Manufacturers COVID-19 Webinar Tax Credits, Financing and HR Issues - - PowerPoint PPT Presentation

www.mascpa.org (717) 843-3891

Manufacturers COVID-19 Webinar Tax Credits, Financing and HR Issues

April 23rd, 2020

www.mascpa.org (717) 843-3891

• Mfgs. COVID-19 Update – HR and Legal

Speakers Panel

• Michael DePaul, Jr, Esq. - Partner, Tax Services Group, RKL LLP
• John C. Porter, Esq.– Griffith, Lerman, Lutz & Scheib
• Vicki Krotzer, PHR, SHRM-CP, HR Consultant – The Manufacturers' Association
• Becky Stauffer, SPHR, SHRM-SCP, HR Consultant – The Manufacturers' Association

Moderator: Tom Palisin, Executive Director

www.mascpa.org (717) 843-3891

• Mfgs. COVID-19 Update

AGENDA

Financing and Tax Credits

• Payroll Reporting and Employer Tax Credits
• Net Operating Loss Carrybacks
• Tax Deadline Updates
• Financing Programs – Paycheck Protection Program, Main Street

HR Issues and Hot Topics

• Facemasks Guidance – policies and practices

Q&A

COVID-19 TAX CREDITS AND FINANCING UPDATES

MICHAEL R. DEPAUL, JR., ESQ.

Partner, RKL Tax Services Group Presented by:

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Meet Your Presenter

Michael R. DePaul, Jr, Esq. | Partner, Tax Services Group

A Partner in RKL’s Tax Services Group and co-leader of the firm’s Estate and Trust Planning Group, Mike focuses on the needs of closely held businesses and high net worth individuals to deliver a comprehensive range of personalized services including estate and trust planning, business succession planning and tax compliance. With a specialization in multi-state and pass-through entity taxation, Mike has considerable experience representing clients before the IRS, various state revenue agencies and Pennsylvania administrative boards in matters relating to tax issues and controversies.

mdepauljr@RKLcpa.com | RKLcpa.com

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PAYROLL TAX REPORTING IN A POST-CORONAVIRUS WORLD &

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Payroll Tax Credits

Families First Coronavirus Response Act (FFCRA)

• Emergency Paid Family and Sick Leave (EPSL)

Coronavirus Aid, Relief, and Economic Security Act (CARES)

• Employee Retention Tax Credit (ERTC)
• Payroll Tax Deferral
• Payroll Protection Program (PPP) Loan

7

Families First Coronavirus Response Act (FFCRA)

Track the Earnings

Sample Earning Codes

▪ EPSL100: two-week period where they are paid $511/day or $5,110 in total ▪ FFCRA10: two-week period where they are paid 67% of their wages up to $200/day or $2,000 in total if they are quarantined or caring from someone with COVID-19 ▪ CHILDCARE10: two-week period where they are paid 67% of their wages up to $200/day or $2,000 in total for childcare issues related to COVID-19 ▪ CHILDCARE50: 10-week period where they are paid 67% of their wages up to $200/day or $10,000 in total for childcare issues related to COVID-19

Taxation Not subject to the Employer Social Security Match

8

Families First Coronavirus Response Act (FFCRA)

Other considerations ▪ 401(k) eligible ▪ How is your payroll provider handling the credits? ▪ Going back and reclassify the payments:

• Reclassify back to April 1 wages
• Work with your payroll provider to make this adjustment

▪ Documentation

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• What does 500 employees really mean?
• Full/part-time employees + employees on leave + temporary employees jointly employed

by the employer and another employer + day laborers supplied by a temporary agency

• Independent contractors NOT counted
• Fluctuations in employee count
• Aggregation rules
• Who are considered eligible employees?
• Paid sick

1. Quarantining order from government or physician 2. Having COVID-19 symptoms/diagnosed 3. Providing care for a family member who has been diagnosed or for a child whose school or day care has closed due to coronavirus

• Paid family leave

1. Provide care for child younger than 18 whose school or day care has closed due to coronavirus

Who is impacted?

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• Allocating Health Plan Costs
• The credit offsets
• 6.2% Employer Social Security Tax
• Income Tax – Self-Employed

What counts towards the credits?

WAGES 1.45% ER MEDICARE HEALTH PLAN COSTS

= + +

TOTAL CREDIT

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• Effective April 1
• Not retroactive
• First 10 days of unpaid leave
• Not required
• EE allowed election to substitution of accrued vacation leave, personal leave, sick leave
• Contact payroll providers immediately
• Retirement plan implications

When should implementation take place?

