This article is only for educational purposes and does not constitute legal, financial, or tax advice. Make sure you consult a professional regarding your unique business needs.
If you have employees, navigating this time comes with an added layer of challenges. From keeping employees safe to managing payroll and new compliance changes, there’s a lot going on. We’ll go over:
Safety and labor compliance
You should prioritize your own health as well as that of your employees. To decrease risk in the workplace, here are tips for how to help your team stay healthy.
Encourage employees who feel sick to stay home
You can do this by rolling out sick leave policies and procedures so employees know there won’t be any consequences for calling in sick. New federal, state, and local legislation has been introduced to provide paid sick leave for employees due to COVID-19. Jump to more detail about federal legislation.
Have open conversations with employees
Some employees might be at greater health risk than others. Have an open dialogue with them about what they need to do to stay healthy, and try to be accommodating and understanding of their needs.
Create policies for flexibility in schedules
Employees may need to take care of children who are home from school or sick family members, so create policies that give employees the flexibility to take care of their families. New federal, state, and local legislation has also been introduced to provide paid family leave for employees due to COVID-19. Jump to more detail about federal legislation.
Make sure that employees are washing their hands and using good etiquette when they cough or sneeze. Also make sure that high-touch surfaces like countertops, doorknobs, and equipment are cleaned regularly. You can also implement a variety of methods for touch-free payments.
Some ways you can create social distance between employees and/or customers include: staggering shifts to have fewer team members onsite, setting markers to keep customers and employees six feet away from one another, or implementing telecommuting.
Keep your employees informed
Laws and regulations for your business and workplace practices may change. Stay up to date with changes in your local area, and communicate them to employees so they know what’s going on. Err on the side of over-communication during this time; it will decrease confusion and feelings of uncertainty amongst your staff.
For additional tips on workplace safety, visit the CDC and OSHA websites.
Federal sick leave and family leave compliance
When it comes to workplace compliance, most COVID-19 related mandates will be implemented by your state and county, so keep track of what’s happening in your area.
However, on the federal level, the Families First Coronavirus Response Act requires that employers with fewer than 500 employees must provide paid sick leave and paid family and medical leave to employees who need it due to COVID-19 between April 1, 2020, and December 31, 2020.
Learn what employers should know about Families First Coronavirus Response Act, including how to get compensated for the paid leave you provide, and who qualifies.
Cash flow to maintain payroll
If business has slowed and you’d like to keep paying employees, there are some options to help free up funds to maintain payroll.
There are loans from local and state governments specifically for small businesses that are experiencing adversity as a result of COVID-19. The federal government has signed the CARES Act into law, which provides $2 trillion in federal relief funds. Small businesses can take advantage of loans from the CARES Act in two ways:
- Paycheck Protection Program (PPP): This program allocates funds to cover the cost of retaining employees. Generally, if you maintain payroll for all employees for a period of 24 weeks after you receive PPP funds, or through a maximum date of December 31, 2020, the loan will be forgiven, provided you spend the funds on:
- Payroll costs, including compensation of up to $100,000 per employee
- Continuation of group healthcare benefits or insurance premiums
- Payments on state and local taxes assessed on employee compensation
- Continuation of group healthcare benefits or insurance premiums
- Mortgage interest
Starting April 3, 2020, small businesses with employees can apply for and receive loans to cover their payroll and other expenses.
Starting April 10, 2020, sole-proprietors, independent contractors and self-employed individuals can apply for and receive loans to cover lost income and other expenses.
You can apply through any existing SBA lender, federally insured credit union, or Farm Credit System institution that is participating. Other lenders are being approved and enrolled in the program, so be sure to check with your local lender to see if they are participating. You’ll need to fill out the application for the Paycheck Protection Program and bring it to your lender.
Additionally, Square is rolling out PPP loan applications. Take a look at this application guide to help you prepare and gather information and documents you’ll need to apply. If you’ve already applied elsewhere but have not received funding, you can still apply through Square Capital if you receive an invite.
Be on the lookout for an email or update in your Square Dashboard for an invitation to apply. If you don’t use Square currently, sign up for a Square account to begin the application process. Remember, demand for PPP loans remains high and funding may run out quickly. To improve your chances, submit your application as soon as you possibly can.
- Economic Injury Disaster Loans (EIDLs) from the SBA: Typically, EIDLs are for businesses that need financial help due to a natural disaster. As of early March, eligibility for these loans has been extended to businesses that are affected by COVID-19. The CARES Act expands this program and makes it easier to apply.
Learn what small businesses should know about the CARES Act.
Local, state, and federal agencies are making changes to taxes to help put more money back into small businesses. We’re keeping up with local tax regulatory changes in this article.
Here are a few federal tax changes that could help with cash flow and free up funds for payroll.
