With another few weeks of shelter-in-place still ahead and many unknowns, companies are making difficult decisions as it relates to their workforce. The recent passage of the Families First Coronavirus Response Act seeks to relieve pressure for employees and employers alike.
Yet, for organizations, there is much to consider. As leaders work through evaluating furloughs, layoffs, and how best to maintain their workforces through this challenging time, quality information to guide that decision making is paramount.
What are some of the compliance considerations around furloughing employees due to potential business interruption?
The potential compliance issues surrounding a furlough of employees are extensive. A furlough is not a termination or layoff; it is an extended leave of absence.
When an employer would like to maintain benefits coverage for employees, the first step is to review the company’s plan eligibility. As the plan sponsor, employers control which employees are eligible for coverage. To maintain benefit coverage for furloughed employees, your plan may need to be amended.
Most plans tie eligibility to the Affordable Care Act (ACA) definition of full-time employee (FTE) status. Employees suffering losses of paid hours or recently hired FTEs may cause an employer to consider amending the benefits plan to help these employees maintain their eligibility. Employers should clear all eligibility expansions with their insurance carrier and/or reinsurer before taking action.
Remember, employees on furlough or leave of absence need a way to pay their premium.
Would unemployment benefits be a resource in the event of a furlough?
The Families First Coronavirus Response Act (FCCRA) mandates paid leave and offers additional Family Medical Leave Act (FMLA) protections. The Act applies to private employers with fewer than 500 employees and all government employers. The employers must provide up to 80 hours of paid leave, prior to exhausting paid time off, to employees if they are unable to work due to a coronavirus quarantine or other eligible reasons such as caring for another individual. Employees will receive paid sick leave up to $511 per day, or a total of $5,110, for 80 hours.
Employers will be reimbursed 100 percent through an immediate dollar for dollar offset tax withholdings or payments otherwise due. If a company’s payroll taxes are insufficient to compensate the employer for its expense in providing the paid leave, the IRS will immediately send reimbursement for the remaining amount to cover eligible paid time off and health care premiums. Additional guidance on reimbursement for health care premiums is forthcoming from the IRS.
Although tax credits are available to employers with fewer than 500 employees for benefits payable under FFCRA, this option is not available to larger employers. However, in some cases, larger employers may be entitled to take a tax credit for paid leave for events enumerated under FMLA. The availability of these tax credits is limited and is subject to minimum requirements.
If an employee’s position does not allow them to work from home and they have already exhausted any available paid time off, should the company consider a furlough?
Given the mandated paid leave benefit outlined in the new Families First Coronavirus Response Act, a furlough may be the logical solution for companies with employees in non-essential services who are unable to go to work due to a state or local shelter-in-place order, and who are unable to work from home due to job requirements. Through this Act, the federal government is trying to keep people employed and engaged with their organizations. The benefits of this Act are effective April 1, 2020, and are not retroactive.
If employees are quarantined by public health officials because they’ve been exposed to the coronavirus, will short-term disability normally provide salary continuation?
This depends exclusively on whether the short-term disability contract with the insurance carrier has a quarantine provision and whether you, as an employer, are insured or self-funded. For insured plans, a few carriers allow for a quarantine provision, but many do not. We are likely to see carriers who have quarantine provisions today remove those provisions going forward.
Self-insured clients have the flexibility to alter their plans. From a technical perspective, a quarantine is not considered a disability, as the employee would need to test positive to be an acceptable claim. Risk and exposure alone would not constitute loss of duties due to a medical condition and therefore be payable. There are always extenuating circumstances, so each claim would be evaluated on its own. We recommend that groups be consistent with their practices to avoid a discriminatory situation.
What are some of the compliance considerations around terminating or laying off employees due to potential business interruption?
Employers with 100 or more employees may be subject to the WARN Act requiring a 60-day notice for plant closings or mass layoffs. Exceptions, such as unforeseen business circumstances, apply. Not providing notice can leave employers liable for compensation and benefits for a 60 days to affected employees.
If terminated and unemployed, under the CARES Act, those who may not be eligible for Michigan’s regular unemployment programs now will be given weekly benefits increased by a set amount of $600 per week for up to four months.
If terminating employees, COBRA continuation coverage must be offered. Some employers are offering COBRA subsidies. Subsidizing COBRA may be more financially prudent than continuing eligibility during a furlough for a period and then offering COBRA. Be aware that offering the subsidies is permissible and tax-free to employees; however, if the subsidy ends and the employee still has COBRA premium to pay, suddenly creating an out of pocket cost for the employee, this does not trigger an allowable legal reason for the employee to cease COBRA coverage and join their spouse’s medical plan.
What should a business consider if they cannot fund their employee benefit programs due to loss revenue resulting from coronavirus?
If cash flow demands benefit plan insolvency, some insured coverages may continue eligibility or allow for the deferral of premium payments. If an employer is self-funded and cannot pay its claims, they should notify employees immediately. If an employer deducted and is holding employee contributions that were not forwarded to a fully insured carrier, the money must be returned.
Additional resources for employers are available here.
John Price is a partner in the benefits and human capital practice at Lockton Cos. in Detroit.