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• Retain taxes instead of depositing
• Employee/Employer portion of Social Security (6.2%)
• Employee/Employer portion of Medicare (1.45%)
• Federal Income Taxes withheld
• Accelerated IRS payment
• Forms to be released
• Small business exemption
• Less than 50 employees
• Only for school closings or childcare unavailability

How can employers afford/implement this?

13

Emergency Paid Sick Leave Provisions

Employment Status: Who is Sick or Quarantined Maximum Time Period Covered Required Pay Rate Employer’s Refundable Tax Credit Cap on Wages Eligible for Tax Credit through 12/31/20 Refundable Tax Credit Offsets Employee Self FT = 2 weeks or 80 hours PT = typical # hours worked in 2 week period 100% of Regular Pay Rate 100% of "Qualified Paid Sick Leave Wages" $511/day AND $5,111 in the aggregate plus a pro rata amount

• f expenses paid in maintaining a

qualified health plan related to sick leave payments Employer portion

• f Social Security tax

Employee Family member FT = 2 weeks or 80 hours PT = typical # hours worked in 2 week period 67% of Regular Pay Rate 100% of "Qualified Paid Sick Leave Wages" $200/day AND $2,000 in the aggregate plus a pro rata amount

• f expenses paid in maintaining a

qualified health plan related to sick leave payments Employer portion

• f Social Security tax

Self-Employed Self FT = 2 weeks or 80 hours PT = typical # hours worked in 2 week period n/a 100% of "Qualified Sick Leave Equivalent Amount" Lesser of: 1) $511/day, or 2) Avg. daily S/E income for year Income Taxes Self-Employed Family member FT = 2 weeks or 80 hours PT = typical # hours worked in 2 week period n/a 67% of "Qualified Sick Leave Equivalent Amount" Lesser of: 1) $200/day, or 2) Avg. daily S/E income for year Income Taxes

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Emergency Paid Family Leave Provisions

Employment Status: Who is Sick or Quarantined Maximum Time Period Covered Required Pay Rate Employer's Refundable Tax Credit Cap on Wages Eligible for Tax Credit through 12/31/20 Refundable Tax Credit Offsets Employee Family member 12 weeks total (First 14 days could be unpaid or use accrued vacation) then up to 10 additional weeks No less than 67%

• f regular pay

100% of "Qualified Family Leave Wages" Weeks 3-12: $200/day/employee AND $10,000 in the aggregate Employer portion

• f Social Security tax

Self-Employed Family member 12 weeks total (First 14 days could be unpaid or use accrued vacation) then up to 10 additional weeks n/a 67% of "Family Leave Equivalent Amount" Up to 50 days at lesser of: 1) $200/day, or 2) Avg. daily S/E income for year Income Taxes

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Coronavirus Aid, Relief, and Economic Security Act (CARES)

Employee Retention Tax Credit (ERTC)

▪ For qualified wages (including qualified health plan expenses) paid after March 12, 2020 and before January 1, 2021: 50% of the wages paid in a calendar quarter (maximum credit $5,000) Note on employee count: ▪ 100 or less employees in 2019, ALL WAGES (to include healthcare costs) are qualifying wages ▪ For employers with an average employee count of more than 100 full-time employees in 2019, qualified wages are the wages paid to an employee for time that the employee is not providing services due to COVID-19

EXCEPTION: If you received a PPP, you cannot also utilize the ERTC

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• For any business closed or suspending operations due to coronavirus,

if employer continues to pay employees

• Eligible for credit via two ways:
• Operation of business fully or partially suspended during any calendar quarter during

2020 due to orders from appropriate government authority resulting from COVID-19.

• Business remained open, but during any quarter in 2020, gross receipts for that

quarter were less than 50% of what they were for the same quarter in 2019. The business will then be entitled to a credit for each quarter, until the business has a quarter where it has recovered sufficiently that its receipts exceed 80% of what they were for the same quarter in the previous year.

