In the last month companies of all sizes have taken a big hit from the COVID-19 pandemic which has gutted their profits and affected their ability to keep operations afloat. In these turbulent times, the State of California is responding to the COVID-19 effect on employers by offering several different financial relief programs to small businesses. These programs include tax assistance, UI Work Sharing Program, Rapid Response program, and CA Small Business Finance Center. The US Small Business Administration is also offering assistance to small businesses and their financial needs. Additionally, the President and Congress continue to work on relief measures. One of these includes the recently signed Families First Coronavirus Act (the “Act”) to provide certain family, medical and sick leave to employees and tax credits to employers and self-employed providing the leave. Disaster Loan Assistance. We expect there will be continued developments and assistance via both federal and state authorities.
Tax Guidance & Assistance
The requirements, provided by the Act, which include additional paid sick leave & qualified family and medical leave are amendments to current labor laws and should be interpreted using definitions and standards established within existing law. The summary and explanations of the changes that follow are broken down by the two main types of leave provided for in the Act, paid sick leave & family and medical leave. Consultations with experts in employee benefits should be considered.
Emergency paid sick time (EPSLA)
Applicable to employers with fewer than 500 employees & public employers of any size. The employer must provide 80 hours of paid sick time to full-time employees unable to work for specified virus-related reasons. Additionally, Part-time employees are entitled to sick time based on their average hours worked over a 2-week period. This paid leave is immediately available regardless of the employee’s length of employment.
The emergency paid sick leave, mandated by the legislation, is in addition to paid sick leave the employer would already provide. This mandated paid sick leave is not considered wages for the purpose of determining the employer’s share of social security taxes but is to be considered wages in determining the employer’s share of Medicare taxes. Employers cannot require employees to find a replacement worker or use other sick leave before this sick time. The maximum amounts payable vary based on the reason for the absence as follows:
- Two weeks of paid sick leave, at the employee’s regular rate, limited to $511 per day and $5,110 in total to all employees that are unable to work or telework because they are:
- Subject to a federal, state or local quarantine or isolation order, or
- Advised by a health care provider to self-quarantine due to coronavirus concerns, or
- Experiencing symptoms of coronavirus and seeking a medical diagnosis.
- Two weeks of paid sick leave, at the employee’s regular rate limited to $200 per day and $2,000 in total for employees who are unable to work or telework because they are:
- Caring for an individual who is subject to a federal, state or local quarantine or isolation order or has been advised by a health care provider to self-quarantine due to coronavirus concerns,
- Caring for a son or daughter whose school or place of child care of the child is closed or whose child care provider is unavailable due to coronavirus precautions, or
- Experiencing a substantially similar condition that is specified by the Secretary of Health and Human Services (in consultation with the Secretaries of Treasury and Labor.
Tax credit against the employer’s portion of OASDI (social security) payroll taxes equal to the lesser amount of sick leave wages is provided, limited to 10 days per affected employee, or either (1) $511 per day or (2) $200 per day if caring for someone else or experiencing a substantially similar condition. Any excess over the amount of those taxes due is refundable under terms to be established by the Secretary of the Treasury. The gross income of the employer is increased by the amount of such credit.
In addition, the credit amount, under the act, would be increased by an allocable portion of an employer’s “qualified health plan expenses.” Generally, these expenses include amounts paid for a group health plan that is excludable from employees’ income. The employer’s share of Medicare tax on sick leave wages is also added to the credit amount.
Emergency Family and Medical Leave Expansion (EFMLEA)
Applicable to employers with fewer than 500 employees and requires the provision of both paid and unpaid leave to certain employees through December 31, 2020. The leave is required when the employee has been employed for at least 30 days and is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because a school or place of care has been closed, or a childcare provider is unavailable, due to an emergency with respect to COVID-19 that is declared by a federal, state, or local authority. The first 10 days of leave may be unpaid and then paid leave is required, calculated based on an amount not less than two-thirds of an employee’s regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work, not to exceed $200 per day and $10,000 in the aggregate.
