As business owners, employees are high on the list of our concerns. For many of us, employees are like family; we work, sweat, and play together. So how do we treat our extended family during COVID-19? And what can we do to ensure they can provide for their families during these unprecedented times, while at the same time not causing detriment to our business? And how do we answer all of their questions?
Let’s jump right in. You can skip ahead to specific questions here:
We also did three Q&As here you might find useful:
What Do We Know About Unemployment Insurance for Workers?
- · Anyone who is paid as an employee and working reduced hours or no hours may file for unemployment. Employees who are still working and being paid per usual should not make a claim.
- · Workers paid as independent contractors have not historically been eligible for unemployment or government support once work is reduced or ceases. However, these are historic times. The CARES Act passed on March 27th provides some type of relief for contract workers. Since the Act was passed and signed into law (just 9 days ago as of this writing), the US Treasury and the SBA have been working day and night to provide us with practical guidance.
How a Law Becomes a Regulation
Let me explain, though it won’t be in song form like the famous Schoolhouse Rock Song “I’m Just a Bill.”
In between profiteering and taking bribes from big corporations, the United States legislative branches of government (congress, senate and the president) pass laws. But these laws must be interpreted and put into action. The U.S. Treasury will do it in this instance, after which the regulations will be implemented by the SBA, banks, and state unemployment offices. The Treasury will often completely change the law’s interpretation… and they have the power to do so. So, while the law may say certain things initially, we always need to wait for guidance and implementation.
What Unemployment Insurance is Available for Independent Contractors?
Getting back to the point, the way the CARES Act is written it is clear there will be some type of support for independent contractors, sole proprietors and gig workers across the nation. However, we don’t yet have the guidance on what form that will take as of this blog post on April 7, 2020. Many states are telling contractors they are not ready to accept unemployment applications for independent contractors yet and are asking them to check back at a later date.
I would echo this advice:
If an independent contractor has had their working reduced hours, no hours, or had their pay reduced, they should work to file unemployment as soon as the state permits them to do so. Very simply: your instructors can apply and will be eligible for some form of unemployment in the coming days or weeks.
Unemployment Is Also Available for Owners Who Receive a Paycheck
Each state varies, but if you’ve been laid-off or need to stop taking a salary it’s possible to collect unemployment from your state, even as an owner. This means your business is a C or S-corporation, and you take a paycheck and receive a W2 at the end of the year. Yes, this will harm your unemployment experience rate resulting in paying more unemployment taxes in future years, however that’s years down the road and we’re concerned about now. If you really need the cash then it can be a great solution. And because it only affects your future unemployment rate, if there’s a possibility you might close or file bankruptcy then you almost certainly want to try to collect unemployment because your future experience rate won’t matter.
Reminder: Unemployment benefits are taxable. Have some income tax withholding on your unemployment benefits or it could be costly when it comes time to file your 2020 taxes in the Spring of 2021.
How Else Can I Help My Workers?
Workers count on business owners to pay them. Workers often look to their employers for guidance and direction in many areas and the waters certainly get muddied between that of boss, parent, mentor and friend. But when it comes to financial matters, The Fitness CPA advises that employers do not provide specific advice. I know you want to help your workers in these difficult times but it’s important not to provide financial advice to those in your employment. Excuse my crass example, but you shouldn’t give financial and legal advice to employees any more than you would give them advice about relationships, sex, or drugs. There are certain things we just don’t do as employers.
What business owners CAN do:
- · Direct employees to their state specific unemployment website.
- · Direct employees to their accountant and attorney. But especially their accountant in these times.
- · Encourage workers to talk to their spouse and do their own research.
- · Provide mandated federal, state, county and local worker notices. Be sure to stay up-to-date with your municipalities. Talk to your workers compensation company for the most up-to-date notices or look on your government’s website.
- · Provide moral support and empathize with your workers in these difficult times. One of the biggest things we see is that workers are embarrassed or otherwise conflicted about filing for unemployment. They might be shameful or too proud to file for unemployment. It’s important to remove these concerns by way of saying these things:
- · You need to do what’s financially best for you and your family
- · Unemployment was literally created for this purpose.
- · Why should everyone else collect while you suffer?
- · You (the employee) and I (the business owner) have paid into and will continue paying into this system for years to come, so you are really only taking your own money.
What business owners can NOT do:
- · Provide information on ‘something you heard’.
- · Promise your workers anything about the future: that they will have a job, that you’ll pay them, that you’ll ‘make this up to them’
- · Give workers false hope such as projecting reopen date or offering a bonus and/or raise once this passes.
- · Pay workers cash under the table. All payments need to be paid legally and reported to the government via your payroll provider.
- · Tell your workers to wait on filing employment.
