By Trüpp’s Compliance Team

Organizations are being forced to find ways to cut expenses during the COVID-19 pandemic. Many are finding they need to reduce payroll expenses but are not sure of the best option.

Before making any temporary or permanent staffing reductions, make sure your organization is carefully considering all of its options.

Paycheck Protection Program (PPP) Loans

What is the benefit?

PPP Loans enable a business to avoid or delay reducing its staffing levels or expenses with the assurance that all or part of its short-term expenses will be reimbursed. These loans allow a business to borrow up to 2.5 times its average monthly payroll (wages, tips, FML, health benefits, retirement, and State and Local taxes), including rent, mortgage interest, and utilities (Up to $10 million). Businesses may also apply for loan forgiveness for a twenty-four week period beginning on the date of funding of the PPP loan. 100% of the loan may be forgiven (for salaries up to $100,000) but will be reduced if the employer reduces staff or salaries.

Who is eligible?

Generally, any business concern, non-profit organization (501(c)3), veteran’s organization (501(c)19), or tribal business that employs less than 500 is eligible for these loans; including sole proprietors, independent contractors, and eligible self-employed individuals. Go here to learn more.

What needs to occur?

Apply for a Paycheck Protection Program (PPP) at any lending institution that is approved to participate in the program through the U.S. Small Business Administration (SBA) 7(a) lending program and additional lenders approved by the Department of Treasury.

If you have already reduced or are considering reducing staff or staffing costs, your organization’s ability to take full advantage of this benefit may be impacted. So, be sure to assess your organization’s ability (and the associated benefit) to bring back furloughed employees or postpone reducing payroll expenses prior to leveraging the PPP loan. Check with your local SBA-approved lender for details.

State Work Share Programs

What is the benefit?

Work Share programs allow employers to reduce the hours of permanent and hourly-paid employees by as much as 50 percent, and the employees can collect partial unemployment benefits to replace a portion of their lost wages. While on the Work Share program, employees are not required to do an active search for work. You must apply to participate in the program. Check with your state or use this resource to find states with Work Share programs.

Who is eligible?

Businesses that have applied and met requirements through their state-specific program are eligible.

What needs to occur?

Program requirements will vary by state but employers generally must identify a minimum number of employees who will be included in the program, cut hours within the range designated by the program (e.g., 20 – 50%), and only include employees who meet the program requirements (e.g., regular, full-time employees who are eligible for unemployment benefits).

Employee Hours, Salaries, or Benefit Reduction

What is the benefit?

Employers are able to decrease payroll expenses temporarily while retaining employees. This allows employers to avoid the time and expense of hiring and training a new workforce at a later date while retaining valued team members. Affected employees may be eligible to receive unemployment benefits to help compensate for the loss of hours.

Who is eligible?

Employers may consider reducing the hours of employees who are hourly and not represented by a bargaining unit or do not otherwise have employment contracts or agreements guaranteeing minimum hours worked.

What needs to occur?

Employers are advised to define objective criteria for determining which employees will receive a temporary reduction in hours, pay, or benefits. These criteria should be applied to all affected employees consistently in order to avoid claims of discrimination. Employers should verify that pay adjustments continue to meet local state minimum wage requirements.

Temporary Layoff or Furlough

What is the benefit?

A temporary layoff is a separation of employment with the expectation that the employer will, at a later date, resume business operations and rehire the employee. Several states have implemented temporary layoff timelines, and other states are allowing the timeline for temporary layoffs to be an undetermined period as long as there is an expectation that the employee will return to work once business operations resume.

When furloughed, on the other hand, employees are moved to a leave or standby status and are still on the payroll. Employees may be eligible for unemployment while on furlough.

Who is eligible?

Employees who are impacted by a temporary layoff or furlough may be eligible for unemployment benefits and may not be required to look for work with other employers, depending on state rules. The CARES Act also provides for up to $600 per week in additional unemployment insurance for employees affected. Employees may lose medical insurance according to plan provisions (e.g., date of separation or last day of the month), and employers can choose to reimburse employees for COBRA costs, though not required.

What needs to occur?

Employers should be diligent about which employees are selected for a temporary lay off or furlough. The decisions should be based on business needs, including identifying those employees who are deemed essential and, therefore, not subject to the temporary layoff. Employers should clearly communicate the layoff is temporary due to the impact of COVID-19, and that they have every intention of bringing employees back to work.

Permanent Layoff or Reduction in Force (RIF)

What is the benefit?

A permanent layoff or RIF is a separation of employment without the expectation that the employer will resume business operations or operate at current staffing levels. These typically occur if there is a permanent business or plant closure or a need to reduce headcount in the long term.

Who is eligible?

With a permanent layoff in which a work location is closed, resulting in 50 (for employers with 100+ employees) or more employees suffering an employment loss, a Worker Adjustment and Retraining Notification (WARN) is generally required. A notice is also required if 33 percent of the full-time employees or more than 500 employees at a single work location suffer an employment loss.  Many states have enacted their own “mini WARN Acts” that create additional requirements that vary by state, including lower headcount requirements.

Fortunately, there are exceptions to the WARN Act that apply to the extraordinary circumstances many businesses are facing as a result of the COVID-19 emergency. It is likely the COVID-19 crisis may qualify as an exemption for complying with the WARN Act; however, employers should give as much notice as possible.

What needs to occur?

This option is a permanent separation of employment. Employees who are impacted by a permanent layoff may be eligible for unemployment benefits and may be required to look for work with other employers, depending on state rules. Employees may also be eligible for additional weekly unemployment wages of up to $600 per week, from the CARES Act benefit. Employees will lose medical insurance according to plan provisions (e.g., date of separation or last day of the month). Employers may provide reimbursement for COBRA expenses, though not required.

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