COVID-19: Latest FAQS for Employers – March 25, 2020
Palmieri Tyler has compiled the following list of most frequently asked questions and concerns from employers during this rapidly evolving situation. We have provided general responses to the questions and concerns below, but should your situation present more specific circumstances, as all businesses are unique in their procedures, policies, practices, and operations, we encourage you to contact us.
REDUCTION IN HOURS/PAY
1. Can I reduce hours and/or pay of hourly (non-exempt) employees in light of the downturn in business?
An employer can reduce non-exempt employees’ hours and rate of pay. However, employees must still be compensated at no less than the California minimum wage. It is advisable to give employees as much notice of any changes as reasonably practicable. Never adjust an employee’s rate after the work has already been performed. Be careful to apply changes in a nondiscriminatory manner.
2. Can I reduce hours and/or pay of salaried (exempt) employees in light of the downturn in business?
Generally, no. An exempt employee is paid on a “salary basis,” which means that the employee regularly receives at each pay period a predetermined amount constituting the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. An exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Thus, an employer cannot simply reduce the salary and/or reduce hours without running the risk of losing the exemption status.
California’s Department of Labor Standards Enforcement has held in a non-binding opinion letter that reducing an employee’s salary by 20% did not violate the “salary basis” for the exemption as long as the employer’s action is a temporary measure and several crucial conditions are met:
- When economic conditions permit, the exempt employee must be restored to full salary
- The salary reduction is permitted only when the employer is experiencing “significant economic difficulties”
- Affected employees whose new salary is not at least twice the state minimum wage for full-time employment, will become eligible for overtime
- The employer cannot alter the employees salary so often that the salary basis becomes a “sham.”
However, this would be a fact-based analysis if challenged, and it is advisable to refrain from altering an exempt employee’s predetermined salary.
1. What is a furlough versus a layoff?
A furlough is a mandatory, temporary, unpaid leave. A layoff is a full separation and termination of the employment relationship with the company.
2. Can I furlough both hourly (non-exempt) and salaried (exempt) employees?
An employer can furlough both non-exempt and exempt employees provided that the employer makes clear that no work of any kind is to be performed during the furlough.
With respect to exempt (salaried) employees, employers must pay the exempt employee who performs any work during a week their full weekly salary. However, an exempt employee who performs no work at all during an entire week need not be paid for the week in which the employee performs no work, provided that this deduction does not reduce the monthly salary to an amount below the minimum level required for exempt status. In other words, the exempt employee must still make the minimum salary required under California law. The minimum salary requirement in California for 2020 is $54,080 for employers with 26 or more employees and $49,920 for employers with 25 or fewer employees. If an exempt employee's salary drops below this minimum salary requirement, the employee may no longer be considered exempt. If an exempt employee falls out of the exemption, as a non-exempt employee, the employee would be protected by California's wage and hour laws, including overtime pay, meal breaks, and rest breaks. You may also face scrutiny for potential mis-classification claims should this happen.
3. Should I pay all final wages upon instituting a furlough?
You can consider paying all wages due at the time of furlough if either no return to work date is communicated or if you communicate a return to work date that is longer than a pay period or two. There is a fine line between a furlough and a layoff, so if you anticipate a longer furlough, you may consider paying “final” wages even if you anticipate your employees returning.
4. Can employees elect to use vacation time during a furlough?
5. Can I force employees to use vacation time during a furlough?
No. California considers vacation time to be “wages” earned at the time that it is accrued. Thus, employers are limited in their ability to control the use of vacation.
6. Should I communicate a return to work date?
It is advisable to communicate a return to work date to employees when possible so as to avoid any interpretation of the furlough as a “layoff” rather than a furlough.
1. Can I conduct layoffs in light of the downturn in business?
Yes, assuming employees are “at-will” employees, they can be terminated at any time, with or without notice or cause.
2. What issues should I be mindful of when conducting layoffs?
Communication: Notify the employee of a change in employment relationship.
Final Wages: All wages due and owing (including vacation and other vested benefits) must be paid to the employee at the time of the layoff.
Contracts: Review all employment contracts to ensure obligations are met.
WARN: Generally, if you have more than 75 employees, WARN Act requirements may apply. However, see below regarding EO 31-20, as the 60-day notice required under California’s WARN statute has been lifted.
3. Should I offer severance payments when conducting layoffs?
Severance agreements are effective to ensure that claims relating to the employment relationship are released. However, if only offering the agreements to some employees, the decision must be made in a nondiscriminatory manner.
1. Do I pay for unemployment benefits when employees make claims?
No, the Employment Development Department (“EDD”) administers the California unemployment insurance program. An employee will make a claim with the EDD, listing you as the former employer. The money for the program comes from unemployment taxes that every California employer pays.
2. Who can get unemployment benefits?
An employee who is unemployed or experiencing reduced hours can apply for unemployment benefits. The EDD will determine the amount of benefits based on a formula which considers the employee’s past employment history and salary history.
3. How will employees making claims for unemployment benefits affect me?
The EDD will assess either a higher unemployment tax rate if more claims are made as to an employer, or a lower unemployment tax rate if less claims are made as to the employer.
NEW FAMILIES FIRST CORONAVIRUS RESPONSE ACT
1. What are the significant provisions relating to employers?
Two significant pieces of the Families First Coronavirus Response Act (“FFCRA”) are the Emergency Paid Sick Leave Act (“EPSLA”) and Emergency Family Medical Leave Act (“EFMLA”).
The EFMLA provides 12 weeks of job-protected leave in connection with a qualifying need related to a public health emergency, which means that the employee is unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency (an emergency with respect to COVID-19 declared by a Federal, State, or local authority.)
The EPSLA is a separate piece of the FFCRA and provides up to 80 hours of paid leave if an employee is unable to work (or telework) due to a need for leave because:
(1) The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19
(2) The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19.