Family and medical leave payments mandated by the legislation are not considered wages for the purpose of determining the employer’s share of social security taxes but will be considered wages in determining the employer’s share of Medicare taxes.
A credit against the employer’s portion of OASDI (social security) payroll taxes equal to the amount of qualified leave wages is provided, limited to $200 per day per affected employee and $10,000 for the year per affected employee. Any excess over the amount of payroll taxes due is refundable under terms to be established by the Secretary of the Treasury. The gross income of the employer is increased by the amount of such credit.
As with sick leave, the tax credit amount for family leave would be increased by an allocable portion of an employer’s “qualified health plan expenses” in addition to the employer’s share of Medicare tax on the family leave wages. [1]
US Small Business Administration (SBA) Disaster Loan Assistance
The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration. SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and these loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75% [2]. To view eligibility requirements visit www.sba.gov. Some points of the SBA offerings to consider include:
- To access SBA disaster financing, small business owners must apply directly by logging into www.SBA.gov/disaster
- Loans are available up to $2 million for ‘for-profit businesses’ and ‘non-profit businesses’
- Up to 30-year terms
- Small businesses must describe how their business is impacted by the Coronavirus
- Governors of the state must declare a disaster first before funds are available, so clients should keep checking the website (per the call the entire state of California is or will be approved).
Employment Development Department
Employers experiencing hardship as a result of COVID-19 may request up to a 60-day extension of time from the EDD to file their state payroll reports and/or deposit state payroll taxes without penalty or interest. A written request for an extension must be received within 60 days from the original delinquent date of the payment or return [3].
Unemployment Insurance (UI) Work Sharing
Employers experiencing a slowdown in their businesses or services as a result of the coronavirus impact on the economy may apply for the UI Work Sharing Program. This program allows employers to seek an alternative to layoffs — retaining their trained employees by reducing their hours and wages that can be partially offset with UI benefits. Workers of employers who are approved to participate in the Work Sharing Program receive the percentage of their weekly UI benefit amount based on the percentage of hours and wages reduced, not to exceed 60 percent [4]. This program allows employers to keep trained employees to be quickly prepared for improved economic and business conditions while reducing the future cost of hiring and training new employees. The UI Work Sharing application can be found here: https://www.edd.ca.gov/pdf_pub_ctr/de8686.pdf.
Employment Development Department (EDD) Rapid Response
[2] “Coronavirus (COVID-19): Small Business Guidance & Loan Resources.” SBA, U.S. Small Business Administration, www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources.
[3]Department, Employment Development. “Coronavirus 2019 (COVID-19).” EDD State of California, Employment Development Department, www.edd.ca.gov/about_edd/coronavirus-2019.htm.
Employers planning a closure or major layoffs as a result of the coronavirus can get help through the Rapid Response program. Rapid Response is a proactive, business-focused program designed to assist companies facing potential layoffs or plant closures. Rapid Response teams provide early intervention assistance to help avert potential layoffs, and immediate on-site services to assist workers facing job losses [1]. Contact your local America’s Job Center of California to learn more about this program.
Small Business Finance Center (SBFC)
The SBFC helps businesses create and retain jobs, and encourages investment in low- to moderate-income communities. The SBFC has a Jump Start Loan Program, a Small Business Loan Guarantee Program, and a Farm Loan Program.
COVID-19 RESOURCES
The current pandemic is affecting so many and we would like to offer some assistance on how to locate information, support and financing options. One of the IBank Small Business Finance Center’s loan guarantee programs is designed for Disaster Relief specifically and is currently available to small businesses needing assistance to overcome economic injury caused by COVID-19. We have Financial Development Corporation (FDC) partners throughout the state that assists businesses in securing a 95% guarantee on a bank loan. The FDCs are listed below and they work directly with lenders to underwrite the loan, which the SBFC guarantees (upon approval), please reach out to them directly for assistance. [2]