Sunday, March 29, 2020

Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave

Source: https://tinyurl.com/qpvkgpf




IR-2020-57, March 20, 2020

WASHINGTON — Today the U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020.

The Act will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee's own health needs or to care for family members. The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.

Key Takeaways
  • Paid Sick Leave for Workers

For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees' children's schools are closed or child care providers are unavailable.
  • Complete Coverage
  • Employers receive 100% reimbursement for paid leave pursuant to the Act. 
  • Health insurance costs are also included in the credit. 
  • Employers face no payroll tax liability. 
  • Self-employed individuals receive an equivalent credit. 

  • Fast Funds

    Reimbursement will be quick and easy to obtain.
  • An immediate dollar-for-dollar tax offset against payroll taxes will be provided
  • Where a refund is owed, the IRS will send the refund as quickly as possible.

  • Small Business Protection

    Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened.
  • Easing Compliance
  • Requirements subject to 30-day non-enforcement period for good faith compliance efforts.

To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

Background

The Act provided paid sick leave and expanded family and medical leave for COVID-19 related reasons and created the refundable paid sick leave credit and the paid child care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and December 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.

Paid Leave

The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee's pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee's pay. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee's pay.

Paid Sick Leave Credit

For an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.

For an employee who is caring for someone with Coronavirus, or is caring for a child because the child's school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, eligible employers may claim a credit for two-thirds of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Child Care Leave Credit


In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Prompt Payment for the Cost of Providing Leave


When employers pay their employees, they are required to withhold from their employees' paychecks federal income taxes and the employees' share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.

Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.

If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.

Examples
If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.

Small Business Exemption


Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer's business as a going concern. Labor will provide emergency guidance and rulemaking to clearly articulate this standard.

Non-Enforcement Period

Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the 30-day period.

For More Information


For more information about these credits and other relief, visit Coronavirus Tax Relief on IRS.gov. Information regarding the process to receive an advance payment of the credit will be posted next week.

Saturday, March 28, 2020

What Does the Families First Coronavirus Response Act Mean for Employers?


Written by: Jordy Dean



HR Alert

What Does the Families First Coronavirus Response Act Mean for Employers?

Applies to: All Employers with fewer than 500 Employees

Effective: April 2, 2020

Beginning April 2, 2020, the Families First Coronavirus Response Act (FFCRA) will require employers to provide protected paid leave and paid sick leave to employees through December 31, 2020.

First, the FFCRA’s Emergency Family and Medical Leave Expansion Act extends employee leave protections under the federal Family and Medical Leave Act (FMLA) as follows:

  • Applicability: Private employers with fewer than 500 employees.
  • Eligibility: Employees employed for 30 calendar days or more may request FMLA benefits for leave where the employee is unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency.
  • Paid Leave: The first 10 days of leave are unpaid after which the employer pays the following:
  • at least 2/3 of an employee’s regular pay rate;
  • for the number of hours an employee is otherwise normally scheduled to work (for those with varying schedules, employers should use an average number of scheduled work hours over the six-month period just prior to the date of leave); and
  • up to a maximum of $200 per day and $10,000 in aggregate.
  • Duration of Leave: The total leave allocation, including paid and unpaid portions, is the full 12-week benefit under existing FMLA rules.
  • Substitutions: Employers may not require an employee to substitute any leave, but an employee can choose to substitute any accrued vacation, personal, or sick leave during the initial unpaid portion of the leave.
  • Restoration to Position: This provision requires an employer to restore the individual to the position they held prior to the leave, except for employers with fewer than 25 employees if:

  • the employee’s position is eliminated due to economic conditions or other changes in operating conditions of the employer that affect employment and are caused by a public health emergency during the period of leave; and
  • the employer makes reasonable efforts to restore the employee to an equivalent position, and, if unsuccessful, the employer makes reasonable efforts to notify the employee if an equivalent position becomes available within one-year following the leave.
  • Special Rule for Healthcare Providers and Emergency Responders: An employer of an employee who is a healthcare provider or an emergency responder may elect to exclude such employee from this leave benefit.
Second, the FFRCA added the Emergency Paid Sick Leave Act for employee relief.
  • Applicability: Private employers or individuals employing fewer than 500 employees, and public entities with one or more employees.
  • Eligibility: Employers must provide paid sick time to employees who are unable to work, or telework, regardless of how long the employee has been employed by the employer, under the following circumstances:
  1. Federal, state, or local quarantine or isolation order related to COVID-19;
  2. Advice by a healthcare provider to self-quarantine due to COVID-19-related concerns;
  3. Employee experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  4. Employee’s need to care for an individual who is subject to an order or who has been advised to quarantine by a healthcare provider;
  5. Employee’s need to care for a son or daughter if the school or place of care closes or is unavailable due to COVID-19 precautions; or
  6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services (HHS).
  • Compensation: For reasons 1-3 above, employers must pay the greater of the employee’s regular pay, the minimum wage in effect under FLSA, or the state/local minimum wage rate in effect, up to a maximum of $511 per day and $5,110 in aggregate. For reasons 4-6 above, employers must pay 2/3 of the greater of the employee’s regular pay, the minimum wage in effect under FLSA, or the state/local minimum wage rate in effect, up to a maximum of $200 per day and $2,000 in aggregate.
  • Duration:
  • All employees, regardless of the length of employment, are entitled to:
  • 80 hours, if full-time; or
    the average number of hours over a two-week period, if part-time.
  • Hours cannot carry over from one year to the next and paid sick time ends on the next scheduled work shift immediately following termination.
  • Employers who are healthcare providers or employers of emergency responders may elect to exclude such employees from this benefit.
  • Employers may not require an employee to:
  • search for a replacement employee to cover their hours as a condition of providing paid sick leave; or
  • use other paid leave provided by the employer before the employee uses sick time under this provision.
  • Prohibitions and Enforcement
  • Violation is a failure to pay minimum wage under the Fair Labor Standards Act (FLSA) and be subject to fines.
  • Employers may not discharge, discipline, or discriminate against an employee who takes leave or has filed any complaint or proceedings with regard to this Act – employers willfully violating this will be subject to penalties of up to $10,000, or up to six months imprisonment, or both.
  • Notifications and Disclosures:
  • To the extent an employee is planning on
  • exercising leave for this purpose, they should notify their employer as soon as is practicable. Likewise, after the start of the leave period, an employer may require the employee to follow reasonable notice procedures to substantiate continued paid sick time payments.
  • Notices shall be posted in conspicuous places on the premises of the employer, where notices to employees (including applicants) are customarily posted; or in employee handbooks. The notice will be available by March 25, 2020.
  • Exceptions: The Secretary of Labor has the authority to issue regulations to exclude certain healthcare providers and emergency responders from the definition of eligible employee and to exempt small businesses with fewer than 50 employees if this provision will jeopardize the viability of the business
Employers providing paid leave and paid sick leave are entitled to tax credits against the payments made, subject to certain requirements. As implementation of these rules begins, Congress is already working on providing more assistance to help Americans. Continue to look for updates on this topic.

Action Items
  1. Review the Act here.
  2. Have paid leave policies updated.
  3. Prepare for employee leave requests beginning April 2nd.
  4. Display required notice (available by March 25th).
  5. Review your financial planning now.
  6. Review your ability to comply with the FFCRA and isolation orders.

Wednesday, March 25, 2020

How Entrepreneurs Can Survive the Next Recession



Written by: Per Bylund
GUEST WRITER
Assistant Professor of Entrepreneurship and Records-Johnston Professor

There has been increasing talk of a burgeoning recession, whether because of a historically rare decade-long economic expansion or recent reports of an inverted yield curve, which is traditionally an indication of a downturn. Any recession is hard on all Americans, but it can be particularly devastating for entrepreneurs, who often have more to lose. Not only does an economic ebb add to the uncertainty of owning and running a business, but it also means opportunities become scarcer, with fewer potential partners willing to invest, consume and otherwise enter into deals.

Recessions, of course, are famously hard to predict, but even when there's mounting evidence of a looming crisis, it can be hard to anticipate timing and how it will affect your industry. Simply closing shop is no solution. It might not even be an option. A better strategy is to prepare for the worst and make your business downturn-proof. But how does one do that? Here are four things to think about that can help make your business recession-ready ... just in case.

1. Tweak your value offering.

Successful entrepreneurship is always about providing value, but that value always rests in the eyes of your customer. This does not change during a recession. In fact, it may be even more important to let value decide what you offer, how and when. Ask yourself not what the value of your offering is, but what it will be to your customers in bad economic times. If they are expected to prioritize differently, so should you.

2. Choose flexibility over cost.


A downturn brings less economic activity, so it seems intuitive to focus on cutting costs, but that might not be prudent. Production costs are typically lowered (and kept down) by making large upfront investments in capital goods like machinery and factories. For this to make sense, however, you need large sales volume to cover the cost of your fixed capital. This could be a disastrous move in a recession if customers hesitate to purchase. It may be much more important to be able to quickly and costlessly scale down production in response to the downturn. Flexibility, and especially downward flexibility, may be more important than average production cost.

3. Renegotiate contracts with suppliers.

When you begin to worry about a recession, it is likely that your suppliers and other stakeholders do too. That's when it's a good idea to start a discussion about what to expect and adjust contracts -- especially long-term contracts -- to better fit hard economic times. Your suppliers are better off if you stay in business even if it means they cannot sell as much as the contract guarantees. Discuss and negotiate possible tweaks or add downturn clauses that you can use if the economy starts tanking.

