Frequently Asked Questions About Unemployment and Employee Retention Provision in The CARES Act
<p>ERISA and Employee Benefits Client Alert</p>
Frequently Asked Questions About Unemployment and Employee Retention Provision in The CARES Act
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act or Act) became law on March 27, 2020, as record numbers of Americans filed for unemployment benefits due to the economic impact of COVID-19.
The Act includes provisions that significantly enlarge the unemployment relief available to workers across the United States, in addition to unemployment benefits already available at the state level. The Act also includes “shared work” provisions intended to incentivize employers to retain employees, at reduced hours if necessary, rather than laying off or furloughing them. Because unemployment benefits are funded through a joint federal/state program, states must enter into agreements with the federal government to access these funds, and states are at various stages of working through that process.
Below are answers to some frequently asked questions that may help employers understand how these provisions affect their business and employees.
Q-1: How much can an individual receive in unemployment benefits under the CARES Act?
A-1: Individuals can receive an additional $600 per week on top of their normal state unemployment benefit under the Act through July 31, 2020. In one of the most expensive provisions of the Act, the federal government will provide funding for states to pay an additional $600 per week of unemployment benefits to any individual currently receiving state unemployment benefits, even if the total benefit amount exceeds their regular weekly pay. For example, an individual who normally receives $240 in weekly unemployment benefits (the Arizona maximum) would receive $840 in weekly benefits under the Act.
Q-2: Can an individual’s weekly unemployment compensation exceed their normal full-time weekly pay?
A-2: Yes. Unlike state unemployment benefits, which are typically compensation-dependent and capped at the individual’s prior weekly wage, the additional $600 in federal unemployment assistance is a flat amount that will be added to weekly state unemployment payments for eligible individuals.
Q-3: Will an individual be eligible for unemployment benefits if not working but taking paid time off or paid sick leave?
A-3: Most likely not, with the details depending on the state. In most states, payments earned for paid leave will be considered when determining eligibility and the benefit amount for any given week, and may reduce the benefit or make the individual ineligible for unemployment benefits in that week. For example, in Arizona any compensation earned over $30 will serve to reduce the individual’s unemployment benefit, and the individual will no longer be eligible for unemployment benefits if the paid leave (or other compensation) earned in a week exceeds the individual’s weekly benefit amount. Similar rules apply to individuals who are eligible for unemployment benefits under the federal expanded eligibility provisions of the CARES Act (see Question 8 below).
Q-4: Is an employee who works intermittently (for five hours per week, for example) still eligible for unemployment benefits under the Act?
A-4: Only if the employee is otherwise eligible under state law or the federal expanded eligibility provisions. Most states reduce the weekly benefit amount by any compensation earned during the week after a certain threshold is met, as described in Question 3. In Arizona, for example, part-time employees are eligible for unemployment compensation as long as their weekly income does not exceed their weekly benefit amount, but an employee who is working part-time will have his or her unemployment benefit reduced to account for the part-time income received that week. As long as an individual remains eligible for some amount of state unemployment benefit, that individual will also remain eligible for the additional $600 federal unemployment benefit under the Act (through July 31, 2020).
Q-5: Are part-time employees who are laid off eligible for unemployment benefits under the Act?
A-5: Possibly, depending on the state and the amount of the employee’s wages. Typically, an employee must earn sufficient wages over the “base period” used to calculate their weekly benefit to be eligible for state unemployment benefits. The base period begins 5 calendar quarters prior to the quarter in which the claim is made and runs for one year. For example, to be eligible in Arizona, an individual must earn at least 390 times the minimum wage in their highest earning quarter of the base period, and the total pay over the other three quarters must together total 50% of the highest quarter’s pay.
A part-time employee whose wages do not meet this threshold would not be eligible for benefits under state law, but may be eligible under the federal expanded eligibility provisions of the Act, described in Question 8 below.
Q-6: Do employees who are laid off or furloughed have to use paid sick leave or paid time off (PTO) before receiving unemployment benefits?
A-6: No. Neither state law nor the Act imposes such a requirement.
Q-7: How long will an individual be eligible to receive unemployment benefits under the Act?
A-7: Eligible individuals will receive up to 39 weeks of unemployment benefits under the Act, through December 31, 2020. Most states provide for unemployment benefits for up to 26 weeks, and the federal government will fund up to an additional 13 weeks of benefits once an employee exhausts his or her state benefits under the Act. The amount of benefits paid in the additional weeks will also equal the regular state benefit, plus the additional $600 federal benefit payment for weeks ending on or before July 31, 2020.
Q-8: Who is newly eligible for unemployment benefits under the federal expanded eligibility provisions of the Act?