- Employee Retention Credit: This is a refundable tax credit available to eligible employees, equal to 50% of wages of up to $10,000 for certain employees, meaning the maximum credit per employee is $5,000. This credit applies to wages paid after March 12, 2020, and before January 1, 2021. Your business is eligible for this credit if your business operations were fully or partially suspended due to COVID-19 or if your business experiences a more than 50% decline in quarterly gross receipts. You can either apply for this credit using the Form 7200, Advance Payment of Employer Credits Due to COVID-19 or apply the credit to your Q2 2020 Form 941.
- Deferred payroll taxes: Usually employers would pay 6.2% of Social Security tax on their employees’ wages. For payments owed in 2020, businesses and self-employed individuals can now defer these payments over the next two years. You must pay 50% by the end of 2021 and the remaining 50% by the end of 2022. Note that you can’t defer these payments if you’ve had a Paycheck Protection loan forgiven.
- Modifications for net operating losses: Usually if your business experiences a net operating loss, you can only carry it forward to future years to offset your taxable income. This is now being relaxed. If you had a net operating loss in tax years 2018, 2019, or 2020, that loss can now be carried back five years. This allows you to amend previous years’ tax returns to claim the loss now and receive a refund when you might need cash flow. Pass-through businesses or sole proprietorships can also take advantage of this. Typically, these kinds of businesses can’t claim losses of more than $250,000 for a single taxpayer, but this limit is suspended for tax years 2018 and later.
- Accelerated credit for minimum tax liability: If your business is due to claim alternative minimum tax (AMT) credits by the end of 2021, you can now accelerate those credits to claim a refund immediately.
- Adjusted business interest deduction: For 2019 and 2020, businesses can increase the amount of interest expenses they deduct from their tax returns from 30% to 50%.
- Claim a write-off for property improvements: You can amend tax returns from 2018 and 2019 and write off any improvements you’ve made to your facilities.
- Reimbursement for paid sick and family leave: The Families First Coronavirus Response Act mandates that employers with fewer than 500 employees give paid leave to their staff for absences related to COVID-19. To offset this cost, you can retain the payroll taxes you would have owed to the IRS to cover the cost of the paid leave you provide.
Options if you can’t make payroll
Your employees are your most valuable assets. Because they’re so valuable, maintaining payroll is a top priority. However, if you’ve explored all your options to free up funds, and you still can’t make payroll, here are a few options available to you and what it could mean for you.
A furlough is a mandatory, unpaid period of time off from work. You would typically do this under circumstances, like in the wake of COVID-19, in which you need to reduce labor costs. In the case of a furlough, employees still maintain their jobs but are required not to work for a defined amount of time (days, weeks, months).
Furloughing allows furloughed employees to file for unemployment benefits while still having a job to return to at some point. Additionally, any benefits you normally give your employees (healthcare, 401(k), etc.) usually continue.
To implement a furlough, you’ll have to communicate very clearly and consistently to all your employees about what time period they are required to not work. You can also create specific no-work rules to make the boundaries very clear. If these boundaries aren’t maintained and an exempt employee works (even answering an email), then you would be required to pay them for that whole day. If this happens with a nonexempt employee, you’d have to pay them for the time they work.
Additionally, when you implement a furlough, you’re not required to furlough all employees, so make the choice that works best for your circumstances.
To help you understand the requirements for furlough that apply to you, visit the Department of Labor website and your state and local labor authorities.
Layoffs are when you terminate employees due to problems that aren’t performance related. You might do this if your business has pivoted and certain roles are no longer relevant, or your budget is too constrained to maintain the staff.
Before you decide to do layoffs, know that once you lay off employees, you will be contacted by your state, and your unemployment tax rate is likely to go up.
If you are still sure that conducting layoffs is what you need to do, then you’ll need to be very specific about the layoff details when you communicate them to affected employees. Determine if you’ll provide any support in the form of severance pay, or how employees will collect their final paychecks.
You’ll also need to provide information to your employees about how to collect unemployment benefits. This will vary by state. Check your state’s department of labor website for more information.
Additionally, if you provide healthcare benefits to your employees, then you must provide COBRA coverage. You can also offer to cover a portion of the laid-off employees’ healthcare plans, but you don’t have to.
Make sure you have all these details in writing so employees can reference them at a later date.
Once you’ve had conversations with all laid-off employees, you need to tell the remaining staff about the layoffs. Be sure to communicate clearly and in an appropriate format. Try and anticipate any questions they may have and communicate the answers proactively. Also make sure you leave time to have open dialogues with the remaining staff, so they can ask you questions directly.
None of these decisions are easy to make. You alone know what is best for your business — the choices you make as an employer will be highly personal to you, your business, and your staff.