Understanding Unemployment and the CARES Act
Employers who are faced with workplace shutdowns due to the impact of COVID-19 will need to assess the best approach for their business situations: a temporary layoff or a formal end of employment. Prior to layoff, employers must ensure that messaging to employees and wage payments reflect the difference. The definition and terminology vary from state to state. Please check your state’s unemployment sites for appropriate language and messaging.
It is recommended that you provide written notice to your employees so they may provide this in their unemployment insurance application process.
The state of Massachusetts does not recognize the word “furlough.” In MA, this is considered “stand by status” or “temporary workplace shutdown.” This means that individuals remain employees and that work is suspended for a defined period of time. MA state guidelines define this as up to 8 weeks with the ability to apply for an extension. Employees should be instructed to stay in touch with the employer and be ready to be recalled. It is recommended that you estimate a recall date.
Employee benefits can remain in place during the shutdown period. Employers should consult with their insurance broker and refer to their health insurance plan documents to ensure coverage can be extended if work is temporarily unavailable. The employer will then need to decide if and how to collect any insurance premiums from employees or to pay 100% of the premiums itself. The MA Attorney General’s office has advised that employers do not need to payout PTO at the time of the shutdown, although there are no written guidelines at this time.
Employees are not required to actively look for work during this time. If they are not rehired after 8 weeks, employers can then redefine this as a layoff situation. At that time, the employer would need to pay any accrued paid time not previously paid out.
It is expected that employees given notice under this status will be eligible to collect unemployment insurance, including business owners who are treated as employees. The decision on eligibility is determined by the state where an employee applies.
Layoff or Reduction-in-Force
A layoff defined as a reduction-in-force is a formal end to an individual’s employment, even if the intent is to hire the employee back. In MA, this term states that the employer has terminated the employment relationship. All earned wages and accrued time, like PTO, must be paid on the last day of employment. The employer has no expenses related to their employment after that date. Employers must extend their medical, dental, and vision insurance plans under Consolidated Omnibus Reconciliation Act (COBRA) to the former employees covered by their plans. COBRA is required if the employer remains in business after the reduction-in-force.
Calculating Employee Unemployment Benefits
Eligible employees will receive a weekly benefit of approximately 50% of their average weekly wage up to the current MA state maximum of $823 per week. The benefit is calculated using the employee’s wages over the previous four quarter’s wages earned. Learn more about how MA unemployment benefits are determined. >>
An additional $600 weekly Federal benefit was approved as part of the CARES Act.
Fair Labor Standards Act considerations
Non-exempt employees, paid hourly:
- Work hours can be reduced, and employees paid for hours worked only
- Hourly workers are eligible to apply for unemployment insurance for lost hours/wages
Exempt employees, paid a salary:
- Salary and responsibilities can be reduced
- Reduction in hours is not recognized under the Fair Labor Standards Act as exempt employees are expected to do what is required to get the defined job done. It is unlikely this will be considered eligible for unemployment compensation, but each state will determine this.
- Generally, it is recommended that salaried employees be laid off completely, rather than reducing hours, for the best treatment under unemployment benefits.
Special Unemployment Provisions outlined in the CARES Act
The CARES Act creates a Pandemic Unemployment Assistance (PUA) program that provides federally funded unemployment benefits to many — though certainly not all — workers who lose their jobs but are ineligible for the state’s regular UI program:
- The one-week waiting period has been waived during this emergency period
- Employers may request to extend the period of covered shutdown to 8 weeks
- Employers paying into the system for themselves and receive a W-2 are eligible
- Self-employed and 1099 independent contractors are eligible to apply
- Additional $600 per week will be added to the weekly state benefit for each recipient for up to 4 months. It is anticipated that this benefit will be distributed through the state benefit system.
- Provides payments to states to reimburse half of the cost of unemployment insurance for non-profit, government agency and Indian tribe employees paid under PUA
- Provides additional 13 weeks of unemployment benefits
Understanding FFCRA and Employee Leave
The Families First Coronavirus Response Act (FFCRA) was signed into law on March 18, 2020. FFCRA creates an emergency paid leave program in response to the public health emergency caused by the coronavirus. Read more about FFCRA, the Emergency Paid Sick Leave Act, the Emergency Family & Medical Leave Expansion Act, and Employer Tax Credits under the CARES Act. >>
IMPORTANT NOTE: Layoffs, temporary workplace shutdowns, and payroll credits all have a potential impact on the amount of loan you may qualify for and/or the amount that could be forgivable under the CARES Act. AAFCPAs advises clients to consult with your AAFCPAs Partner to discuss your circumstances.
If you have any questions, please contact your AAFCPAs partner.
AAFCPAs’ CARES Act Task Force Mobilized to Assist
AAFCPAs has formed a Task Force dedicated to studying and advising clients on the business implications of the Coronavirus Aid, Relief and Economic Stimulus (CARES) Act legislation, signed by President Trump on Friday, March 27th, 2020. Our CARES Task Force includes senior leadership and advisors from diverse segments of our organization, bringing the necessary talent together to best advise on the changing dynamics caused by the Coronavirus.
The benefits provided under CARES require thoughtful planning and will vary depending on your Company’s situation. We can help you understand what is available and how and what to apply for, including the calculation needed to determine which loan program may be most beneficial.
Resources have been mobilized in the following areas:
- Tax law changes
- Business Impact Diagnostic Assessment
- SBA Loan Assistance
- Debt Forgiveness Reporting
- Financial forecasts and cash flow projections
- HR Consulting: Understanding the Families First Coronavirus Response Act (FFCRA) & Unemployment
The Task Force will continue to issue written guidance as appropriate. Please reach out to your AAFCPAs’ partner with any questions.
We are here for you! Together, we will make it through this difficult time of change.