• Credit is reduced for other federal credits (WOTC, R&D, Families First

payroll credits)

• Credit potentially applies to wages paid between 3/13/20 and 12/31/20

Employee Retention Tax Credit (ERTC)

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• Credit amount
• 50% of “qualified wages” paid to each employee for that quarter; ends on 12/31/20
• Qualified wage base for credit calculation:
• For companies with more than 100 employees during 2019
• Qualified wages are limited to wages paid by the employer during the quarter for the period of

time the business was shut down

• For companies with less than 100 employees in 2019
• Qualified wages include those paid to employees during a shutdown, AND
• Wages paid for each quarter that the business has suffered a sharp decline in year-over-year

receipts, as described previously

• For any size company, qualified wages include group health plan costs
• In all cases, the amount of qualified wages for each employee for all quarters may not

exceed $10,000 (generating $5,000 max credit per employee)

• Reported via quarterly payroll tax returns and credits are refundable by IRS
• If an employee receives a “Payroll Protection Loan” as part of this Act, no

employee retention credit will be available

Employee Retention Tax Credit (ERTC) (continued)

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Employee Retention Tax Credit (ERTC) Example

Employee A Q2 2020 Q3 2020 Q4 2020 Eligible Wages $4,000 $3,000 $5,000 Credit (50%) $2,000 $1,500 $1,500

Total Eligible Wages YTD = $7,000 Total Credit YTD = $3,500 Total Eligible Wages Q4 2020 = $3,000 ($10,000 - $7,000) Total Credit Q4 2020 $3,000 x 50% = $1,500

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Receiving the Credits

Emergency Paid Family and Sick Leave (EPSL) Reduce the 941 payment by all credits available If the credit is more than the 941 payment, you can either: ▪ Complete Form 7200 https://www.irs.gov/forms-pubs/about- form-7200 ▪ Reconcile on the 941 Employee Retention Tax Credit (ERTC) Payroll Tax Deferral No Tax Credit – only OPTIONAL DEFERRAL of payments ▪ Employer portion of Social Security Tax from 3/27/2020- 12/31/2020 ▪ Remit 50% by 12/31/21; Remit remaining 50% by 12/31/22 Payroll Protection Program (PPP) Loan No credit – loan forgiveness Note: Even if work is not available at the time, you can pay Employees based on your PPP Loan approval

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“Thank You” Pay Options

Add an additional per hour rate For example: employee regular rate is $15 per hour, create a “Thank You” rate and add it to the employee’s hourly rate Ad Hoc Bonus For example: a discretionary bonus (an amount not expected or promised) Bonus of % of Wages For example: provide a non-discretionary bonus (the employee expects to receive it) as a % of regular and overtime earnings

21

“Thank You” Pay Options

Bonuses can be included in the PPP to calculate loan forgiveness

Flat Amount Bonus For example: provide a non-discretionary bonus (the employee expects to receive it) as a flat dollar amount Note: To remain compliant with U.S. Department of Labor regulations, these bonus types require additional weekly overtime pay rate calculations

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TIMING OF TAX FILING AND PAYMENT DEADLINES

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Federal and PA Return Extended Due Dates

Entity Federal Form Original Federal Due Date New Federal Due Date PA Form Original PA Due Date New PA Due Date Partnerships 1065 3/15/2020 3/15/2020 PA 20S/PA-65 4/15/2020 7/15/2020** S Corporations 1120S 3/15/2020 3/15/2020 PA 20S/PA-65 4/15/2020 7/15/2020** Corporations 1120 4/15/2020 7/15/2020 RCT-101 5/15/2020* 8/14/2020 Individuals 1040 4/15/2020 7/15/2020 PA-40 (and Local) 4/15/2020 7/15/2020 Trusts 1041 4/15/2020 7/15/2020 PA-41 4/15/2020 7/15/2020 Gift Tax 709 4/15/2020 7/15/2020 N/A N/A N/A Foreign Bank Account Report FinCEN114 10/15/2020 10/15/2020 N/A N/A N/A All dates above are for calendar year filers. *Second quarter estimate still due 6/15/2020 **Includes pass-through non-resident and corporate withholding

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THE CARES ACT

NOL CARRYBACK PROCEDURES & PLANNING OPPORTUNITIES

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• Under the Tax Cuts and Jobs Act, the ability to carryback a net
• perating loss (NOL) arising in tax years beginning after December 31,

2017 was eliminated.

• In addition, an NOL carryover can only be used to offset 80 percent of

current taxable income.

• The CARES Act lifts the carryback and taxable income restrictions for

NOLs generated in tax years beginning after December 31, 2017 and before January 1, 2021 (i.e. 2018, 2019 and 2020 losses) permitting a five-year carryback of NOLs arising in those tax years.

• The CARES Act also temporarily eliminates the 80 percent limitation,

reinstating it for tax years beginning after 2020.

