Paycheck Protection Program, Employer Deferral of Payroll Taxes, EPL and EFMLA, and Unemployment
Posted by Andrew Kaiser on April 16, 2020
After a quiet few days, we wanted to provide our clients with an update on issues related to both paid leave programs under the FFCRA and provisions of the CARES Act that impact employers. If you have any questions, please do not hesitate to reach out to your agent or account manager:
PAYCHECK PROTECTION PROGRAM
Over the last couple days, we’ve heard from more and more employers who have applied and received notification of approval (and even some deposits) related to Paycheck Protection Program loans. This is great news and as many of you begin to plan for the eight-week loan period, here’s some important additional guidance that has been issued over the last week or so:
- Be Strategic About Your Loan Period
It is important to remember that employers can have what they spend on eligible expenses forgiven from the PPP loans. As a reminder, you are required to spend 75% of the loan amount on payroll expenses (which includes salaries, wages, and other compensation along with health coverage and retirement contributions). We have been helpful to clients through the application process in proving what their health care spend has been, and we already know that we will play a critical role in validating those costs for the forgiveness stage.
- Don’t Be Forced to Take Your Money too Soon
One of the more interesting aspects of the relationship between borrower and lender has been the rush to deposit the money. While we know most employers have been interested in getting the deposit completed as soon as possible, for some, the best approach it to coordinate with business plans, especially around returning employees to work. On the recent PPP frequently asked questions from the US Treasury (Q20), it was clear that lenders must make “first disbursement of the loan no later than ten calendar days from the date of loan approval.”
- May Self-Employed Individuals and other very small employers apply?
Absolutely, and some guidance issued in the last couple days have made clear that this is being encouraged. One of the new pieces of interim regulations emphasize that self-employment income of partners in a partnership may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership (or LLC filing taxes as a partnership). Individual partners may not submit a separate PPP loan application as a self-employed individual.
- Is the money going to run out?
This is perhaps the biggest concern that folks have had in terms of making sure their paperwork is submitted because no one wants to get there too late. As of Wednesday evening (April 15), the reported total loans approved are $296B with some expectation that the total of $349B could be reached by Thursday. There has been some action on Capitol Hill to increase the loan pool, but currently partisan bickering may be impacting the move forward – last week there was agreement to add $250B but that has been held up by requests for more money for hospitals and state & local governments.
- Don’t Forget Forgiveness – so plan ahead.
One of the best things to remember as you enter into the loan period will be planning ahead for forgiveness. There are four key aspects of this process to keep in mind:
- Only use PPP Funds For Allowable Uses.
Payroll and related costs, rents/mortgage interest and utilities are the only permitted ways to use PPP funds. There is strict rules about not associating that spending to other purposes – relying on threats of criminal fraud and other loan recourse authority, meaning that they come after the borrower or its shareholders, members, or partners for an unpaid loan if they used for unauthorized purposes.
- Maximize how much can be Forgiven.
Remember that the entire PPP loan balance may be forgiven if used for allowed costs. You will need remember the FTE employee average during the loan period vs. the applicable measurement period, restoration of reductions in pay and the limitation on spending more than 25% of the loan proceeds on non-payroll costs.
- Keep Good Records.
If you borrow money under this program, you need to maintain documentation of the use of the fund since there is specific requirements to support such use of the money to be eligible for forgiveness. When the request is made for loan forgiveness (see below), you will need to include proof of the number of FTEs and pay rates, and proof of money being spent on allowed costs such as cancelled checks, payment receipts, and the like. This is the area we fear will be the biggest concern and should be at the forefront of your mind throughout the period.
- Don’t Forget to Ask for Forgiveness.
This is not an automatic process. Without asking the lender, there can be no forgiveness. You will likely need to complete some paperwork and provide proof (as we just discussed) as well as a signature attesting to the proper use of the money. And there will be some delay between the end of the loan period and the ultimate notification of forgiveness.
At the end of the day, this process is only beginning and I’m certain there will be more answers to unknown questions to come. We’ll keep you up to date as we learn more.
EMPLOYER DEFERRAL OF PAYROLL TAXES
Under CARES Act, Employers may defer the employer portion of Social Security taxes due between March 27 and December 31, 2020, provided at least 50% of the deferred taxes are paid by the end of 2021 and the remainder is paid by the end of 2022. As we have previously communicated, an employer who gets a PPP loan which is ultimately forgiven under the Paycheck Protection Program would not eligible to defer these taxes.
But there have been changes based on IRS guidance issued on April 10. The new rule is that an employer may defer the employer’s portion of Social Security taxes until it actually receives a decision from its lender that its PPP loan has been forgiven. At that point, the employer may no longer defer the employer portion of Social Security taxes.
