What to Expect During a Federal Government Shutdown
Below is a summary of the immediate changes you can expect in the case of a federal government shutdown.
With the possibility of a government shutdown at midnight on December 20, 2024, we have outlined key areas of potential impacts to your HR operations, along with important employer obligations.
Background
The federal government receives funding through a legislative process in which Congress enacts appropriations legislation. When Congress does not enact the necessary appropriations bills prior to the start of the fiscal year, legislative measures may be used to ensure that there is no lapse of funding for agency operations. One such mechanism is through the enactment of a "continuing resolution" - a process to fund the federal government, typically at previous years' levels, for some or all federal agencies over a defined period of time. A continuing resolution may be used to fund the government for as little as a few days up to an entire year. During a government shutdown, nonessential government services are halted.
Congress passed a continuing resolution on September 25, 2024 to extend funding and avert a government shutdown through December 20, 2024. There has not yet been an extension of this continuing resolution, thus government spending is set to lapse at 12:01 a.m. EST December 21, 2024.
Below is a summary of the immediate changes you can expect.
Internal Revenue Service
Taxpayer services including responding to taxpayer questions, the processing of nonautomated collections and refunds are examples of areas that would likely be impacted. If you are an ADP® client:
Electronic output will not be affected. Payments of agency notices, amendments, tax deposits, tax return filings, and other electronic output will continue to be submitted timely.
Statute of limitation cases will continue to be processed. To ensure compliance, ADP will process cases within the statute of limitations as defined by federal regulations.
Agencies will be unable to process paper documents during the closure. To minimize the risk of document losses, ADP will hold non-essential notice responses, paper amendment and exception returns, and penalty removal or appeal requests, and send them to the agency once normal business operations resume.
Agencies will be unable to support incoming calls. To assist employers with important federal agency inquiries, ADP will prioritize the resolution of these cases with the agency once normal business operations resume.
Immigration, Form I-9 and E-Verify
Although the U.S. Citizenship and Immigration Services (USCIS) may continue to operate, it will likely not do so at full capacity. This may temporarily impact employers seeking to sponsor employees for work authorization purposes because processing may be delayed. Travel may also be impacted if consulates and embassies operate at reduced capacity therefore impacting the processing of travel visas.
You might be considering an employee furlough, reduction in pay or change of work hours due to the impact of a shutdown on your operations (see Government Contractors below). Such actions, if applied to employees you have sponsored for employment authorization, might conflict with your sponsorship responsibilities. You should consult with your immigration counsel before acting.
During a government shutdown, employers must continue to comply with Form I-9 requirements including the requirement to complete the Form I-9 within three business days. ADP electronic I-9 systems will remain operational. However, employers currently enrolled in E-Verify may find that E-Verify is unavailable. This means that employers will be temporarily unable to create new E-Verify accounts or submit cases to E-Verify. In addition, management of existing E-Verify cases will not likely be available, even for cases created prior to the shutdown.
Under normal circumstances, employers must process new employees through E-Verify within three business days. You can likely expect a temporary suspension of the "three-day rule" for E-Verify cases due to the unavailability of E-Verify.
If you have previously processed an employee through E-Verify and the employee has received a tentative non-confirmation (TNC), USCIS will potentially extend the period during which employees may resolve TNCs (10 days) based on the number of days E-Verify is unavailable. You should not take any adverse action against an employee because the E-Verify case is pending or in an interim case status due to the unavailability of E-Verify.
USCIS has previously confirmed that qualifying employers may continue to use the new alternate document review process for remote Form I-9 document verification if E-Verify is temporarily unavailable due to a government shutdown.
Government Contractor Considerations
During a government shutdown there is the possibility of the government issuing stop-work orders. You should consult with your contracting official as soon as possible to help determine the impact to your contract and to obtain work status updates as needed. You should also keep in mind your legal obligations to employees. We have outlined the key issues below.
Wage and Hour Requirements - Closures and Furloughs
As mentioned above, during a shutdown, government agencies are likely to furlough government employees. The same might be true for government contractors. There are requirements relating to non-exempt and exempt employees pursuant to the Fair Labor Standards Act (FLSA) that should be considered. Employers should check state and local requirements for any additional obligations.
