Government relief for employers in response to the COVID-19 pandemic

This week our state and federal government provided relief for employers in response to the COVID-19 pandemic.  The Texas Workforce Commission established a program Shared Work to assist with employees working a reduced schedule.  Additionally, the President signed H.R. 6201 Families First Coronavirus Response Act which provides funding for testing and extends paid sick leave to employees and self-employed individuals.

Texas Workforce Commission Shared Work Program

The Shared Work program information can be found at the following link: https://twc.texas.gov/businesses/shared-work.

In summary, the Shared Work program allows employers to supplement their employee’s lost wages because of a reduced work schedule.  The TWC directly compensates the employee for the hours reduced by the employer.  The TWC defines a reduced work schedule as weekly work hours that are reduced by at least 10% but not more than 40%.

The program appears to be very flexible and can be applied differently to various functions within the business.  It can also be stopped and started as needed.  However, this program does affect the employer’s experience rate.

The application process is fast, easy, and secure.  For additional information, please access their website or call the Texas Workforce Commission at 512-340-4337 or 888-741-0446.

H.R. 6201 Families First Coronavirus Response Act

The majority of this bill is focused on funding for testing and student lunch programs.  We will address only the tax changes here.  You may access the text of the bill at the following link: https://www.congress.gov/bill/116th-congress/house-bill/6201/text.

The new law requires employers with fewer than 500 employees to provide paid sick leave to employees.  The bill compensates employers and the self-employed for paid leave in the form of a tax credit.  The effective date of these provisions is no later than 15 days after the enactment date of March 18, 2020 and expires on December 31, 2020.

This bill addresses two types of sick leave for which different rules apply.

The first one is “qualified paid sick leave”:

  • This applies to employees who are forced to stay home due to quarantining or to care for a family member.
  • Employers must offer two weeks (10 days) of paid sick leave. Individuals working part time are also eligible for this pay based on a modified number of days, the calculations of which are provided in the bill.
  • 100% of employer costs for sick leave pay will be compensated by a tax credit to offset employer payroll taxes or in the form of a tax credit paid to the employer on a quarterly basis.
  • The pay is capped at a daily rate depending on the reason for the individual requesting the pay.

The second type of sick leave is “qualified family leave”:

  • This applies to employees who are forced to stay home to care for a child if the school or place of care is closed.
  • This type of leave is available for 10 weeks (50 days) of pay.
  • 100% of the employer costs will be compensated by a tax credit to offset employer payroll taxes or in the form of a tax credit paid to the employer on a quarterly basis.
  • The first 10 days are unpaid, but the employee can use the 10 days of paid sick leave during this time if needed.
  • The benefit must replace at least two-thirds of the employee’s wages up to a maximum of $200 per day and $10,000 in aggregate and must reflect the number of hours the employee would normally work.
  • The Act allows an employer of an employee who is a health care provider or an emergency responder to elect out of this provision.
  • The Department of Labor will have the authority to exempt small businesses with fewer than 50 employees if providing this leave would jeopardize the viability of the business.

Finally, the bill provides relief for self-employed individuals.  The self-employed individual is provided relief similar to the “qualified paid sick leave” and the “qualified family leave” provisions, however the tax relief will be in the form of a credit that will be allowed against federal income taxes when filing the annual income tax return.  The limit of the credit is calculated based on the number of days the self-employed person is unable to perform services, times a percentage of the taxpayers average daily self-employed income or $200, whichever is less.  This limit is increased to up to $511/day if the self-employed individual is unable to perform services based on specific facts outlined in the bill.

A technical commentary on these tax credits written by Alistair M Nevius, J.D. for the Journal of Accountancy can be found at the following link: https://www.journalofaccountancy.com/news/2020/mar/coronavirus-relief-bill-tax-credits-for-employers-23225.html.

As your trusted advisors, we are committed to keeping you well-informed with any new legislation passed by Congress as well as any new pronouncements by the Department of Treasury that may affect you.

Please do not hesitate to reach out to KHA with any additional questions you may have.

PLEASE BE ADVISED

In order to serve you and keep you informed, we have spent a lot of time learning about this rapidly developing law and how it will affect you and us.  We might not update this information for subsequent legislative or administrative changes or future judicial interpretations.  Keep in mind there are many details that are not yet known, and several provisions will require interpretive guidance from the government which we do not yet have.  We believe we’ve properly summarized the tax aspects of the new law, but this summary does not constitute a tax opinion.   Due to these limitations and the related risks, it may not be appropriate to proceed with any decision solely on the basis of this communication. We are not attorneys and this advice cannot be construed as legal advice.  Additionally, every state has different unemployment laws and how this legislation may integrate with your state could differ.  We encourage you to consult an employment attorney in your state for specific questions on employees.