There are two new California employment laws in response to the COVID-19 pandemic. They both provide tax relief to California businesses, as well as new jobs to Californians. Based on the businesses hiring practices of the business, there are significant tax advantages associated with both programs. Here are the details.
California Tax Credit for Small Business Hiring
One of the California employment laws applies to California small businesses that lost at least half their gross receipts during the height of the pandemic. These businesses can get a $1,000 tax credit for every full-time employee they hire by the end of November 2020.
The tax credit applies to any business that had fewer than 100 employees before the pandemic began, and had gross receipts fall 50% in the second quarter of this year compared with the same quarter in 2019. A business that meets this criteria can reserve a $1,000 credit for each full-time employee hired between July 1 and November 30, up to a maximum of $100,000.
Businesses must claim this credit on their original state tax return for 2020, but they can carry the credit forward through 2025. It can also be applied to sales and use tax liabilities if they do not owe income tax. Business must apply through an application to the Franchise Tax Board. State funding for the credit is capped at $100 million.
ETP COVID Employee Training Program Pilot
A second California employment law providing business tax relief is through the Employment Training Panel (ETP), an Employment Development Department (EDD) agency. They offer a $2,000 bonus for each employee hired during the two years of the COVID Rapid Reemployment and Retraining Pilot (COVID Pilot) program. The two years starts on the date when the employer’s application for the grant is approved by the ETP. Only specific industries can participate. The NAICS code assigned to a company by the EDD determines a company’s qualification for the program. The three primary sectors are health care, food manufacturing, and medical device manufacturing.
The program has limited funding and will be on a first-come, first-served basis. Therefore, the timing could be critical.
Eligible NAICS Codes
To have eligibility for the EDD Employment program, an organization has to have a specific NAICS code. All NAICS codes have six digits. If a category has fewer than six digits, it includes every category starting with those digits. The eligible NAICS codes are:
Healthcare – 62
Medical and Pharmaceutical manufacturing – 3254
Pharmacies – 44611
Medical Equipment manufacturing – 3391
Measuring Device manufacturing – 3345
Agriculture – 11
Testing Laboratories – 541380
Beverage Manufacturing – 3121
Food Manufacturing – 311
Food and Beverage Stores – 445
Soap and Toilet Paper Manufacturing – 3256
The application process can be extensive, which is why many companies utilize a third-party administrator to manage the process for them.
Approval of Applications
The program will begin once it has received approval for the application. It may be October before there will be any approvals for the first application round. The bonus applies to anyone hired from 90 days before the application’s receipt until the project’s end. This means employees hired in July will have eligibility for the initial set of approvals.
The Employment Training Panel will approve specific sums of money for every company based on its application. Following approval, it will sequester the money and only make it available to the company in question.
For an employee to be eligible for this program, he or she must receive at least $17.50 per hour. This amount may include the employee’s hourly wage plus the company’s contribution to his or her medical benefits, up to a maximum of $2.50 per hour.
For the employer to receive the money, the company must hire the employee before receiving four hours of training. The employee must then remain with the organization for 90 days. After completing the four training hours, the company can request $1,500 of the total $2,000. When the employee has stayed for 90 days, the company can have the remaining amount sent. There is a caveat to this. If the business receives the $1,500, but the employee fails to remain for 90 days, the company will not have “earned” the money. The ETP will adjust the payment. The ETP will then credit the funds the company has already received against the next qualifying person.
Employees must enroll in the system to ensure companies are not claiming money for anyone who is not an employee. For enrollment, employees must provide their Social Security numbers.
For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).