NOL Rules Under the CARES Act

26

NOL Rules Summary

Tax Year NOL Generated NOL Rules NOL Limitation Pre TCJA – NOL generated in tax years before 12/31/2017 Carryback 2 years and carryforward 20 years No limitation, 100% of taxable income Under the CARES Act – NOL generated in tax years beginning after 12/31/2017 and beginning before 1/1/2021 Carryback 5 years and carryforward indefinitely 100% of taxable income (prior to 2021) 80% of taxable income (after 2020) Post TCJA – NOL generated in tax years beginning on or after 01/01/2021 NO carryback but carryforward indefinitely 80% of taxable income

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• The IRS issued Rev. Proc 2020-24 and Notice 2020-26 on April 9, 2020

which both provide guidance on how to take advantage of the NOL provisions.

• Tentative refunds may be claimed on Form 1139, Corporation Application

for Tentative Refund (corporations) or Form 1045, Application for Tentative Refund (taxpayers other than corporations).

• Taxpayers filing an application for tentative refund to carryback an NOL

incurred during calendar year 2018 or at fiscal year-end June 30, 2019 must:

• Add “Notice 2020-26, Extension of Time to File Application for Tentative Carryback

Adjustment” to the top of Form 1139 or 1045; and

• File the form no later than the six-month extended deadline for NOLs incurred either

during calendar year 2018 or during a fiscal year that ended on or before June 30, 2019.

• Election may be made to waive carryback for NOLs incurred in tax years

beginning in 2018 or 2019.

Procedures for Claiming NOL Carrybacks

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• 163(j) business interest expense limitation
• Depreciation
• 263A uniform capitalization rules
• Prepaid payment liabilities
• Rebates and allowances
• Self-insured medical accruals
• Deferred revenue & accelerated deductions
• Form 4466 – Corporation Application for Quick Refund of Overpayment of

Estimated Tax

Planning Opportunities to Maximize Cash Refunds

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• Must consider NOL carryback interaction with various other deductions

and credits that may need to be recalculated and may impact the overall cash tax benefit:

• Section 199 domestic production activities deduction (DPAD)
• General business credits (R&Ds, FTCs, AMT)
• Charitable contributions
• Section 250 deductions (GILTI and FDII)
• Section 965 transition tax
• Short tax years
• Mergers, acquisitions and liquidations
• Limitations on certain entity types (REITs)

Additional NOL Carryback Considerations

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THE CARES ACT

PPP LOAN & MAIN STREET LENDING PROGRAM

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Other Options and Considerations

• Infusion of capital from personal savings
• Use of personal credit (credit cards, HELOC, etc.)

Personal funding

• Check with your insurer or agent to see whether COVID-19 is a covered

event

Business interruption insurance

• Prioritize payments
• Extend non-essential payables

Cash conservation

• Divestitures
• Layoffs
• Distressed sale

Last resorts

32

• Eligible Borrowers Requirements
• Have 10,000 or less employees or less than $2.5 billion in 2019 revenues
• Created in U.S. – with majority of employees in U.S. and significant operations in U.S.
• Solvent
• Loan Programs
• MSNLF – Main Street New Loan Facility
• MSELF – Main Street Expanded Loan Facility
• Loan Terms
• Unsecured – unless original loan unsecured
• Four Year Maturity
• Minimum loan $1 million
• Rate – Secured Overnight Funding Rate – plus 250 – 400 basis points
• Postponed Amortization of Principal and Interest for 1 year

Main Street Lending Program

33

• Key commitments by Borrower
• Cannot be used to replace existing debt
• Loan proceeds will not be used for stock buy-backs or dividends
• Attest meet certain restrictions on maximum size of loan related to EBITDA
• Attest that the proceeds are needed because of the Coronavirus and the proceeds will be

used for payroll and to retain employees during the term of the loan.

Main Street Lending Program

34

• $484 billion: Size of the total relief package.
• $310 billion: New amount allocated for PPP.
• $250 billion would be open to all lenders.
• $60 billion would be reserved specifically for smaller lenders.
• $10 billion would be reserved for emergency grants.
• $75 billion would go to help hospitals.
• $25 billion: COVID-19 testing.

PPP Loan Funding Update

35

• If loan is used for intended purposes, the first 8 weeks worth of certain

payments will be forgiven on a tax-free basis – which ones?

• Payroll costs (you can re-hire employees)
• Mortgage interest on loan (originated prior to 2/15/2020)
• Rent for lease (in force prior to 2/15/2020)
• Certain utilities (service started prior to 2/15/2020)
• Interest payments on any debt obligations (incurred before 2/15/2020)
• Refinancing an SBA EIDL made between 1/31/2020 and 4/3/2020
• Non-payroll eligible costs cannot exceed 25% of total eligible costs incurred
• Forgiveness amount reduced if:
• Reduce full-time equivalent employee headcount
• Reduce salaries during 8-week period as compared to historical

PPP Loan Forgiveness (Section 1106 of CARES Act)

36

What we know… PPP loans offer a potential for the entire loan to be forgiven, tax free. To be eligible for forgiveness, the loan proceeds must be used for:

• Payroll costs (capped at $100k annualized cash compensation per employee)
• Remember: At least 75% of total loan forgiveness must apply to employee compensation

and benefits costs. Also remember haircut tests for FTE count and compensation levels.

