Here are some of the more novel and pressing questions asked during ERISAfire's weekly Tuesday COVID-19 town hall meetings. It is updated weekly through the month of April.
Flattening the Curve; Returning to Work
We flattened the curve, so we’re fine now, right? Can everything can go back to normal?
“Flattening the curve” is a phrase that describes a public health strategy of restricted movement and social distancing with one goal and one goal only: to help the healthcare industry so the healthcare system would not be overwhelmed. That’s it. It does not reduce the number of COVID-19 cases. It merely trades a shorter-term spike for a longer-term duration of less magnitude. Imagine you took your hand and smushed the top of the taller, red curve down. As you push the red curve down it widens along the base to look like the blue curve.
Source: The New York Times, “Flattening the Coronavirus Curve,” https://www.nytimes.com/article/flatten-curve-coronavirus.html.
Flattening the curve does not eliminate the disease or even reduce the number of cases. Instead, it spreads the number of infected individuals out over a longer period of time. Keeping the curve flat requires that movement restrictions and social distancing measures be in place for a longer period of time.
Which states are opening back up?
Multi-state employers would be interested to know which states have ended their stay-at-home orders in the month of April: Alabama, Alaska, Arizona, Arkansas, Colorado, Florida, Georgia, Idaho, Iowa, Kentucky, Maryland, Minnesota, Montana, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, Wyoming.
It will not necessarily be business as usual in those states, though, so employers should review each state’s instructions before bringing employees back in that state.
Is there a framework employers should use when preparing a plan for bringing employees back to work?
Notwithstanding states’ and localities’ invitation to reopen businesses, employers still need to proceed safely and efficiently. Bringing employees back will be a process, not a single event. Here are the key points.
- Return in phases. Do not bring everyone back at once. Start with key or essential employees whose functions are vital and cannot be done remotely and screen them before entering the building or facility. Screenings can include symptom checks (temperature, observing behaviors like coughing or sweating, asking about loss of smell or taste, etc.) and/or serological tests for antibodies, once such testing is more widely available and more affordable. Add successive groups of employees in phases with sufficient time in between as to gather data, review it and make changes, if necessary. Give employees an opportunity to provide doctor’s notes identifying them as at-risk, and try to bring those folks back last.
- Rethink all logistics with social distancing in mind. How many people can be on an elevator at once with appropriate social distancing? Will the time required to screen and reduced capacity to move people require that work day start times be staggered? Which job functions must absolutely be done in close quarters, and which ones can be done with more distance? Is there an ample supply of personal protective equipment for job functions that will be done in close proximity? Will onsite daycares need to reduce their capacity, or will additional space need to be dedicated to onsite daycares? Does the cleaning crew have enough of the right sanitization chemicals, and is the cleaning crew trained in sanitization?
- Educate, educate, educate. Whatever the plan is, employees need to fully understand it in order for them to execute on it. Employees like being kept in the loop, and active communication can keep them engaged. Also, hygiene has never been more important, so take the opportunity to educate employees on proper hand washing techniques, sneezing/coughing techniques, etc. This is not a drill, folks.
- Be prepared to change. It’s called the “novel” coronavirus for a reason. It’s new, and a lot is still not known about it. Recommendations from authorities will change over time, and in addition the leadership of the company will learn new things as the workforce is brought, slowly, into this new normal. The temptation for leaders to keep doing what they first announced so as to appear more in control is natural and strong; leaders must resist it and be prepared to change as they learn new things.
Health Plan Administration Issues
There are reports that the major health insurance carriers are denying COVID-19 claims. Why, and should an employer be doing anything about it?
The evidence of claims denials is only anecdotal, but it does look like some claims that are COVID-19-related are being denied in some parts of the country. There are a number of explanations for why it might be happening, and none of them are nefarious. First, the software systems of carriers and third-party claims administrators won’t necessarily know if a medical service or supply is COVID-19 related. Novel coronavirus testing in the US is very limited, meaning that a confirmed diagnosis with a diagnosis code that a carrier’s claims system can recognize is actually fairly rare. Most cases of COVID-19 are suspected, based on a patient presenting with a set of symptoms. It’s doubtful a carrier will pay a claim as being COVID-19-related without at least a presumptive positive test (meaning the lab test has been performed and the positive result is back but CDC has not officially confirmed the result).