(3) The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
(4) The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).
(5) The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions.
(6) The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
2. Are all employers covered under the FFCRA?
All employers with fewer than 500 employees are covered by both the EFMLA and EPSLA pieces of the FFCRA.
Covered employers must post and keep posted a notice of benefits under the FFCRA, in conspicuous places on the premises of the employer, where notices to employees are customarily posted. An employer may satisfy this requirement by emailing or direct mailing this notice to employees, or posting this notice on an employee information internal or external website.
3. Are all employees covered under the FFCRA?
All employees are covered by the EPSLA piece of the FFCRA. All employees who have worked for the employer for 30 calendar days are covered by the EFMLA piece of the FFCRA.
4. Is there a cap on benefits?
EFMLA (Family Leave): An employee must be paid at a rate of no less than two-thirds of the employee’s usual rate of pay. However, the first 10 days of leave may be unpaid and the employee may choose to substitute accrued paid time off or other medical or sick leave during this period, but an employer cannot require an employee to do so. The benefits will be paid in an amount not to exceed $200 per day and $10,000 in the aggregate over the 12 week period (with the first 10 days of the 12 week period being unpaid if you so choose).
EPSLA (Paid Sick Leave): An employee must be paid at the employee’s regular rate of pay, subject to a maximum of $511 per day and $5,110 in the aggregate for qualifying conditions (1), (2), or (3) described above. An employee must be paid at two-thirds the employee’s regular rate of pay, subject to a maximum of $200 per day and $2,000 in the aggregate for qualifying conditions (4), (5), or (6) described above in Question 1 of this section. Again, the EPSLA provides leave up to 80 hours total, even if an employee experiences multiple qualifying conditions.
For both pieces, the regular rate of pay is the average of the employee’s regular rate over a period of up to six months prior to the date on which the leave is taken.
If an employee is eligible for both EFMLA and EPSLA, the employee is entitled to take both.
5. Can I require employees with accrued paid sick leave under California’s paid sick leave laws to use that before receiving any benefits provided under the FFCRA?
6. Is this immediately effective?
The EFMLA and EPSLA become effective April 1, 2020 and expire on December 31, 2020. The benefits are not retroactive, i.e., they begin on April 1, 2020.
7. How does the tax credit in the FFCRA work?
The IRS has announced its general plan for prompt payment of credits to employers who provide leave benefits under the FFCRA. Usually, when employers pay their employees, they are required to withhold from their employees' paychecks federal income taxes and the employees' share of Social Security and Medicare taxes. Usually, the employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.
Under guidance that is expected to be released shortly, eligible employers who pay leave benefits will be able to retain an amount of the payroll taxes equal to the amount of qualifying leave that they paid, rather than deposit them with the IRS.
The payroll taxes that are available for retention 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 are not sufficient payroll taxes to cover the cost of leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less.
8. Is there going to be additional guidance on this new law?
The IRS and the Department of Labor have announced that new guidance is expected to be provided this week.
CALIFORNIA EXECUTIVE ORDERS
1. What are the pertinent orders relating to employers?
Pursuant to EO N-33-20, all California residents are ordered to stay in their homes or places of residence, except as needed to maintain continuity of the operations of federal critical infrastructure services. Thus, most California employees are prohibited from leaving their homes or places of residence, even to go to work, unless they are doing so for critical infrastructure employers.
Pursuant to EO N-31-20, the 60-day notice required under California’s WARN statute has been lifted.
2. What if I do not comply with the orders?
The orders can be prosecuted as misdemeanors under the law. You may also risk exposure to employee claims should employees become exposed and/or infected with COVID-19 as a result of your failure to comply.
3. What if I fall under the exemption as a “critical infrastructure”?
Carefully examine your business operations and guidance issued by the government.
Even if it is determined that you fall into one of the critical infrastructure sectors, you should still maintain your operations at a reasonable level that does not involve non-essential workers. You should continue to monitor and enforce regulations and policies in your workplace to ensure the health and safety of all employees, i.e. instructing symptomatic employees to stay home, sending employees exhibiting COVID-19 symptoms home, and reminding employees to wash their hands frequently.
4. What requirements of California’s WARN statute have been waived?
The 60-day notice period usually required under California’s WARN statute has been waived. Employers must still provide notice as reasonably practicable. Federal WARN statutes remain in effect.
RELIEF FOR SMALL BUSINESSES
The SBA provides Economic Injury Disaster Loans to small businesses.
Preparedness and Response Supplemental Appropriations Act: Removes regulatory hurdles and authorizes the SBA to provide an estimated $7 billion in low-interest disaster loans to small businesses.
3. Section 139 of IRS Code:
This law was added to the IRS Code after the September 11th attacks of 2001. It allows employers to make “qualified disaster relief payments” to employees to assist the employees in managing a “federally declared disaster.” The payments are tax-free to the employees, but fully deductible to the employer. Consult your tax professional for guidance.
4. Tax Credits:
The IRS is currently in the process of implementing a program to provide tax credits to employers who pay leave benefits under the FFCRA (see above).
5. Exemption from FFCRA:
Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements in the FFCRA that relate to school closings or child care unavailability, if the requirements would jeopardize the ability of the business to continue. To elect this small business exemption, you should document why your business with fewer than 50 employees meets the criteria set forth by the Department of Labor, which will be addressed in more detail in forthcoming regulations from the Department of Labor.
6. Financial institutions are being encouraged to work with borrowers:
The federal financial institution regulatory agencies and the state banking regulators issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. The agencies encourage financial institutions to work with borrowers, will not criticize institutions for doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings (TDRs).
7. Stimulus Package:
|ERICA M. SOROSKY
|ERIN K. OYAMA