We recently posted information and links regarding some of the rules for practices that need to shut down temporarily and have their staff (and themselves) collect unemployment.
The Mass Dental Society put out a great memo on Staffing Considerations in Connection with a Temporary Office Closure available at: https://schwartzaccountants.com/wp-content/uploads/2020/03/Mass-Dental-Society-Temp-Office-Closing-Guide.pdf.
Since emailing that information to our clients and posting that information on our firm?s blog (https://schwartzaccountants.com/blog/), we have received a lot of questions about filing for unemployment, including these two:
Client question #1: Can I apply for unemployment in an S Corp if my business closes for 2 weeks?
Practice owners who are paid as W2 employees can generally lay themselves off and collect unemployment. The downside to this strategy is that your practice will probably need to repay an unemployment benefits you take. That is accomplished by your practice being assessed higher unemployment rates in the future. Most practices in Massachusetts seem to pay unemployment at a rate of 1%-3% on the first $15k earned by each employee. We?ve seen rates jump to over 10% following a layoff.
The benefit to the practice owner is that you get valuable cash flow now. Even though you will probably need to repay the system for money taken out as unemployment benefits, the money received now is pretty much an interest-free loan to you. Plus, if the government waives the requirement during this challenging time that businesses need to repay unemployment benefits paid from your ?account?, then you probably want to file for unemployment since no repayment of benefits would be required.
Lastly, when you purchase a practice, you take over the unemployment account from the Seller. So if the practice you acquired had no layoffs or very few layoffs over the years, your account at unemployment might be much more robust than you are aware.
Client question #2: I am planning on paying out my staffs PTO and possibly adding in a small bonus for my employees this week. It?s an off week so will need to add in a check. How will this affect their unemployment checks? I thought that there was an exception for PTO etc with no hours worked?
Response by HR specialist Laurie LaBrie: If you pay it out, they won’t be able to collect unemployment during that time and it may cause complications. You have to be careful about giving them straight money because it looks like the wages were not reduced. If an employer says, “you used to make $1200 and I know UI is paying you $600. I’ll pay you an additional $200 in bonus because you can make that and not impact your UI. That way you’ll at least get a total of $800 per week while out on furlough.” On audit, UI will say your employee didn’t lose $1,200 in wages because you were giving them $200 each week. Therefore your employee only lost $1,000 in wages and should have only gotten $500. They go after the employee for the extra $100. Once we get through the spike in Covid-19 cases, we are going to be dealing with an accounts receivable slow-down. I would give out cash to employees only as required.
Please post your questions and we?ll be glad to respond and help everyone figure this out together.