Check Please: Paying for COVID-19

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By: Leah K. Sell, Esq.

Coronavirus (“COVID-19”) has wreaked havoc on workplaces and communities. One of the first questions clients ask amid government shutdowns, forced closures, and acute business declines is, “What about my employees?” The next question is, “How will we pay for this?”

There are many resources available for employers and employees; we highlight a few below. Many programs intersect, and certain actions taken will affect the availability of or eligibility for other resources, so planning is important. Each situation must be considered individually, as details about programs evolve and outside factors, such as state regulations and existing company policies, must influence decisions. In this unchartered territory, employers and their legal counsel must check legal developments daily, and sometimes hourly, due to constantly evolving laws, regulations, agency guidance and the spread of coronavirus.

Employees Who Are No Longer Working Because Work Is Not Available

If employees are laid off, furloughed, have their hours reduced, or are employment terminated as a result of COVID-19, they are likely eligible for unemployment.

Unemployment compensation will include the normal amount an employee would be eligible for based upon their income under the applicable state guideline. Employees who qualify for state unemployment due to COVID-19 reasons will also receive an additional $600 per week through July 31, 2020 through the recently enacted federal economic stimulus law, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). This additional federal supplement is being administered by state unemployment compensation bureaus and agencies. (Please note that states are waiting for further instruction from the federal government regarding CARES Act components. Additionally, due to the massive number of unemployment compensation claims, claimants may have to wait weeks for payment.)

How Do Employers Pay?

They likely won’t. Many states have completely waived the employer charge for those employees who receive unemployment due to COVID-19. Other states have partially waived the charge and the federal government is supplementing up to 50% of any remaining expense. So, it is unlikely that employers will see any increase in costs for employees who receive unemployment due to COVID-19.

Employees Who Cannot Work When Work Is Available

As of April 1, 2020, if an employee is unable to work because of COVID-19 and either works for a private employer with less than 500 U.S. employees or a public agency, they will likely be covered under the new Families First Coronavirus Response Act (“FFCRA” or “the Act”).[1]

The Act provides up to 80 hours of paid leave for employees for six qualifying reasons related to COVID-19. These reasons range from those seeking a medical diagnosis for themselves, self-quarantine required by a health professional or government entity, care for another who is required to self-quarantine or those employees who need to care for their child because of a loss of childcare due to COVID-19, where there is no other reasonable alternative. If leave is requested for certain childcare-related reasons, an additional 10 weeks of paid leave, under the Expanded Family Medical Leave Act (“E-FMLA”) provision of the Act, is available[2].

How Do Employers Pay?

Employers who have covered employees eligible for FFCRA must provide paid leave directly to employees. Employers must keep separate records of these payments and documentation regarding the qualifying reasons for the leave.

These records and documentation are important because private employers will be able to take a tax credit (up to the maximum allowable cap[3]) for all eligible FFCRA paid leave provided to employees each quarter. Employers may take this credit by retaining a dollar for dollar amount against the payroll tax they normally would have paid for that quarter. If the amount of their credit exceeds the payroll tax due for the quarter, they will be able to apply for an expedited refund.

Employees Who Continue to Work

Generally, employees who continue to work, either physically on-site or remotely, must continue to be paid per normal company policies. Some companies have established bonus pay for those employees who must continue to work on-site or under other high-pressure conditions. Other employers facing difficult economic times or fears about their financial future have introduced pay cuts, reduction of hours or other cost-saving measures.

How Do Employers Pay?

Employers whose employees are still performing work must continue to pay their employees in accordance with hour and wage laws.

As a reminder, hourly employees must be paid for all time worked. Specific recording time procedures should be established for employees who work remotely. Salaried exempt employees, even if working remotely, must receive their full salary for any week in which they perform work, unless a qualified exception applies.

Employers must provide advanced written notice to employees before reducing an employee’s pay. Generally, this means providing notice before any employee performs any work in the week in which the reduction will apply. However, state and local laws vary. There are also special rules for reducing the salary of exempt employees. Any employer who decides to take pay cuts must also consider the potential for any disparate treatment or disparate impact claims based on what employees or groups of employees are selected for pay reduction.

Many employers who continue to pay their employees who are working during the COVID-19 crisis have a variety of resources available to them for financial relief, including:

Each of these programs has limitations, qualifications and obligations. For instance, employers who utilize forgivable loan programs must commit to continuing employment and wages at particular levels. Employers should also carefully consider restrictions on the combinations of relief that an employer can utilize.

1099 Employees

Recently, we have seen a drastic increase in the use of the phrase “1099 Employee.” Simply put, these workers do not exist. There are employees who receive W-2s at the end of the year for tax purposes and independent contractors who may receive a 1099 tax document. An independent contractor is not an employee.

Traditionally, independent contractors are not eligible for unemployment compensation benefits, as they are deemed to be self-employed. However, the CARES Act has developed a separate system, to be administered by the states, to allow qualified 1099 recipients and self-employed individuals supplemental income from the government. The CARES Act also includes expansion of SBA and Payroll Protection loan programs that traditionally would not have been available to independent contractors or self-employed individuals.

These recent, and very limited expansions, however, should not be taken as permission to relax classification of employees and independent contractors. There are serious consequences for a failure to properly classify employees, including back wages, liquidated (double) damages, unpaid benefits, fines, interest, and attorneys’ fees. Therefore, care should still be taken when determining the proper nature of a worker’s relationship, including consulting employment counsel when questions arise.

We understand that in these uncertain times, employers are looking for new and creative ways to support their employees and business. Be assured that there are resources to accomplish this in a compassionate and compliant manner.

If you have any questions regarding the resources outlined above, or any other employment-related legal issue, please contact Leah K. Sell. Leah Sell is an Associate with Leech Tishman, and a member of the firm’s Employment & Labor, Corporate and Litigation Practice Groups, as well as the Cannabis and LaunchPad subgroups. She is based in the firm’s Pittsburgh office and can be reached at 412.261.1600 or lsell@leechtishman.com. 

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[1] Please see our prior article on FFCRA as there are many nuances to this bill regarding who is eligible, for what reasons leave is available and how much paid leave is provided, as well as other qualifications and exceptions. Also, on April 1, 2020 the Department of Labor released their Rule regarding interpretation and guidance on the Act.

[2] Under the Act, employees who need leave for certain childcare reasons related to COVID-19 are eligible for up to 12 weeks of leave under the Expanded Family Medical Leave Act (“E-FMLA”). The first two weeks of E-FMLA are unpaid. However, an employee may use their 80 hours of paid Emergency Sick Leave to supplement these first two weeks.

[3] Employers must provide paid leave under FFCRA at 100% of an employee’s regular rate of pay (including tips and commissions) for reasons related to their own diagnoses or required self-quarantine; this amount is capped at $511 per day. Remaining paid sick leave and E-FMLA is to be paid at 2/3 an employee’s regular rate and capped at $200. Employers may provide compensation beyond these daily caps, but they will not be eligible to take tax credits for any benefits beyond the established caps.