Some states have ordered certain businesses to close because of the coronavirus (COVID-19), raising questions about pay, leave, and unemployment insurance. Here are answers to some common questions.
Q: I run a gym and my state has ordered my business to close. Do I have to pay employees during the closure?
A: Non-exempt employees (those entitled to minimum wage and overtime) are paid only for "hours worked." Therefore, if non-exempt employees miss an entire day's work because you're closed and you didn't require them to report to work, you're generally under no obligation to pay them, unless you've promised otherwise.
However, if they do report to work, you must pay these employees for any time they actually worked and/or were required to stay at work while your company made a decision to close. Note that some state laws require employers to pay employees for a minimum number of hours when they report to work but are sent home before the end of their scheduled shift. Check your applicable law for rules related to paying employees when they are required to report to work but are sent home early.
Employees who are classified as exempt from minimum wage and overtime must generally receive their full salary in any workweek in which they perform work, regardless of the number of hours worked. However, if they perform no work in a workweek, the employer isn't required to pay them.
Example 1: An exempt employee's workweek is from Sunday to Monday. The state orders their employer to close from Tuesday March 17, 2020 through Sunday March 29, 2020. However, the employee works on Monday, March 16. Since the employee worked part of the workweek, they're entitled to their full salary for the week of March 15, 2020. However, if the employee performs no work in the workweek of March 22, 2020, no pay is required for the March 22nd week.
Example 2: The same facts as Example 1 except that during the workweek of March 22, 2020, the employee performs about an hour of work from home one day. This employee would be entitled to their full salary for both the workweek of March 15 and the workweek of March 22.
Q: Do I have to allow employees to use paid sick or paid family leave during a temporary closure?
A: Several state and local paid sick leave laws require employers to allow employees to use their leave when a business is closed by a public health official due to a health emergency. In recent days, some of these jurisdictions have provided guidance clarifying these rules as they apply to COVID-19. Check your state and local laws for details. In the absence of a state or local requirement, many employers are allowing employees to use paid leave. Make sure your policy complies with applicable laws and is clearly communicated to employees.
Note: Even if your jurisdiction doesn't currently require paid leave in the event of a temporary closure, some states and local jurisdictions are enacting emergency rules that would require it, so monitor the situation closely.
Q: Can employees who have accrued a lot of paid leave voluntarily donate some of it to other employees for use during a closure?
A: Unless certain conditions are met (including the President declaring a "major disaster"), donated leave for a temporary closure would be taxable to both the donor and the recipient. President Trump has declared the coronavirus a major disaster in certain states. In these jurisdictions, any leave-donation program must meet the requirements outlined in IRS Notice 2006-59 for the donor to avoid taxes on the donated leave. Additional states may be declared in the future, so check the Federal Emergency Management Agency (FEMA) website before applying voluntary donations.
Beyond the tax implications, if the paid leave in question is required under state and/or local law, employers should ensure that the law allows employees to donate their leave to fellow employees.
Note: Leave-donation programs for medical emergencies are subject to different IRS rules. See IRS Rev. Rul. 90-29, 1990-1 C.B. 11 for details.
Q: If I am forced to close temporarily, does that trigger my state's final pay requirements?
A: Final pay rules differ from state to state, so check the law in the state where your employees work. Generally, though, short-term furloughs with a definite return date (that is clearly communicated to employees) wouldn't trigger final pay requirements. Thus, any pay owed to the employee would due be on their next regular payday. However, some states may have stricter rules. For example, in California, a furlough longer than a pay period should be considered a layoff, barring any guidance from the state indicating otherwise. If it is a layoff (i.e. no work for longer than a pay period) all wages due and any accrued but unused vacation and PTO must be paid out immediately. However, some states may have stricter rules. For example, in California, a furlough longer than a pay period should be considered a layoff, barring any guidance from the state indicating otherwise. If it is a layoff (i.e. no work for longer than a pay period) all wages due and any accrued but unused vacation and PTO must be paid out immediately.
Q: If I am forced to close temporarily, do I have to give employees advance notice?
A: Several laws may govern what type and how much notice employers need to give their employees if they are forced to close temporarily. For example, the Worker Adjustment and Retraining Notification (WARN) Act helps ensure advance notice in cases of qualified plant closings and mass layoffs. In addition, several states have mini-WARN laws, some of which require more notice and/or cover a wider array of closures and/or apply to smaller businesses. Due to COVID-19, states may suspend or alter these requirements. For example, on March 17, 2020, California's Governor signed an Executive Order relieving California employers of the 60 day notice requirement while California is in a state of emergency. However, employers still must provide notice as soon as practical and have to meet additional requirements as well. Because the situation with COVID-19 is so fluid, employers are encouraged to check with counsel to make sure they are following the most current guidance on notice requirements.
Additionally, some states require advance notice of any reduction in pay. Absent a specific notice requirement, employers should provide as much notice as possible.
Note: Some states and local jurisdictions have enacted predictive scheduling laws. These laws generally require employers to follow certain scheduling practices, including providing a certain amount of advance notice before making changes to employees' schedules. Be sure to check to see if you are subject to such a law. Some jurisdictions, including Oregon, are providing guidance on these laws in light of COVID-19.
Q: If my state ordered my business to close, will employees be entitled to unemployment benefits?
A: Depending on the state, the length of the closure, and the employee's work history, employees who are prevented from coming to work because their employer temporarily ceases operations due to COVID-19 may be eligible for unemployment benefits. Several states have issued guidance addressing this issue. Check your state law, communicate with employees regarding their eligibility for unemployment benefits, and provide any required notice and information accordingly.
Q: If an employee is receiving paid sick leave or paid family leave during a company closure, will they be entitled to unemployment benefits?
A: While individual states determine eligibility for unemployment insurance, generally, an employee who is receiving paid sick leave or paid family leave would be receiving pay and therefore ineligible for unemployment benefits while being paid.
Q: What if I need to temporarily reduce my employees' hours as result of COVID-19? Are these employees eligible for unemployment benefits?
A: Generally, if there's a reduction in available work hours for employees, the employees may be eligible for partial unemployment benefits.
Q: Because business is declining due to the COVID-19, I don't have enough work for all my employees anymore. What alternatives do I have to layoffs?
A: Many states have adopted shared-work programs to provide employers with an alternative to layoffs. Under these programs, the employer temporarily reduces the hours of a group of employees, and the affected employees collect partial unemployment benefits. Another option is offering unpaid time off to employees in the form of a furlough.
Q: My business is severely impacted by COVID-19. Is there any help available?
A: The federal government, many states, and some local jurisdictions are considering legislation and programs that would provide assistance to impacted businesses. For instance, the U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the COVID-19. For additional information, contact the SBA disaster assistance customer service center 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail email@example.com.
The COVID-19 situation is evolving quickly. Before acting, always check on the most up-to-date information and guidance from your state and local government agencies, consulting legal counsel as necessary.