Non-Exempt Employees – The FLSA provides that non-exempt employees must be paid for all hours worked, plus overtime when working more than 40 hours in a work week. Conversely, they do not have to be paid for any non-worked hours even if the absences were required by the employer due to a business slowdown or office closure.
Salaried Exempt Employees - The FLSA rules are different for salaried exempt employees.
In circumstances involving furloughs or office closures, exempt, salaried employees classified under the administrative, executive or professional exemption generally must receive their full salary in any week in which they perform any work, subject to limited exceptions.
Paying a partial salary based on, for example, a furlough that occurs mid-week, could result in the employee losing their exempt status for that workweek and the employee then being entitled to overtime pay. Other employees in the same job class reporting to the same manager may also lose their exempt status under certain circumstances.
Exempt salaried employees are not required to be paid their salary in weeks in which they perform no work, even if they were ready, willing and able to work but the employer ordered the employee not to work due to a closure or furlough.
Where an employer offers a bona fide benefits plan or vacation time to its employees, there is no FLSA prohibition on an employer requiring that such accrued leave or vacation time be taken during a closure or furlough. Therefore, an employer may direct exempt staff to take vacation or debit their leave bank account in the case of an office closure or furlough whether for a full or partial day, provided the employees receive in payment an amount equal to their guaranteed salary for any week in which any work was performed. Employment contracts, handbooks and published policies should be reviewed to ensure the terms do not prohibit the employer from forcing the use of accrued leave or vacation time.
In the same scenario, an exempt employee who has no accrued benefits in the leave bank account or has limited accrued leave and the reduction would result in a negative balance in the leave bank account, still must receive the employee's guaranteed salary for any absence(s) occasioned by the office closure in order to remain exempt from overtime.
In jurisdictions with statutory paid sick leave employers generally cannot require the employee to use paid sick leave where the absence is not caused by an actual illness.
For more information on furloughs and options under the FLSA review this factsheet from the U.S Department of Labor.
You should review your government contract and consult with counsel before making any changes to employees' compensation.
Wage and Hour Requirements – Advance Notice of Changes in Pay
Under the FLSA, notice of any changes in pay should be provided in advance of the pay period in which the change will occur. Additionally, employers should check state and local requirements regarding advance notice of employee schedules and any changes in pay.
Wage and Hour Requirements – Final Paychecks
Some states have final paycheck laws that may be implicated. For example, in California, a furlough longer than 10 days or a normal pay period (if shorter) should be considered a layoff. If it is a layoff (i.e., no work for longer than 10 days or a normal pay period), final wages and all accrued but unused vacation and paid time off (PTO) must be paid out immediately. If final wages and accrued but unused vacation and PTO are not paid out, the employer may owe waiting time penalties.
The WARN Act
Furloughs may implicate the federal Worker Adjustment and Retraining Notification (WARN) Act and its state equivalents.
The WARN Act requires employers with 100 or more full-time employees (not counting workers who have fewer than 6 months on the job) to provide at least 60 calendar days advance written notice of a worksite closing affecting 50 or more employees, or a mass layoff affecting at least 50 employees and 1/3 of the worksite's total workforce or 500 or more employees at the single site of employment during any 90-day period.
However, WARN notifications would not be required if (i) a furlough is temporary and the intent is for the employees to return to their jobs on a definite date; and (ii) the furlough does not extend beyond 6 months. If WARN notice is required, federal WARN also permits delayed notice in the case of unforeseeable business circumstances. However, employers must also review state law because some states have mini-WARN laws, which may be more onerous than federal WARN. For example, there is no "unforeseen business circumstances" exception in California's mini-WARN law.
It's unlikely that a government shutdown will exceed six months. Therefore, the federal WARN Act may not apply.
Benefits Issues
Employers must review their benefits and other policies to determine what, if any, impact furloughs or reduced hours will have and what they need to do if they are going to "bridge the gap." Employees who will have benefits discontinued will likely need to receive COBRA notice.
Unemployment Benefits
Furloughing employees may make the employee eligible for unemployment benefits depending on state law.
This information is intended to help you navigate this time. If you are an ADP client, please reach out to us for any support we can provide.
ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.
ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of employment-related payroll, tax, HR and benefits, so that you can focus on running your business. This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. ADP encourages readers to consult with appropriate legal and/or tax advisors. Please be advised that calls to and from ADP may be monitored or recorded.
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Updated on December 20, 2024
