Growing concern over the spread of the coronavirus means that employers should have an effective disaster-recovery and business-continuity plan for payroll departments.
The virus, which causes the respiratory disease COVID-19, has spread across the globe after it was first reported in China on Dec. 31, 2019, the World Health Organization said. More than 97,000 cases have been identified as of March 5, including nearly 200 in the U.S., the Johns Hopkins Center for Systems Science and Engineering said. There have been about 3,500 deaths worldwide, said the center, which provides updated information on the virus compiled by the World Health Organization, the Centers for Disease Control and Prevention, and other agencies.
“The coronavirus is unique in that it has penetrated many countries globally,” Brent Gow, managing partner at BRGow & Associates LLC, said March 4 in an email to Bloomberg Tax. “In the United States, many states have individuals with the virus, which may impact the ability for employees to work in an office setting if a significant population becomes infected.”
Disruptions can have serious effects on payroll processing if adequate staffing is not available, Gow said. Among the complications are missed or late payrolls; delayed third-party payments; potential federal, state, and local regulatory violations; and contractual breaches, such as with unions, he said. Additionally, employee morale and productivity may suffer, he said.
Planning is a key part of payroll operations to ensure the accuracy and timely processing of employee paychecks. The goal in developing a contingency plan is to minimize disruptions to payroll processing, especially during natural disasters and medical emergencies. Dozens of natural disasters have occurred in the U.S. over the past decade, including hurricanes, tornadoes, flooding, and severe drought. In 2009, the World Health Organization categorized a new strain of the H1N1 virus as a pandemic.
Cyberattacks, service interruptions, mechanical failures, riots, labor strife, arson, and acts of terrorism also can trigger disaster-recovery responses.
Natural or man-made disasters do not excuse employers from Fair Labor Standards Act rules to properly pay employees and preserve wage and hour records. FLSA minimum wage and overtime requirements “are not subject to waiver during natural disasters and recovery efforts,” the Labor Department said in a 2019 fact sheet.
A business that stays open during a disaster must pay FLSA-nonexempt workers at least the federal minimum wage for all hours worked and time and one-half for hours worked in excess of 40 in a week. The employer also must pay FLSA-exempt workers their full salary regardless of hours worked.
Additionally, employers may be required to compensate employees who are required to stay on call at or near the workplace or to wait at work, such as to restart the computer system. Call-back pay may be required after an employee is asked to return to work to perform duties after the end of a regular shift. The FLSA does not cover all employment issues, but many states do, so local regulations may come into play.
An employer also is not required to pay full salary for the weeks that an exempt employee takes unpaid leave under the Family and Medical Leave Act. This could be a consideration in a disaster because the FMLA allows employees to take leave for a serious health condition caused by a pandemic, just as the Occupational Safety and Health Act allows employees to refuse to work in conditions they believe are unsafe.
Developing a Plan
The overall plan is made up of two parts--emergency management and continuity planning, Gow said. For the emergency component, the employer must be able to “continue critical business processes within a predetermined period following a disaster or other business interruption,” said Gow, CPP, chairman of the Bloomberg Tax & Accounting Payroll Advisory Board. Regarding continuity, the employer must be able to resume normal business processes within a predetermined period following a disaster or other business interruption, he said.
“Companies should be establishing their computer systems to enable employees to work from home through VPN [virtual private network] or similar system,” Gow said. “This will allow employees to access their network drives from home as well as log into their computers at work from home.”
The first step is to form a team to develop a business continuity plan that includes these disaster-recovery procedures. Team members should include representatives from payroll and other departments, such as human resources, finance benefits and compensation, legal, operations, information and technology, communications, and public affairs, Gow said.
Payroll team members should identify the processes that are critical to paying employees and fulfilling tax and filing obligations. The team should perform a workflow analysis to determine staffing needs and to assess the risk of failing to complete the tasks.
The potential effects of an external interruption on business processes should be identified, Gow said. Employers should conduct a risk-assessment survey with employees and evaluate disaster scenarios based on probability and risk, he said.
In continuity planning, Gow said, employers should be concerned with two key components: recovery-time objective, which is the amount of time it takes to recover from a disaster, and recovery-point objective, which is the amount of data, measured in time, that can be lost in a disaster.
In some cases, a disaster can damage or destroy electronic timekeeping systems and records, but that does not absolve employers from recording workers’ hours. However, recordkeeping does not need to be electronic. Time and attendance can be tracked using handwritten sheets. The FLSA allows records to be kept in any form, but they need to be accurate, complete, comprehensible, and kept safe and accessible.
“Determine system requirements that are available to monitor log-in and log-out times for hourly based employees, especially to monitor overtime requirements,” Gow said. “This is common for employees working on a call center from home--their time is tracked through the phone system. This can also be used to track absent records for employer-paid sick-leave requirements or other similar paid absences.”
For FLSA-covered employees, records must be kept for two to three years, with additional requirements for groups such as tipped employees, home workers, and hospital employees.
Basic employment and earnings records that support employees’ work hours and wage additions or deductions, and the basis for determining wages, generally is held for two years. Information such as name, address, birth date, sex, job, workweek, rate of pay, workday and workweek hours, agreements, and certificates is held for three years.
Employers should consider alternatives for wage payments, such as check printing, a manual process for paper checks, and payroll debit cards, Gow said.
• Temporary office space. Interim office space, such as hotel conference rooms or corporate warehouses, can be optimized if the workplace is inaccessible. An agreement with the owner or the space should be signed, giving the employer the right of first access in a disaster.
• Backup files. The ability to access backup payroll and employee information files is a key part of a recovery plan. These files should be stored away from the employer’s main facilities to ensure that they are accessible after a disaster strikes. A cloud-based data storage system could be useful for payroll professionals after a disaster. Cloud systems store programs and data over the internet rather than on a computer’s hard drive, making the information accessible outside business headquarters.
• Equipment rental. Arrange for the rental and installation of temporary office equipment, such as desks, chairs, computers, and phone lines. Such an arrangement could prove invaluable if payroll equipment becomes unusable or if businesses are flooded or otherwise damaged.
• Temporary housing. If employees are required at an interim office, temporary living arrangements should be made, along with alternate means of transportation to and from the interim office.
• Employee safety. Keeping employees safe and knowing their whereabouts is a big concern in an emergency. Managers always maintain a list of employee home and emergency phone numbers as well as a list of general emergency numbers.
• Communication. A copy of the continuity plan should be provided to employees before a disaster strikes. The plan should be revisited at least once a year and tested and revised as needed.
“Be sure to communicate your company absence policies as noted in the employee handbook,” Gow said.
(Updates with comments and new information on coronavirus cases.)