Coronavirus 2020 Payroll Update: What the Payroll Department Must Know

The COVID-19 pandemic prompted Congress to enact several significant payroll tax relief measures affecting employer obligations and employee compensation. The Families First Coronavirus Response Act (FFCRA) required employers with fewer than 500 employees to provide paid sick leave and expanded family and medical leave for COVID-19-related reasons, with offsetting tax credits available against employer payroll taxes. The CARES Act introduced an employee retention credit (ERC) for employers that retained employees despite COVID-19-related business disruptions, as well as a provision allowing employers to defer the deposit of the employer's share of Social Security taxes. The CARES Act also allowed employers to pay up to $5,250 of employee student loans tax-free as an excludable employer benefit. These provisions had specific eligibility requirements, claim procedures, and accounting implications that payroll departments needed to navigate carefully. While most of these programs have expired, payroll professionals should be familiar with the rules applicable to the relevant tax years, particularly for ERC claims, which remain subject to audit. Aurora Training Advantage's payroll compliance webinar series provides comprehensive guidance on these and other regulatory developments affecting payroll administration.

The Families First Coronavirus Response Act (FFCRA), effective April 1–December 31, 2020, required private employers with fewer than 500 employees to provide two forms of COVID-related paid leave. Emergency Paid Sick Leave provided up to 80 hours (two weeks) of paid sick time at the employee's regular rate (or two-thirds for certain qualifying reasons) for specified COVID-19 situations including being subject to a quarantine order, experiencing COVID-19 symptoms, or caring for a quarantined individual. Emergency FMLA Expansion provided up to 12 weeks of leave (the first two weeks unpaid, the remaining 10 at two-thirds pay, capped at $200/day and $10,000 total) for employees unable to work due to caring for a child whose school or childcare provider was closed due to COVID-19. Employers were entitled to a refundable payroll tax credit equal to 100% of qualified sick and family leave wages paid, claimed against the employer's share of Social Security taxes. The ARPA extended and expanded these voluntary leave credits through September 30, 2021, broadening qualifying reasons to include vaccination-related leave. Aurora Training Advantage's payroll update webinars help payroll professionals understand these provisions for ongoing compliance and retroactive claim purposes.

The Employee Retention Credit (ERC) was a refundable payroll tax credit created by the CARES Act to incentivize employers to retain employees during COVID-19-related business disruptions. For 2020, eligible employers could claim a credit of 50% of qualified wages up to $10,000 per employee (maximum $5,000 per employee for the year). For 2021, the credit expanded significantly to 70% of qualified wages up to $10,000 per employee per quarter (maximum $28,000 per employee for the year). Eligibility required either a full or partial suspension of operations due to a governmental order related to COVID-19, or a significant decline in gross receipts—defined as a 50% reduction in 2020 (compared to the same quarter in 2019) or a 20% reduction in 2021. Employers who received PPP loans could also claim the ERC after ERTCA clarification, with coordination rules applying. Importantly, eligible employers can still file amended payroll tax returns (Form 941-X) to claim the ERC retroactively—the statute of limitations extends five years for 2020 claims and three years for 2021 claims. However, the IRS issued a moratorium on new ERC claims in late 2023 due to widespread fraudulent claims, and the program is subject to heightened audit scrutiny. Aurora Training Advantage's payroll compliance webinars provide current guidance on ERC eligibility and documentation requirements.

The CARES Act allowed employers to defer the deposit of the employer's share of Social Security taxes (6.2% of wages) for the period from March 27 through December 31, 2020. The deferred amount was required to be repaid in two equal installments: 50% by December 31, 2021, and the remaining 50% by December 31, 2022. Employers who did not repay on time became subject to failure-to-deposit penalties on the original deferred amounts. Self-employed individuals were also eligible for a similar deferral of 50% of self-employment tax. Separate from employer deferrals, the CARES Act also authorized an executive order that allowed for deferral of the employee share of Social Security taxes (4.2%) from September 1 through December 31, 2020—but most major employers did not implement this because repayment was required through increased withholding in early 2021, creating payroll processing complexity. Payroll departments that implemented the employer deferral should have tracked the deferred amounts separately and ensured that all required repayments were made by the applicable deadlines to avoid interest and penalties. Aurora Training Advantage's payroll webinar programs help payroll professionals understand these provisions and their ongoing compliance implications.

The COVID-19 pandemic fundamentally altered payroll department operations and created significant new compliance challenges around multi-state taxation and remote work. As employees began working from home across state lines—often temporarily but sometimes permanently—payroll departments were forced to address the question of which state's income tax withholding, unemployment insurance, and workers' compensation laws applied to each employee. Many states issued temporary guidance waiving nexus implications for employees temporarily working remotely due to COVID-19, but these waivers were time-limited, creating complex transition planning requirements. Operationally, payroll departments had to quickly adapt to fully remote processing environments, often without the physical document workflows and internal controls they relied on. Electronic I-9 verification, digital payroll approvals, and remote notarization became necessary accommodations. The rapid deployment of emergency relief programs—including implementing FFCRA leave tracking, calculating ERC credits, and managing PPP loan interactions with payroll—imposed extraordinary demands on payroll staff with minimal lead time. These challenges accelerated adoption of cloud-based payroll systems and highlighted the importance of documented, technology-enabled payroll processes. Aurora Training Advantage's payroll compliance webinar series helps payroll professionals adapt to the evolving regulatory and operational environment.