• Payments of interest on any mortgage obligation that was incurred

before 2/15/20

• Any payment of rent under a leasing agreement in force before 2/15/20
• Any utility payment for which service began before 2/15/20

Loan Forgiveness & Cash Flow Forecast

37

What is still unclear… Even with interim guidance to date, there are still many unanswered questions and ambiguity surrounding the forgiveness process, including but not limited to:

• FTE counts: How? Will the June 30 restoration of workforce hold? If so, what is

to prevent employers from waiting to rehire until the last possible moment, bypassing the intent of the CARES Act to keep workers on payroll?

• Will there be rehiring limitations to attain the requisite FTE count?
• Can a business rehire in any position or does it have to be similar positions?
• What about interim pay periods in which workers were employed but payment

is deferred until next normal pay date?

• How will the timing of non-payroll payments work for expenses incurred but

paid after the eight-week period? 38

Loan Forgiveness & Cash Flow Forecast

38

What is still unclear… (continued)

• What if a business is closed by Governor and doesn’t want to use loan

proceeds to pay people who are not working? When is the utilization of proceeds for unintended purposes risky or potentially fraudulent?

• Companies renting real estate from related entity/owner. Self-rent parameters?
• What about rents for personal property, i.e., vehicles or equipment?
• Will forgiven expenses be tax deductible?
• Internal Revenue Code Sec. 265 – expenses allocable to tax-exempt income are not
• deductible. What will IRS/Congress do here?
• Will payroll costs be on a “gross” or “net” basis when calculating forgiveness?
• How will each bank interpret and apply the evolving guidance from SBA?

Loan Forgiveness & Cash Flow Forecast

39

What you can do now…

• Despite the outstanding questions, PPP loan recipients should start keeping

records to document how proceeds are spent to provide to the bank for loan forgiveness determinations.

• It is important to set up general ledger tracking mechanisms and be ready to

prove how the loan proceeds were spent.

• Perhaps consider establishing a bank account that only gets used to fund

eligible expenses (opening a bank account on short notice may not be necessary or viable in current environment).

Loan Forgiveness & Cash Flow Forecast

40

Update to Emergency Loan Financing

SBA Economic Injury Disaster Loan (EIDL) PIDA COVID-19 Working Capital Assistance Fund (CWCA) Loan Size Up to $2,000,000 Up to $100,000 Eligibility Only if credit is unavailable elsewhere Size standards by industry All states now eligible Based on financial need Loan request up to 3 months of direct business expenses (50% of six months’ expenses for retail and certain services businesses) ≤100 full time employees at time of application submission Approval and Funding Timeline 2-3 weeks for credit decision + signed loan docs + 5 days for initial funding TBD Fees and Interest Rate Small business: 3.75% Not-for-profit: 2.75% 0% fixed for businesses (except 2% fixed for production agriculture) Term Up to 30 years, no payments during first year 3-year term, 12 years amortization, no payments during first year, balloon payment at end of year 3 Other Considerations Expected volume of applications, can apply without committing Personal or corporate guarantees for 20%+ owners, expected volume of applications and limited funds available Additional Info disasterloan.sba.gov Conducted through local Certified Economic Development Organization https://dced.pa.gov/programs/covid-19-working-capital-access-program- cwca/ 41

• Employer share of 6.2% Social Security tax on payroll from date of

enactment through 12/31/20 will be due 50% on 12/31/21 and 50%

• n 12/31/22.
• Also applies to 50% of self-employed individual’s S/E tax with

deferral until 12/31/21 and 12/31/22.

