interpretation of essential businesses and others are more relaxed about it, but we’d also advise that you be sensitive to everyone who might come in.
- If we stay open, what should we do? First, nearly every order is requiring that you check the health of employees and customers when they come in to your place of business – with a temperature check and questions about symptoms. Some are limiting the number allowed in the doors, and others are only permitting essential personnel. You may also need to provide a transportation letter to your employees who still need to come to work as law enforcement has been charged with minimizing traffic during this time.
BENEFIT QUESTIONS AND INFORMATION
In our core business, we are getting lots of questions about how benefits are addressing
- Can my employees get early refills on maintenance medications? As a general rule, we’ve seen most carriers and pharmacy benefit managers allowing for refills to be completed early. However the expectation has been that a covered individual will request an early refill only if necessary. We have also seen some PBMs only allow early refill in limited situations including Cigna/Express Scripts who are allowing early refills in some states: Alaska, Colorado, Delaware, Florida, Kentucky, Maine, Maryland, New Hampshire, Vermont and Washington.
- What about life insurance and other benefits eligibility when an employee has been laid off or on furlough, or out of work due to COVID-19 diagnosis? Most carriers are treating employees in that situation as being on a leave of absence and still eligible for those other benefits.
- Are carriers required to give us extra time to pay our premiums? For fully-insured benefits, many but not all carriers are allowing for a grace period to pay premiums – this is either something that the state is requiring, and if not, then most carriers are making business decisions about this. We do not expect a uniform rule on this issue.
- For self-funded plans, employers are still required to pay claims that are being submitted for payment as prompt payment is required for all states. In addition, carriers have generally not permitted grace periods on payment of stop-loss premiums for self-funded plans.
- How will this impact medical and dependent care FSAs elections? This has been a very vital issue that we’ve been trying to address with our clients but slight differences between the two. Here is a link to what our OrchestrateHR Flex team sent to our clients today about how each type of FSA should be handled, and a form to let us know about any changes. Note that the form states FMLA but also applies to EFMLA under the new federal law.
- Is there a new Special Enrollment Period for the Marketplace or state-based Exchanges for someone to purchase an individual policy? So far there has been no SEP announced for the federal Marketplace states, but the following state exchanges have reopened enrollment for individual policies (the states listed below include a link to the state-based exchange): California, Colorado, Connecticut, Maryland, Massachusetts, Nevada, New York, Rhode Island, Washington and the District of Columbia.
We hope you found this post helpful. For an EPL/EFMLA form, please contact us at firstname.lastname@example.org