Moreover, the claims adjudication software systems of carriers and TPAs are massive, and like most big systems, they don’t turn on a dime. The plan design changes being made by a carrier’s top brass are fairly significant, and it’s not outside the realm of possibility that claims would be denied for lack of documentation, if only to buy the carrier some time to adjust its systems.
The mandatory change in insurance plan designs to cover COVID-19 testing without cost-sharing, and the voluntary changes carriers are implementing to eliminate cost-sharing for COVID-19 treatment, have been widely publicized, and it wouldn’t be surprising if employees who know about these changes contact HR with questions or complaints about their claims, and HR may have to be more hands-on than usual. It would be prudent for employers with access to claims data (generally larger employers) to contact their medical carrier or claims administrator to get its claims adjudication standards for COVID-19-related claims so that the employee can be equipped to go back to the provider with instructions on how it needs to submit COVID-19-related claims.
Will COVID-19 cause health insurance renewals for 2021 to spike?
Yes, The Hill has stated that COVID-19 will cost commercial insurance companies between $34 to $251 billion. As a result from the losses this year, and anticipated cost for next year, it is expected that there will be a drastic increase in insurance premiums in 2021. For example, the Covered California state exchange published an analysis that predicts premium increases of between 4% and 40%.
Is there anything an employer can do now to stem the tide of expected health insurance rate increases?
Employers that are partially or completely risk-rated (i.e., claims credible) should consider measures to keep people healthy. Keep promoting wellness programs. Be smart about bringing people back to work in group environments (offices, factories, stores, etc.).
Take the health plan to market, especially if that hasn’t been done in a few years. Real competition among carriers and third-party administrators does wonders. A mere threat to move the business won’t work.
Lastly, employers should consider self-insuring, either outright or through a level-funded product with a refund option. There are many more options nowadays for self-insuring, even for small groups.
CARES Act Tax Credits
What is the Employee Retention Tax Credit?
The Employee Retention Tax Credit is a payroll tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2012, and before January 1, 2021. It is a refundable credit, meaning that if an employer has more in credits than payroll taxes, Treasury writes the employer a check for the difference.
What employers are eligible for the Employee Retention Credit?
Employers, including tax-exempt organizations, are eligible for the credit if they operate business during the 2020 calendar year and fall within one of the following two categories:
- The employer had a full or partial suspension of the operation of its trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
- The employer had a significant decline in gross receipts. A significant decline in receipts begins on the first day of the calendar quarter where the employer’s gross receipts are less than 50% of its gross receipts from 2019. The significant decline ends on the first day of the calendar quarter following the calendar quarter where gross receipts are more than 80% of its gross receipts from the same calendar quarter in 2019.
What are qualified wages?
For employers with fewer than 100 full-time employees during 2019, qualified wages are generally wages (up to $10,000 per employee) paid to employees, and the wages count for the credit regardless of whether those employees worked or not!
For employers with more than 100 employees on average during 2019, the credit is allowed only for wages (up to $10,000 per employee) paid to employees who did not work during the calendar quarter.
CARES Act Stimulus Payments to Individuals
Can employers deduct stimulus amounts from employee paychecks?
Maybe. Putting the moral issues aside, this may be technically possible. However, there are numerous laws that will make this incredibly difficult. First, federal laws such as the Fair Labor Standards Act (FLSA) that require employers to pay employees a minimum wage of not less than $7.25 an hour. The wage reduction may cause payment to fall below minimum wage. Second, state payday laws generally require that employees consent to payroll deductions, and it's hard to imagine a handbook, benefits election form or deduction authorization form that is broad enough to encompass government stimulus money.
Families First Coronavirus Response Act (FFCRA)
Can an employer require employees to use their accrued PTO or paid vacation concurrently with FFCRA-mandated closed school/daycare leave?
Yes, with some exceptions. An employer can require that FFCRA-mandated Emergency Family Medical Leave (EFMLA leave, which we call "closed school/daycare leave") run concurrently, much like employers can do with ordinary FMLA leave. (If you've read something to the contrary, know that on April 10, DOL published corrections to its April 6 regulations clearing up some drafting inconsistencies that provided for a different result.)
However, for the first two weeks of the 12-week leave period, if the employee is taking FFCRA-mandated sick/quarantine leave, an employer cannot require the employee to exhaust PTO, vacation or sick time. Effectively, it means that the first two weeks of closed school/daycare leave will be paid sick/quarantine leave, then PTO can be debited, then non-PTO closed school/daycare leave is provided.