Delay of Payment for Employer Payroll Tax and Self-Employment Tax

42

Interaction between FFCRA & CARES Act components

Credit/Deferral Act Size Requirements Employer’s Tax Credit/Deferral Tax Credit Offset Procedure

Emergency Paid Sick & Emergency Paid Family Leave Refundable Tax Credit Families First Coronavirus Response Act (FFCRA) Less than 500 employees Aggregation – FSLA & FMLA integrated & joint tests 100% of "Qualified Paid Sick & Family Leave Wages“ Employer portion

• f Social Security

Tax (OR) Self Employed – Income Tax Refundable Do not remit EE/ER Social Security & Medicare, Federal Withholdings in amounts equal to credit calculated Employee Retention Tax Credit (ERTC) Coronavirus Aid, Relief, and Economic Security Act (CARES) Limitations when more than 100 employees 50% of the first $10,000 in qualified wages (including health plan expenses) paid to each employee commencing on March 13, 2020 Employer portion

• f Social Security

Tax Refundable Do not remit ER Social Security in amounts equal to credit calculated Payroll Tax Deferral Coronavirus Aid, Relief, and Economic Security Act (CARES) Not applicable Employer portion

• f Social Security

Tax from 3/27/2020- 12/31/2020 Not applicable Defer payments now Remit 50% by 12/31/21 Remit remaining 50% by 12/31/22 Payroll Protection Program Loan Coronavirus Aid, Relief, and Economic Security Act (CARES) Less than 500 employees Affiliations under SBA Not applicable Not applicable Apply through SBA lender

43

IMPLEMENTATION

COVID-19 TAX CREDITS

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XYZ Co. has 300 employees and 5 employees are eligible for paid leave through the Emergency Paid Family and Sick Leave provisions of the Families First Act effective April 1.

• Timing of payment
• Unpaid vs. paid time off
• Credit calculation and reporting on payroll return
• Required paid leave

Credit Calculation & Application

45

ERTC Credit Calculation & Application

XYZ Co. has 95 employees and has experienced a partial shutdown in its

• perations due to government orders related to COVID-19. 70 employees can

no longer perform their job due to the shutdown; the other 20 are still working.

• Timing of payment
• Unpaid vs. paid time off
• Credit calculation and reporting on payroll return
• What would be different if XYZ Co. had 150 employees?
• What if the employer receives Work Opportunity Tax Credits?

46

Scenario 1A

Q: Beginning April 1, an employer with less than 500 employees has been paying Emergency Family & Sick Leave under Families First Act. They are applying for a PPP loan under the CARES Act. How do they calculate payroll costs in applying for PPP loan? Can they pay employees under FFCRA with PPP loan money and still be forgiven? Do they still get FFCRA refundable tax credits? A: No, FFCRA paid leave will not count towards payroll costs when applying for a PPP loan. Additionally, PPP loan proceeds CANNOT be used to pay Emergency Family or Sick leave for which a tax credit is allowed.

47

Scenario 1B

Q: The same employer and fact pattern in 1A except instead of applying for a PPP loan they are considering the Employee Tax Retention Credit (ERTC) under the CARES Act. How do they calculate the credit for FFCRA and ERTC? A: Any wages paid under FFCRA that are eligible for a refundable tax credit CANNOT be used in the calculation of the ERTC credit.

48

Scenario 2

Q: An employer with less than 500 employees wants to claim the Employee Retention Tax Credit (ERTC) under the CARES Act. They are also considering applying for a PPP loan under the CARES Act. Can they claim the ERTC? Will the PPP loan still be eligible for forgiveness if the payroll tax credits are claimed? A: No, if any part of the PPP loan is forgiven, then the employer is not eligible for the ERTC. Treasury needs to issue guidance regarding how credits taken prior to receiving a PPP loan will be treated. Taking the credit may impact the amount of forgiveness or their may be a method of repayment of the credit but given the current lack of guidance, this is still unclear.

49

Scenario 3

Q: An employer with less than 500 employees wants to defer employer social security (6.2% payroll tax) remittance under the CARES Act. They also applied for a PPP loan under the CARES Act. Can they defer payroll taxes related to wages paid with PPP funds? Will the PPP loan still be eligible for forgiveness if payroll taxes are deferred? A: No, if any part of the PPP loan is forgiven, then the employer is not eligible for deferral program. Treasury needs to issue guidance regarding how deferred payments prior to receiving a PPP loan will be treated.

50

CASH AND CRISIS MANAGEMENT

51

Coronavirus Makes Cash the Priority

Working capital (cash) and cost minimization may be the priorities followed by loss recovery support Operations and workforce mgmt. will be stressed by a constricting environment that needs to preserve cash Uncertain timing and severity of the pandemic and the resulting shutdown have reduced cash on hand and future cash flows Guidance and regulations are placing new demands

• n business leadership and

affecting cash flows Business Continuity Supply and demand shock have jolted the value chain and traditional cash flows

52

Focus on Scenario Modeling and Cash Management

Form crisis team

• Executives
• CEO/President
• COO
• CFO
• Treasurer
• Talent Mgmt.
• Outside advisors
• Legal
• CPA
• Banker
• Insurance