Q: How does the new Paycheck Protection Program (PPP) play into this? Isn’t my business receiving PPP money to keep workers employed?
A: Yes…. and no. Like all things in the tax world, the answer is: it depends. You need to work with your CPA to figure out the best strategy for you.
Q: That’s nice, but my accountant hasn’t been helpful and you seem like you know a lot, so tell me the deal.
A: In our opinion PPP is indeed meant to provide you with money to keep your employees on staff. And it pains me to say this and I accept that I will be labeled as insensitive by some, but I believe that workers who truly aren’t needed need to be released from their role to file for unemployment and rehired when the future is more clear. Workers who are still working and essential to the future of your business should be kept on staff if possible.
This means that PPP money should be used to pay:
- · Workers who are doing administrative work, instructing virtual classes/trainings, and other virtual coaching
- · A mission critical worker that you don’t want to lose (like a bomb-ass sales person or regional director)
- · For these individuals, we recommend repurposing them for other tasks to keep them working for you such as administrative work, writing protocols or workflows, marketing, social media, answering calls, writing letters to government representatives, finding educational materials online around COVID-19 solutions for fitness businesses, janitorial duties, etc.
- · Rent and utilities.
Q: What, I thought the PPP money was for workers?
A: Up to 25% of your PPP money can be used to pay the below items. But any amount greater than 25% of the PPP funds won’t be forgiven and will be converted into a loan (at 1% annual interest and due to be paid back in two years).
- · Rent
- · Utilities
- · Interest on any other debt obligations that were incurred before February 15, 2020.
- · Payments of interest on any mortgage (but not payment or prepayment of principal)
Q: But I heard I have to keep my workers employed in order for the PPP money to be forgiven and not paid back.
A: True, 75% of the PPP money has to be used within 8 weeks. We’re still waiting on definitive guidance but it’s possible you could use your PPP money to:
- · bonus current workers
- · rehire workers at the end of the 8 weeks and give them a signing bonus
- · pay owner’s salary (if you took a salary previously)
And purely skeptical, but if things don’t get better in the US soon, it’s possible the 8-week time period to use the PPP money will be extended. That’s not currently true, but things are changing every day. So hang onto that PPP money, at least for the first four of your eight-week time period, and see where things develop before you give it away to workers who are sitting at home watching Tiger King – that’s what unemployment is for.
Then strategize with your CPA (you have a CPA right?) on the best way to ensure you maximize your usage of the PPP funds while also getting as much forgiven as possible.
Q: I hear you, but I feel bad for my workers. What if I want to pay them with my PPP money instead of laying them off?
A: Are they working for you? If not, the terms of unemployment insurance are very generous right now. It’s set for 39 weeks and for the first 8 weeks there’s a $600/week bonus. To put 39 weeks into perspective: they could have a Corona baby in this amount of time and name it Covid all while on unemployment. And besides that, there are ethical considerations. Releasing workers from their jobs to claim unemployment is one of the nicest things you can do for an employee. If you own a business, I’m willing to bet 99% of you have been fired or laid off. At first, it’s upsetting. And then suddenly, it’s freeing. Laying off nonessential staff will give them clarity on the next steps they need to secure their future.
Q: What about paying my employees with EIDL money?
A: I want to remind you that EIDL money is a loan that needs to be paid back (except for the $10,000 grant portion). So I would again say: you should be only be paying workers who are working and critical to your business. EIDL money is intended to help cover operational costs of the business to to help your business survive. The road after COVID19 is likely going to be as hard as the road during COVID19. Your business will need to retain as much cash as possible. If you’re not familiar, check out The Fitness CPA’s Cash Flow Retention strategies here.
Many of you already know what it’s like to be burdened with a monthly business loan and the same principle applies here: we want the loan and resulting payment to be as low as possible. So the less you can borrow, the better positioned you will be to ride out the storm and ride the recovery wave post-COVID19. We expect the recovery timeline to be measured in months rather than weeks, so retaining as much EIDL money as possible will only benefit you and your business in the long term.
Q: When my worker files for unemployment, what do I do?
A: Nothing until you get a notice in the mail from the state. When you do receive that notice, it’s important you reply as soon as possible, often within 2-5 days. Fortunately, we’ve already documented that whole process here step by step in What to Do When A Former Employee Files an Unemployment Claim.
Ask Us a Question
We hope this has helped to answer some of your questions. If you have specific questions you need answered, we invite you to submit them here. (If you aren’t on our mailing list, you can sign up here.)
In the meantime, check out our COVID-19 Resource Hub where we’ve compiled our latest blog posts & YouTube videos along with third party resources that we find valuable. There is some great stuff in there.
As always, we’re here to help. If none of the above helps you out – feel free to send us a message here. We’ll get back in touch in 24 hours.