A-8: In addition to individuals who are already eligible for state unemployment benefits, the Act extends federal unemployment insurance benefits to certain individuals who are affected by COVID-19 as described below if such individuals are not currently eligible for state unemployment benefits, including (1) individuals who have already exhausted their state benefits, (2) self-employed individuals, (3) individuals seeking part-time employment, and (4) individuals with insufficient work history or wages to qualify for state unemployment benefits. To qualify, an individual must self-certify that he or she is available but unable to work due to one of a variety of reasons relating to COVID-19, including that the individual or a household member has been diagnosed with COVID-19, the individual is caring for a household member diagnosed with the virus or for a child who is unable to attend school due to COVID-19 closures, or the individual’s employment is directly impacted by COVID-19 due to quarantine, closure, or even being involuntarily forced to quit due to circumstances related to COVID-19.
Qualifying individuals are entitled to unemployment benefits equal to the regular state benefit, plus the additional $600 federal benefit (through July 31, 2020), for up to 39 weeks for any weeks of unemployment beginning January 27, 2020, and ending December 31, 2020.
Q-9: Who is excluded from the federal expanded eligibility provisions of the Act?
A-9: The Act specifically excludes individuals who are able to telework or who are on paid leave from becoming newly eligible for the federal unemployment insurance benefits.
Q-10: Is there a mandatory waiting week for unemployment benefits under the Act?
A-10: No. With respect to the federal unemployment assistance, there is no mandatory waiting period. With respect to the expansion of state unemployment benefits, the federal government will reimburse states for any unemployment benefits paid during the first week of unemployment eligibility to incentivize states to waive the one-week waiting period imposed by most states, which most states have done.
SHARED WORK PROGRAMS
Q-11: How does a Shared Work Program work?
A-11: Generally, under a Shared Work Program an employer is permitted to establish a program approved by the state by which employees work reduced hours and receive unemployment benefits to make up for a portion of their lost wages. These programs are available to participating employers as an alternative to employee layoffs. Many states, including Arizona, have already implemented a Shared Work Program. For example, through the Arizona Shared Work Program, if an employer is planning on laying off 20% of its workforce to account for a 20% reduction in business, participation in the Shared Work Program would allow the company to retain all employees and instead reduce each employee’s hours by 20%. During the approved period each employee would then receive 20% of his or her individual weekly unemployment benefit amount in addition to 80% of their regular income received as wages from the employer. Though there are eligibility restrictions and an employer’s participation is generally contingent upon application and approval by the state, such programs would allow more employees to retain some portion of their income and allow employers to retain experienced workers for when business ramps back up.
Q-12: What effect does the Act have on Shared Work Programs?
A-12: The Act provides that the federal government will fund all or a portion of the benefits paid to employees under a state’s Shared Work Program where the program meets the requirements set forth in Section 3306(v) of the Internal Revenue Code. Under Section 3306(v), a Shared Work Program must have certain features including, for example: 1) a requirement that employers submit an estimate of the number of layoffs that would have occurred absent participation in the Shared Work Program; 2) a requirement that employers continue to provide the same health benefits to participating employees; and 3) a requirement that participating employee work hours be reduced by at least 10% but not more than an amount determined by the state (in Arizona, 40%). Federal funding for Shared Work Programs under the Act is limited to a maximum of 26 weeks per participant.
Q-13: Do employees who receive unemployment benefits as part of a Shared Work Program receive the additional $600 in federal unemployment benefits as well?
A-13: Yes. The Act allows an additional $600 per week in federal funding to those collecting regular unemployment compensation, including individuals receiving partial unemployment compensation through participation in a Shared Work Program.
EMPLOYEE RETENTION TAX CREDIT AND EMPLOYMENT TAX DEADLINE RELIEF
Q-14: How does the Act’s refundable employment tax credit work?
A-14: The Act provides a refundable tax credit against employment taxes for each calendar quarter equal to 50% of the qualified wages of its eligible employees for that quarter with respect to wages paid from March 12, 2020 through December 31, 2020. To the extent the credit exceeds the employment taxes owed, the additional amount is refundable. To qualify, the employer must have either (1) fully or partially suspended its operations due to governmental orders related to COVID-19, or (2) experienced a decline in gross receipts of at least 50% from the same quarter in 2019. Governmental employers are excluded from the credit.
Q-15: Are all wages paid from March 12, 2020, through December 31, 2020, taken into account for purposes of the credit?
A-15: No. The amount of wages that are taken into account is capped at $10,000 per eligible employee (including health plan expenses). For employers with more than 100 employees, only employees affected by the full or partial suspension of operations due to COVID-19 are considered eligible employees.
Q-16: Is there any relief for the payment of employment taxes for the remainder of 2020?
A-16: Yes. The Act permits employers to delay the payment of employment taxes for the remainder of 2020, half of which would be due by December 31, 2021 and the remainder of which would be due by December 31, 2022.
Congress continues to consider legislation intended to stimulate the economy and provide relief to millions of employees and others who are affected by COVID-19, both economically and otherwise, as well as employers who are also experiencing significant financial hardship.The CARES Act is a central piece of the legislative response to the virus and has significant implications for both individuals and employers.
As always, we will continue to provide updated information as it becomes available. If you have questions about the CARES Act, please feel free to contact one of the attorneys listed.