Assess cash flow options

• Forecasting
• Real-time

dash boarding

• Multiple scenarios
• Include functional

leaders

• Operations
• Procurement
• Production
• Distribution
• Sales
• HR

Assess long-term impact

• Results of short-term
• Options
• Actual tactics
• Implications for

recovery plans

• Taxes & incentives
• Develop recovery

planning

• Bankruptcy and

restructuring options Implementation and reassessment

• Create & implement
• Dynamic planning
• Proactively manage

notifications & negotiations

• Lenders
• Vendors
• Lessors
• Workforce
• Regulatory issues
• Tax issues

A phased approach to organizational response: Tactical development

53

Liquidity Issues & Management are Paramount

Cash forecasting Develop dash boarding for current information and use multiple scenarios with short and long-term time horizons (length will depend on economy, industry sector, company) Debt and obligations Manage financial institutions versus trade creditors – e.g., A/P prioritization, lines of credit modifications, interest, payment obligations, covenants, adjustments Workforce management Staff planning, optimization, furloughs, notification requirements for salary versus wage employees, as well as impact on payroll, benefits, retirement, etc. Sales demand and mix Analyze fluctuations/changes to customer, product and channel mix and strategies Supply chain Manage supply of core goods, fluctuations in material/supply costs and updated strategy Receivables Evaluate/model current A/R collection, understand customer mix and COVID- 19 impacts, update credit strategy, assess promotion and discount initiatives Inventory management Analyze SKU level adjustments, update supplier strategy and management Economic and tax incentives Monitor closely economic relief opportunities, tax and other incentives

54

• Facts:
• Emerson Co., a domestic C Corp, will have $6,000,000 of a taxable loss in 2019

before utilizing any tax planning strategies.

• Emerson generated $10,000,000 of taxable income in 2014 and has had taxable

income ever since.

• Emerson does not presently have any tax deductions or credits that will be limited by

taxable income, nor did it in the past.

• After doing a thorough review of the trial balance and evaluating its tax accounting

methods, Emerson identified several opportunities by which it can file automatic accounting method changes to accelerate deductions to generate an additional $1,000,000 of NOLs in 2019.

• How does the use of tax planning strategies impact the NOL carryback

cash benefit?

NOL Carryback Planning Example

55

NOL Carryback Planning Example Cont.

• By claiming additional deductions by filing for automatic accounting method

changes, the taxpayer will get an additional $350K of tax savings.

• In addition as a result of the rate differential between the years, each $1 of

deductions generated at 21% is actually worth 35% when carried back to a pre-TCJA year.

In $000's As Originally Filed No Method Changes (Refund) With Method Changes (Refund) 2014 Taxable income before NOL 10,000 10,000 10,000 2019 NOL carryback (6,000) (6,000) (7,000) (7,000) 2014 Taxable income after NOL 10,000 4,000 (6,000) 3,000 (7,000) 2014 Federal tax rate 35% 35% 35% 35% 35% Total tax liability 3,500 1,400 (2,100) 1,050 (2,450)

56

Q&A

57

Q: To clarify the FMLA applies to all under 500 but now excludes companies under 50? A: Employers under 50 employees are not exempt from the expansion of FMLA. However, they can request a waiver. This is self-reporting and does not have to be given to any authority. Please see the attached as far as who can exempt and what requirements must be met and

• documented. https://www.dol.gov/agencies/whd/fmla/pandemic

Additional information on EFMLA. https://www.hrdive.com/news/dol-outlines-small-business- exemption-from-coronavirus-paid-leave-law/575141/ Q: Main Street Lending, who would be too small to apply? Is there an employee threshold? A: Employers must be smaller that 10,000 employee and the minium loan will be $1MM. The Federal Reserve requested feedback, so additional clarifications may be provided. Please monitor the Federal Reserves website.

FOCUSED.

ON YOU.

Contact:

• mdepauljr@RKLcpa.com

Visit RKL’s Coronavirus Resource Center for more updates and guidance.

QUESTIONS?

DISCLAIMER: The presenter and RKL LLP and its subsidiaries/affiliates are not held responsible for information that has changed or will change and makes no representation or warranty as to the ongoing accuracy of the information presented

• rally or in writing. Attendees should consult with legal, accounting and other advisors.

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HR HOT TOPICS

 Facemasks 101

• “Health Secretary Order Providing Worker Safety Measures to Combat COVID-19”

 Common Questions and HR Issues

 Are there exemptions for not wearing a mask? Safety reasons, medical conditions, etc.?  How to handle refusal to wear a mask by an employee  Do employers need to provide masks?

