Employers and Workers Impacted by COVID-19: Expanded Unemployment Programs Have Arrived

Unemployment benefits for impacted workers have now been addressed in both the Families First Coronavirus Response Act (phase 2) and the pending Coronavirus Aid, Relief, and Economic Security (CARES) Act (phase 3), which has now been passed in the U.S. Senate and is pending in the U.S. House of Representatives in response to COVID-19. The president’s signature is expected immediately once final approval is obtained by Congress. In light of staggering unemployment numbers released on March 26, 2020, this assistance has come just in time as many employers and impacted workers are facing economic devastation in the wake of COVID-19. According to the most recent statics, unemployment claims surged to over 3.2 million last week to the highest levels since tracking began in 1967. Unfortunately, the number is expected to continue to rise as COVID-19 spreads across the United States.

First Expansion of Unemployment Benefits: Families First Coronavirus Response Act

The Families First Coronavirus Response Act (FFCRA) amended the Social Security Act to allow states greater access to emergency funds to provide unemployment compensation to impacted employees who lose their jobs or have hours reduced due to the coronavirus pandemic. The FFCRA added a total of $1 billion in funds for state unemployment programs. An initial grant will be available to all states to help administer unemployment insurance, so long as the state requires employers to provide notification of the availability of unemployment compensation at the time of separation from work.

In addition, the FFCRA requires states to amend unemployment rules to allow greater access by impacted workers and encourages states to hasten the pace of payment. As a result, state unemployment agencies around the country have reacted at a dizzying pace updating and amending their unemployment eligibility criteria. All but seven states no longer have a waiting week period to become eligible for unemployment related to COVID-19, and several of those are actively considering a waiver with changes expected. In addition, most states have loosened or eliminated job search requirements to be eligible for unemployment related to COVID-19.

States have also reacted by requesting, or in some cases mandating, that employers file for unemployment on behalf of their employees. Georgia, for example, now mandates that employers file partial claims on behalf of their employees in certain situations. Other states, like Indiana, have sent out a plea to employers to file on behalf of their employees to streamline the process and eliminate the need for the unemployment agency to confirm the employee information that has been submitted is accurate. Eliminating this process allows impacted workers to receive unemployment compensation quicker. In South Carolina it has been reported that if an employer files on behalf of an employee, payments can begin in as few as three days. Many states have rapid response protocols in place that allow employers to file their mass claims for unemployment in a simplified manner.

Second Expansion of Unemployment: The Senate CARES bill

The Coronavirus Aid, Relief, and Economic Security (CARES) Act (phase 3) also provides greater benefits to impacted workers.

The CARES Act does many things. In relation to unemployment, it has five main applications:

1. Expanded Coverage to Individuals Not Eligible for Unemployment

First, it creates “Pandemic Unemployment Insurance” that will cover those individuals not otherwise covered by traditional unemployment benefits. This includes business owners, self-employed individuals, independent contractors, gig workers and those with a limited work history and history of wages earned. To obtain pandemic unemployment insurance coverage an individual will apply with the state agency where he or she live. The individual must self certify that he or she is otherwise able to work and available for work within the meaning of applicable state law except that the individual is unemployed, partially unemployed, or unable or unavailable to work for one of the following reasons:

• He or she is diagnosed with COVID-19;
• He or she has symptoms of COVID-19 and is in the process of seeking a medical diagnosis;
• A household member has COVID-19;
• He or she is providing care to a household member with COVID-19;
• A child or other person in the household for which the individual is the primary caregiver is unable to attend school or daycare due to COVID-19;
• The individual is unable to reach work due to a quarantine;
• The individual is unable to attend work because a healthcare professional advised him or her to self-quarantine;
• The individual is scheduled to commence employment and does not have a job or is unable to reach the job as a direct result of COVID-19;
• The individual is the sole wage earner in his or her household due to death of the head of household as a result of COVID-19;
• The individual was required to quit his or her job as a result of COVID-19;
• The individual’s place of employment closed due to COVID-19; and
• The individual is self-employed, is seeking part-time employment, does not have sufficient work history, or otherwise would not qualify for unemployment benefits under another state unemployment program.

Individuals who are able to telework with pay or who are receiving receiving sick leave or other paid leave benefits are not eligible.

2. Expanded Coverage to 39 Weeks

Second, state unemployment benefits will be extended for a total of potential unemployment coverage of 39 weeks.

3. Additional Monetary Relief for the Unemployed

Third, all unemployed workers will be entitled to an additional $600 per week for up to a total of four months of unemployment related to COVID-19. Payment of this additional benefit is expected to occur in the first four months of unemployment. This is an exponential increase in the amount of unemployment assistance an individual can receive. In addition to the amount of unemployment benefits to which an individual was previously entitled (which was a percentage of prior compensation variable by state), an unemployed individual will now also receive an additional $600 per week.