Another caveat: if the PTO or other employer-provided leave cannot be used to care for a child (e.g., sick time), it cannot be debited for closed school/daycare leave.
What payroll taxes need to be paid for employees who are on FFCRA-mandated leave?
Employers will not need to pay the 6.2% Social Security tax, but must pay the 1.45% Medicare tax. Employers will, however, receive a FICA credit for wages paid to employees who are out on one of the mentioned leaves.
Can an employer require employees to use their accrued PTO, paid vacation or paid sick time first before providing FFCRA-mandated paid sick/quarantine leave?
No. The FFCRA requires that employees be free to choose from the leave types at their disposal. Requiring employees to exhaust existing leave before providing FFCRA-mandated paid sick/quarantine leave is prohibited.
Which businesses must comply with the paid sick/quarantine leave and paid school/daycare closure leave mandates in the FFCRA?
Both paid leave mandates apply to companies with fewer than 500 employees. Employers with fewer than 50 employees may qualify for an exemption if an authorized officer of the business documents and certifies that one of the following applies:
- The provision of paid sick leave or expanded family and medical leave would result in the small business’ expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;
- The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or
- There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.
How is the 500-employee threshold determined, and at what point in time?
Pursuant to temporary regulations issued by the Department of Labor (DOL), the 500-employee threshold is measured each an every time an employee requests leave. (Ouch.)
Controlled group rules under Internal Revenue Code Section 414 do not apply. Instead, DOL has created a kind of hybrid of the joint employer test from the Fair Labor Standards Act (FLSA) and the integrated employer test from the Family Medical Leave Act (FMLA). Oversimplifying quite a bit, this essentially means that parent, subsidiary or other affiliated companies in a controlled group will be combined as a single employer for purposes of the 500-employee threshold only if they can show there are combined management and human resources functions.
Based on our analysis of the temporary regulations, an employer with affiliated, parent and/or subsidiary companies should start first with the FMLA integrated employer test, which is a pretty broad test under which common ownership is a factor. Add up all the employees of the companies that meet the integrated employer test, then move to the FLSA joint employer test and add them to the first sum. Now you've got your employee count.
Confused yet? We understand. It's not easy, but we're here to help. Just ping us on the in-app messenger (the little blue guy in the lower right corner).
If an employer's employees are furloughed—either by temporary layoff or reduction in hours to zero—do the FFCRA paid leave mandates apply?
No, but there is one caveat.
The FFCRA does provide for a refundable payroll tax credit to cover the cost of its paid leave mandates, but the paid leave must be provided first and then later reimbursed through payroll taxes, which could present real cash flow concerns for employers. Furloughs, reductions in force (RIFs) and layoffs may be the only option for some employers.
DOL threw employers a bone here. In its FAQ guidance DOL expressly stated that employees do not have any FFCRA paid leave entitlement after employment is terminated (even temporarily) or hours are reduced to zero.
Be careful, though, because both the statute and the temporary regulations contain non-interference provisions that prohibit employers from interfering with an employee's exercise of FFCRA rights. If an employer terminated employment or reduced hours to zero for the purpose of avoiding the FFCRA paid leave mandates, it's possible the employer could be held liable.
Under what circumstances can employees request paid closed school/daycare leave?
EFMLA leave (closed school/daycare leave) is available if: an employee's child’s school or daycare is closed, or the employee's regular child care provider is unavailable, due to reasons related to COVID-19. This leave is available to parents whose children are 17 or younger (that is, under 18). Employers can require their employees to provide documentation to support the leave and should keep records of that to qualify for the tax credit.
CARES Act SBA Loan Programs
What loan programs did the CARES Act establish for small and medium-sized businesses (SMBs)?
There are two loan programs, and it's important to keep them straight:
- EIDL - an expansion of the existing Economic Injury Disaster Loan Program (EIDL) that includes a forgivable advance of up to $10,000 for just applying (not actually being awarded a loan)
- PPP - an entirely new program that provides forgivable loans to SMBs for the purpose of providing liquidity to cover payroll expenses over the short term, the amount of which is equal to 2.5 times one month's worth of payroll expenses
Demand for PPP loans has been extremely high, and it's likely that there are enough applications in the queue submitted by banks to the SBA to exhaust the funds.