4. Think of it as an opportunity to expand.

A recession breeds pessimism, so it's natural to hold back and tighten the belt, but that's what everyone else is doing, which means competition is much lower and that asset prices fall. With increasing unemployment, it will be easier to hire skilled workers. For businesses that don’t tank with the economy, therefore, this is an opportunity to expand, and at a discount. So make sure to have enough money in the bank to take advantage of the potential buyer’s market a recession brings.

The proper way to anticipate an economic slowdown is not acting out of fear but preparing for what it might bring. Entrepreneurs who see the signs of a downturn and take the time to make their businesses recession-ready not only have a greater chance for survival, but can take advantage of the opportunities that it brings, and just maybe come out of it even stronger.

For Savvy Entrepreneurs, an Economic Downturn Creates Opportunity


The coronavirus is turning global markets upside down, but recessions are fertile ground for disruption.


Written by: Matt Cimaglia
GUEST WRITER
Co-Founder and CEO of Third Summit

As COVID-19 wreaks havoc on a global scale, market-watchers are worrying about signs of another recession. Already, major conferences like South By Southwest and Facebook F8 have been cancelled. Airlines are grounding flights. Studios and startups are postponing film and product launches. Global stock markets have plummeted, evaporating $9 trillion and counting.

Entrepreneurs are asking themselves a looming question: How can I protect my business during these uncertain times? It’s complicated, but I believe there is reason for optimism.

Economists have been skittish about a possible economic downturn for months now, stemming from a different threat: a Chinese trade war. But even as recently as last fall, small business leaders weren’t overly concerned. In Sept. 2019, the U.S. Chamber of Commerce updated their Small Business Index, finding record-high levels of confidence among small business owners: A majority of respondents said both their business and their local economy were in good health.

More recently, Sentieo, a financial research company, studied the market effects of the coronavirus outbreak in detail. Their findings are remarkable. While most companies’ value crumbled, they observed that several companies have actually been thriving, including file-management software Atlassian, video-conferencing software Zoom, remote healthcare company Teladoc and exercise bike–maker Peloton.

“We realized that this is the ‘Work from Home’ portfolio,” the study’s authors concluded. “We are witnessing the markets pricing around large-scale adoption of these names due to the coronavirus.”

This is huge news—not just for investors, but for entrepreneurs, too. And I see two major takeaways from the Sentieo study above. 

Opportunities abound for companies that enable remote work

Firstly, it is an ideal time to invest in or create a company that encourages remote work. The Globe and Mail, a Canadian newspaper, expanded on Sentieo’s data and found a surge of high-level corporate calls mentioning remote work in February 2020. There were more than 100 mentions across major corporations, compared with the previously single-digit monthly average. Meanwhile, Growrk, a company that helps transform home offices into proper workstations, officially launched just six months ago. After COVID-19, they’ve seen a tenfold surge in client demand.

This is not new—remote work has been a growing trend for years now. But fears of COVID-19 have rapidly accelerated its mainstream appeal. This may well be a turning point in the future of work, which is moving away from nine-to-five office hours and toward flexibility and independence. For example, COVID-19 sharpened the reality that risk mitigation—regarding pandemic viruses or natural disasters—is a built-in advantage for remote workforces
 
Recessions make room for disruption

The second takeaway is that recessions can create tremendous opportunities for market disruption. After the 2008 crash, two unicorn companies were born: Airbnb and Uber. Both found ways to disrupt old business models by empowering everyday people to find new revenue streams, offering creative, viable, affordable alternatives to traditional workplaces. The gig economy has always existed, but the Great Recession rocketed it to a whole new level. People suddenly found themselves unable to rely on our broken institutions. Self-employment was the solution.

This does not apply to every company, but recessions act as “filters” that weed out weak business models and force leaders to adapt.

Learn to be agile with low overhead costs and a desirable product


During the Great Recession, I witnessed the downturn devastate most marketing agencies. Debt loads soared. Cash flows ground to a halt. Costs were cut. Thousands of people got laid off, compounded by a mass scramble for work in a tightened creative field. According to several estimates, ad spends in the U.S. dropped 12 percent; worldwide, the industry saw a nine-percent fall.

My company, Cimaglia Productions, however, saw a banner year. After a few frugal months, brands rebounded, realizing they still needed to create content. Unlike a major ad agency, I kept our overhead costs low and knew a wide network of creatives (many of whom suddenly found themselves out of work), which perfectly positioned us to work both with big agencies and multinational brands directly. Between 2009 and 2010, we wound up more than doubling our revenue.

Here’s what I learned: Large companies, overly reliant on hefty retainers to fuel inflated overhead costs, suffer in a recession. The same is true of many industries, including media, tourism, finance and construction.

But the dips don’t last. And when the recession fades, your company can be poised to take advantage of the newfound business.

It sounds contradictory to point out that recessions hit small businesses the hardest, while also creating fertile ground for startups. But both are true. The crucial difference is one’s business approach. For entrepreneurs who can weather the storm, the global market volatility does not have to be a threat—it can be an opportunity.