This benefit was one reason the bill had trouble passing the Senate on Wednesday night. This part of the bill will cost taxpayers $340 billion dollars. In South Carolina, where the minimum wage is $7.25 per hour this will allow some unemployed workers to receive more compensation than they would have received when they were working. Lindsey Graham, R-SC, and other Republicans argued that the provision could incentivize employers to layoff employees and individuals to fail to return to available work by providing unemployment compensation over and above replacement wages. Attempts to amend this portion of the bill to limit the amount of unemployment available to an amount that would make an individual whole based on last compensation rate in the Senate failed Wednesday night.

4.Waiting Week Waiver

Fourth, to help encourage the remaining seven states that have not yet waived the waiting week requirement to receive unemployment the CARES Act provides funding to states for the coverage of this initial week of unemployment

5. Help for Nonprofits

Fifth, nonprofits, government agencies and Indian tribes will be reimbursed for half of the costs they incurred related to unemployment.

Incentives to Retain Employees

In addition to these benefits, the act contains incentives to keep individuals employed and off of unemployment.

Forgivable Loans for Small Businesses and Nonprofits

To help small businesses avoid layoffs, the bill provides for over $375 billion in loans, much of which would be forgiven if workers are kept on the payroll. The loans are expected to provide 8 weeks of cash-flow assistance through 100 percent federally guaranteed loans to small employers who maintain their payroll during this emergency. If the employer maintains payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven, which would help workers to remain employed and affected small businesses and our economy to recover quickly from this crisis. This proposal would be retroactive to February 15, 2020, to help bring workers who may have already been laid off back onto payrolls.

This provision should help small businesses hit with the payment of unexpected sick leave and expanded family medical leave under the FFCRA afford to pay those benefits without laying off employees or closing their businesses. This is a reality of many small businesses hit simultaneously with increased unexpected expenses from expanded employee benefits and decreased profits. Loans will be available 15 days after the bill is signed into law.

Any small business, 501(c)(3) nonprofit, a 501(C)(19) veteran’s organization or tribal business with not more than 500 employees may apply. This includes sole-proprietors, independent contracts, and other self-employed individuals. This loan will also be available to businesses with more than one physical location that employ more than 500 employees per physical location in certain industries if their gross annul receipts are below threshold limits. It also waives affiliation rules normally applicable to franchises in the hospitality and restaurant industry. A formula is provided by which the loan amount is tied to payroll costs incurred by the business to determine the amount of the loan.

Employee Retention Credits

Section 2301 of the act provides a refundable payroll tax credit for 50 percent of wages (up to $10,000 per employee) that an employer paid each calendar quarter during the COVID-19 crisis. The credit is available to businesses whose operations were fully or partially suspended during the COVID-19 crisis or whose receipts declined by more than 50 percent when compared to the same quarter in 2019. The credit allowed will not exceed the applicable employment taxes in any one quarter. If the amount of the credit does exceed the limits, the excess will be treated as an overpayment and will be refunded.

Short-time work/ workshare plans

States are also encouraged to expand workshare or short-time compensation (STC) programs. Workshare programs are currently available in the following states: Current states with work share include: Arizona, Arkansas, California, Colorado, Connecticut, Florida, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, ebraska, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin. The CARES Act encourages the remaining states to adopt workshare programs as a complement to unemployment programs.

Like the partial benefit provisions of state unemployment laws, short-time compensation or shared work programs allow an individual who is employed for a portion of the week to collect unemployment benefits on top of his or her regular pay. The purpose of the plans are to encourage an employer to avoid layoffs by reducing the number of regularly scheduled hours of work for all, or a group of, individuals during disruptions to regular business activity. Whereas partial benefit formulas look at an individuals’ earnings, a workshare plan looks at the hours of work and provides individuals a pro-rata share of weekly benefits based on the reduction in weekly hours of work.

Employers must submit an STC/workshare plan to the state for approval. The employer’s plan must be consistent with employer’s obligations under applicable federal and state laws. Further, the affected employees’ workweeks must have been reduced by at least 10 percent, and by not more than the percentage, if any, that is determined by the state to be appropriate, but in no case more than 60 percent. Moreover, the STC/workshare plan must provide that employers will maintain health benefits and retirement benefits for affected employees, despite the reduced hours.

The benefits of these programs are numerous. Workshare plans keep the maximum number of employees on the job. Because there are fewer layoffs, the ramp-up process back to operational status is greatly reduced. Further, under the CARES Act, the employer will pay the state an amount equal to half of the amount of short-time compensation paid under such plan. These payments will be deposited in the state’s unemployment fund but will not be used for purposes of calculating an employer’s contribution rate in the future. The positive impact of such a program and the retention of employees versus a layoff, furlough, or termination cannot be overstated.

Key Takeaways

The federal government has provided both monetary help to individuals impacted by COVID-19 through the loss or reduction of employment and has also provided key incentives and financial assistance to employers to keep employees working. The goal is to help the U.S. economy stabilize and ready to regain its prior status as soon as possible.