With regard to the EIDL forgivable advance (grant) of $10,000, SBA has started alerting employers who indicated interest in the EIDL grant that it will be rationed based on the number of employees—$1,000 per employee, up to the $10,000 established by the CARES Act.
What businesses are eligible to apply for an EIDL and/or PPP loan?
Organizations of nearly any type with fewer than 500 employees can apply: for-profit businesses, cooperatives, ESOPs, sole proprietors and most private nonprofits. SBA will count affiliated organizations together, but for PPP loans the CARES Act created an exception for the restaurant and hospitality industries. Organizations in those industries still must themselves have fewer than 500 employees, but the affiliation rules are waived.
How much can a business borrow?
The amount of an EIDL is determined by SBA based on documented economic losses and is limited to $2 million.
The loan limit for a PPP loan is 2.5 times one month's worth of payroll (using a rather complicated look-back calculation), up to $11 million.
Can I apply for both?
Yes. Just understand that borrowers cannot use CARES Act loan funds from different loans for the same exact purpose. In other words, if you use your EIDL funds for the May 31 payroll run, you can't also use the PPP funds for that same payroll run. Because EIDLs are for expenses paid up through December 31, 2020, and PPP loans are only for the 8 weeks following funding of the loan, you should generally use PPP loan proceeds first, and then EIDL funds after that.
Also, if an employer received an EIDL grant (a forgivable advance of up to $10,000 just for applying), the amount of that grant will be subtracted from the maximum amount that can be forgiven under its PPP loan.
How does an employer obtain a PPP loan?
PPP loans are provided through banks, not directly from SBA. Here are some resources from AICPA to help employers prepare their PPP application. Keep in mind that the banks make the judgment call, just like any other loan, so no matter what you read on anyone's website or hear on a webinar, the loan application requirements of the bank you are submitting your application to will control.
- SBA template loan application
- Sample loan amount calculator from the American Institute of CPAs (intended for a non-seasonal business that has been in operation throughout 2019)
When should an employer apply for a PPP loan?
The program received its second round of funding after the initial $350 billion earmarked for it was quickly depleted.
Apply for your PPP loan now, before the program runs out of funds (again).
What can CARES Act loan funds be used for?
EIDL proceeds can be used for any business-related obligation that was directly impacted by the COVID-19 pandemic through December 31, 2020.
PPP loan proceeds are more limited and can only be used for payroll costs, interest on mortgages, rent, and utilities for the 8 weeks following funding of the loan.
What are the repayment and forgiveness terms?
EIDLs carry an interest rate of 3.75% (2.75% for nonprofits) and up to a thirty (30) year term. If SBA makes an advance on the loan, it will not need to be repaid even if the business is ultimately denied a loan. EIDL repayments can be deferred for up to a year.
PPP loans are designed to be forgiven and carry an interest rate of only 1%. If used for one of the approved purposes and at least 75% of the loan proceeds are used for the purposes of keeping employees on the payroll for at least eight (8) weeks, then the entire amount of the loan can be forgiven. Be mindful that the amount of PPP forgiveness is reduced if headcount is reduced or an employee's pay is cut back too much. SBA is still working out the exact details of how this reduction in PPP loan forgiveness will work. Loan payments are deferred for six (6) months.
Other Compliance and Risk Management Issues
Has the DOL extended the filing deadline for Forms 5500?
Yes, but not for calendar year Forms 5500, which are still due July 31, 2020.
The CARES Act did expand ERISA Section 518 "Authority to postpone certain deadlines by reason of Presidentially declared disaster" to include "a public health emergency declared by the Secretary of Health and Human Services," and the Department of Labor has delivered.
Both retirement and welfare plan Forms 5500 due between April 30 and June 30 have had their deadlines extended to July 15. Employers don't need to apply for this extension; it's automatic. Employers with calendar year ERISA plans, however, are out of luck: those are still due July 31.
What are the possible workers' compensation implications of the COVID-19 crisis?
Think law enforcement, healthcare workers, grocery store clerks—anyone who is likely to be exposed due to his or her job. Whether or not contracting the novel coronavirus or coming down with COVID-19 is a compensable injury under workers compensation depends on a state's work comp statute is written and how judges have interpreted it. While there are many layers to this issue, the bottom line is that it’s probably time for employers to talk with their risk managers and work comp brokers about the potential for compensable work comp injury claims.