Translation: no Social Security taxes deferred prior to the date of loan forgiveness will immediately become due – the employer is permitted to delay depositing previously-deferred taxes until the applicable due dates (i.e., December 31, 2021 and December 31, 2022). To ensure that there are no mistakes in the proper processing of this deferral, you will need to provide very clear communication to your payroll provider (including our clients) that you would like to participate in the Payroll Tax Deferral program, and IMMEDIATELY notify your payroll provider upon loan forgiveness of the PPP to stop the tax deferral.
For our payroll clients, there is a form we will need to certify that you are eligible for the deferral and to authorize our team to process the deferral. We will send that form out once it has been finalized.
EMERGENCY PAID LEAVE AND FMLA EXTENSION
As these rules have gone into effect, there has been some additional guidance issued that will be useful for employers as they deal with unique situations.
- What records are we required to keep to claim tax credit for leave?
- Under the rules, employers are required to maintain the request for leave from each employee. The form that we have previously provided covers the applicable reasons for seeking either emergency paid leave or the extended emergency FMLA benefits and will suffice for your recordkeeping purposes.
- Also for each employee, you should be prepared to provide proof or explanation for the amount of leave and wages to be paid for each eligible employee which may include the number of regular hours per week, their regular rate of page and how you allocated other costs such as health coverage into the application of tax credits.
- Employers are not required to provide this documentation to the IRS when seeking the tax credit, but must maintain it in their records for at least four years following the date when the tax becomes due or is paid, whichever is later.
- Interaction with other sick leave or PTO with EPL/EFMLA.
- USDOL has clearly stated that an employer may not require an employee to use other paid leave provided by the employer before the employee uses Paid Sick Leave, but for Expanded FMLA, an employee may elect to use, or an employer may require that an employee use, such leave concurrently with any leave offered under the employer’s policies that would be available for the employee to take to care for his or her child, such as vacation or personal leave or paid time off to get them back to their normal rate of pay. However, the DOL further stated that because the leave available under the Expanded FMLA is solely for care of a child whose school or place of care is closed or whose child care provider is unavailable, there would be no basis for an employer to require use of available sick leave for such leave (other than what is available under Paid Sick Leave).
Remember, if you have specific questions, do not hesitate to reach out to your primary contact with EbenConcepts/OrchestrateHR.
We also wanted to keep you up to date on the expanded unemployment rules, specifically the issues related to eligibility for the $600 per week additional benefit.
- Guidance issued over the last week for the Federal Pandemic Unemployment Compensation (FPUC) program will have anyone eligible under regular state unemployment programs and the full $600 weekly payment will be paid automatically to any individual if they receive at least $1 in a qualifying week including those receiving partial unemployment benefits (such as those working reduced hours). Those payments will be for up to four months, ending on or before July 31, 2020.
- The guidance also highlighted the very broad eligibility rules including those who quit a job due to COVID-19 because of a diagnosis or recovery, providing care for a family member who has been diagnosed and requires constant attention; has a compromised health condition and advised to self-quarantine; scheduled to commence employment, but no longer has a job because the employer rescinded the job offer as a direct result of COVID-19; or their place of employment is closed due to an emergency declaration or “necessarily social distancing protocols” resulting from COVID-19.
- In addition, unemployment is available for the first time for an independent contractor with reportable income and is unemployed, partially employed, or unable or unavailable to work because the COVID-19 public health emergency has severely limited his or her ability to continue performing customary work activities, and has thereby forced the individual to suspend such activities.
OTHER QUESTIONS RELATED TO COVID-19
Here are some other questions that have come up and related recommendations that have come from different regulatory agencies about COVID-19 and its interaction with the workplace.
- An employee of ours has tested positive for COVID-19. What should we do?
- The infected employee should be sent home until released by their medical provider or local health provider, and you may need to also send home all employees who worked closely with that employee to ensure the infection does not spread. Before the infected employee departs, ask them to identify all individuals who worked in close proximity (within six feet) for a prolonged period of time (10 minutes or more to 30 minutes or more) with them during the 48-hour period before the onset of symptoms 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.
- The CDC provides that the employees who worked closely to the infected worker should be instructed to proceed based on the CDC Public Health Recommendations for Community-Related Exposure. This includes staying home until 14 days after last exposure, maintaining social distance from others, and self-monitoring for symptoms (i.e., fever, cough, or shortness of breath).
- Is COVID-19 a recordable illness for purposes of OSHA Logs?
- According to OSHA, yes. OSHA recordkeeping requirements mandate covered employers record certain work-related injuries and illnesses on their OSHA 300 log, so employers must record instances of workers contracting COVID-19 if the worker contracts the virus while on the job. The illness is not recordable if worker was exposed to the virus while off the clock. But this is an area where medical professionals should be very mindful about recording incidents where employees become infected due to their job. Remember that OSHA 300 logs are required for more employers with more than 10 employees – check their website for more information.
Thanks as always for your trust in our team for this and the important matters related to employee benefits, compliance and HR technology!