Furloughing Employees as an Option for Private Ohio Employers
By Todd Masuda
Many businesses have been compelled to shut down as a result of the coronavirus crisis, laying off their workers and hoping the closure will be temporary. Normally those workers would apply for state unemployment and become eligible for COBRA continuation coverage, but now private employers may an option for “furloughing” their employees, which may be a good choice for employers who want to do as much as they can for their workers even as COVID-19 forces the company’s business to go dormant.
In this form of furlough, (1) the employer generally reduces employee hours to zero (and, for exempt employees, reduces salaries to zero); (2) employees becomes eligible for Ohio unemployment benefits and the new CARES Act unemployment benefit; (3) the employee is able to stay covered under the employer’s group health coverage; and (4) the employer recoups some of the payments under the employee retention credit provision of the CARES Act.
The main difference between the zero-hour/zero-pay furlough and a layoff is that furloughed employees can maintain their group health coverage. Ordinarily such a reduction in hours would create a COBRA-triggering termination of coverage, but a recent Order from the Ohio Superintendent of Insurance requires insurers to continue coverage even if employees fall below an hours-worked requirement in the insurance policy. (OH Dept Ins. Bulletin 2020-03, March 20, 2020) This provision will last as long as Ohio’s coronavirus state of emergency is extended by the Governor.
The special sauce that makes it more attractive for employers is the Employee Retention Credit (ERC) established by the recent CARES Act. For businesses fully or partially shut down for COVID-19 reasons and suffering “significant decline in gross revenues” (calculated on quarter-to-quarter comparison with the 2019 year), the gist of the ERC is that it entitles certain employers to claim a credit of 50% of “qualified wages” paid after March 12, 2020 and before January 1, 2021 – with health insurance costs included in those wages.
The Ohio unemployment safety net has also been expanded considerably during this emergency, and the federal pandemic unemployment benefits will also be available to qualified employees.
An employer whose employees qualify for these interlocking benefits would be able to reduce cash compensation to zero while maintaining its employees on the employer’s group insurance; the employees would draw state and federal unemployment benefits; the employer would be able to claim a tax credit of 50% of its wages (i.e., insurance payments) paid during the remainder of 2020.
The interplay of benefits described here is a best case of the worst case – there may be a better application of these laws for different employers; not every employer or every employee will qualify for all these benefits; so it will be prudent for employers to consult with a lawyer as they make plans. For instance, it’s important to note that the ERC is not available to employers who have taken CARES Act loans. It’s also good to note that there is no real definition of “furlough” for private employers in Ohio, and it can mean different things for different employers.
**This information is offered for discussion, marketing and news purposes and is not intended to constitute legal advice.**