 Open Q&A

Q&A - ADDITIONAL QUESTIONS

Q: Where can you find the information on the commonwealth’s order requiring facemasks? A: April 15th, 2020 “Health Secretary Signs Order Providing Worker Safety Measures to Combat COVID-19” Q: Are employers required to provide N95 or surgical masks? Or are cloth masks sufficient? It know employee-provided masks can be cloth, but what about employer provided ones? A: Employers may provide cloth masks or homemade masks as described in the Health Order above.

ADDITIONAL QUESTIONS

Q: An employee has not been reporting to work because their claim of concern of contracting COVID-19. In communicating with the employee, he states he is high risk and claims to have been tested, but has not provided any test results or a doctors excuse. Since the employee has stopped responding to our requests for documentation and has not returned to work in a month, can we accept his non-responsiveness as a resignation? Should we fire him? How do the new labor law programs come into play? A: Employees should be given a reasonable period of time to obtain a doctor’s excuse/order. The doctor’s office can fax, email, or mail the excuse/order directly to the employer if need be. If the employee refuses to provide medical documentation in a reasonable period of time, in this case, one month, you can consider the employee to have voluntarily resigned or job abandonment. You can proceed with sending them a certified letter indicating such and letting them know that they are considered no longer employed with your company.

ADDITIONAL QUESTIONS

Q: We are allowed to remain open as “essential” however, we are not open to the public, just our office

• personnel. We are working with a minimal crew, and most work areas are much further than 6 feet away

from one another and the rest are in separate offices or very spread out. Are they still supposed to wear masks at all times? It would be hard for our customer service people to be understood clearly on the phone while wearing a mask. A: Yes. The employer SHALL: PROVIDE MASKS TO EMPLOYEES

• 1. For use during the employees time at the business, e.g. walking across the parking lot, in

bathrooms, everywhere (except when eating and drinking)

• 2. And may approve employee’s homemade masks that are made in accord with Department of

Health Guidance.

ADDITIONAL QUESTIONS

Q: Can you provide any MASK guidance on the following?

 Are there medical exemptions requiring all employee to wear them? A: Exemptions for mask wearing for employees include:

1.

Medical condition

2.

Impedes vision

3.

Creates unsafe condition to operate equipment or conduct a task

4.

Eating or drinking In all circumstances social distancing of 6 feet should be implemented Employers and employees should use common sense to avoid employee and public sickness and possibly death.  Are there any exemptions for employees alone in offices

A: Yes. https://www.health.pa.gov/topics/Documents/Diseases%20and%20Conditions/COVID- 19%20Workplace%20Safety%20Questions.pdf. However, if they leave their own office, or if someone else might enter that office, they must wear a mask.

ADDITIONAL QUESTIONS

Q: If employees say they have a medical exemption do they need to provide doctor’s note as proof? A: Not clear. However, because they are an employee, I would ask them to obtain one. This sounds like a request for a reasonable accommodation under the ADA/ADAAA, however also implicates employee safety and public health. I would give them time during work hours to obtain the doctor’s excuse/order. If you need to wait for the doctor’s office, then keep them working.

https://www.health.pa.gov/topics/Documents/Diseases%20and%20Conditions/COVID-19%20Workplace%20Safety%20Questions.pdf

Q: If they have note are they exempt from work until mask mandate is lifted? A: No. https://www.health.pa.gov/topics/Documents/Diseases%20and%20Conditions/COVID19%20Workplace%20Safety%20Questions.pdf

Q: If my employees work outside, do they still have to wear face masks? A: Yes. However, an employee does not need to wear a mask if it impedes their vision, if they have a medical condition, or would create an unsafe condition in which to operate equipment or execute a task.

ADDITIONAL QUESTIONS

Q: How do we handle an employee who refuses to wear a mask? Does this order mean I can refuse them reentry? A: The Department clearly states that they do not dictate to employers how they should manage their workforce if the employee refuses to comply with the Order. As an employer trying to protect ALL of their employees, you can proceed with disciplinary action you deem necessary up to and including termination. However, make sure that you have documented all steps taken to encourage the employee to comply with the State Order. NOTICE: The Department of Health has indicated that they will provide an employee complaint site for employees to report those employers who are not abiding by the order and potentially putting their employees at risk of exposure.

www.mascpa.org (717) 843-3891

• Mfgs. COVID-19 Update

Questions?

• Resources: http://www.mascpa.org/covid-19/
• Association Member Hotline: hr@mascpa.org