COVID-19 is causing major disruption in all of our lives and will likely get worse before it gets better. The crisis affects all industries. For the food and beverage industry, labor and supply chain disruptions offer many challenges. In particular, restaurants are in varying states of collapse. This industry is the country’s second largest private employer with 15.6 million workers.

Many food and beverage companies may be expecting at least a 60 percent reduction in sales volume in March and April and most will be facing possible layoffs and staff furloughs in the immediate future. In addition, the federal government has stopped conducting visa interviews for temporary farmworkers from Mexico who want to work in the United States — a move that could disrupt America’s supply of fresh fruit and vegetables.

All food and beverage companies are looking for ways to survive. In this blog, I am focusing on several sources of immediate assistance that are or will be offered to these companies in the immediate future.

Federal and State Income Taxes

GHJ previously released several Tax Alerts that directly affect food and beverage companies. Tax updates include changes to both federal and state tax filing and payment extensions. For more information, please see:

Los Angeles Mayor’s Public Order to Remain Home

As of March 19, 2020, Mayor Eric Garcetti issued a Public Order Under City of Los Angeles Emergency Authority. Under this act, all persons living within the City of Los Angeles have been ordered to remain in their homes. In addition (subject to certain exceptions), all businesses within the City of Los Angeles are ordered to cease operations that require in-person attendance by workers at a workplace. To the extent that business operations may be maintained by telecommuting or other remote means (while allowing all individuals to maintain shelter in their residences), this order does not apply to limit such business activities.

For the food and beverage industry, exemptions include businesses providing essential services or supplies, including groceries stores, warehouse stores, establishments engaging in the retail sale of food products or provide food to the retail sector and, lastly, restaurants and retail food facilities that prepare and offer food to customers but only via delivery, pick up or drive-through.

As a result, many food and beverage companies will be experiencing tremendous reductions in their current business operations, including layoffs and furloughs, and while the current situation is fluid at this time, I have listed several discussion topics that may be helpful.

Business Interruption Insurance

As a consequence of the recent governmental travel advisories/restrictions and increasing public fear over contraction of COVID-19, food businesses may experience significant disruptions.

Business interruption insurance may include coverage for these income losses.

Typically purchased as part of a company’s commercial property insurance policy, business interruption insurance is intended to protect businesses against income losses sustained as a result of disruptions to their operations.

Contingent business interruption coverage similarly provides insurance for financial losses resulting from disruptions to a business’s customers or suppliers, usually requiring that the underlying cause of damage to the customer or supplier be of a type covered with respect to the business’s own property.

Please check as soon as possible with your insurance carriers about possible losses with respect to business income losses sustained when a “civil authority” prohibits or impairs access to the policyholder’s premises. Various legislative bills are being introduced that may assist companies who have suffered losses as a result of business interruption.

Work Furloughs and Layoffs

Please check with your labor attorney as soon as possible about the difference of either laying off employees or utilizing a work furlough. Labor laws may and will be different for each state. In general:

  • Non-Exempt Employees. For food and beverage companies, non-exempt employees can be scheduled for fewer days or hours without liability concerns. Employers are not required to pay non-exempt employees for time not worked. A few states may require compensation if an employee reports to work and is sent home, but otherwise time off for non-exempt employees does not need to be compensated.
  • Exempt Employees. Exempt employees involve a more difficult analysis when considering furloughs or reduced hours as an alternative to layoffs. Employers should be aware that exempt employees under federal law and most state laws must be paid the same minimum salary for each pay period. Moreover, if an exempt employee performs any work during a workweek, that exempt employee must receive their entire salary that week. Failure to compensate an exempt employee for a week where any work is performed jeopardizes that employee’s exempt status.
  • Furloughed Employees. When employees are furloughed, employers should expect that they will not work, including checking email and voicemail. An exempt employee is entitled to pay for any workweek in which they perform any work. Employers should therefore inform employees that work is not authorized during the furlough period without advance written approval. Employers also should notify non-exempt employees about the same issue, as non-exempt employees generally are entitled to compensation for performing work when not in the office.
  • Unemployment Benefits. Unemployment benefits will vary by state, and there may are also waiting time periods in place before benefits are provided. However, Gov. Gavin Newsom has announced that the standard one-week benefit gap has been waived if the job cuts were caused by the COVID-19 situation. Consider reviewing unemployment eligibility in the various states where operations will be impacted and including some sort of statement within the furlough notice. Employers may be able to structure furloughs to maximize unemployment benefits to employees.
  • Restrictions on Visas for Farmworkers. As I mentioned above, the federal government has stopped conducting visa interviews for temporary farmworkers from Mexico who want to work in the United States. This may cause significant disruption to the supply chain for food and beverage companies. The temporary visa program for farmworkers, known as H-2A, is not entirely halted, however. Guest workers from Mexico who previously came to the U.S. under the program can be granted interview waivers and be allowed to return if their visas expired within the past 12 months. But federal officials told growers that they would stop processing H-2A visa applications from new workers, according to USA Farmers, a group representing H-2A employers, and the Western Growers Association. The U.S. Agriculture Department said that it is currently working with the State Department to “ensure minimal disruption” in the processing of H-2A applications.

The Stimulus Bill

The senate finalized a trillion-dollar stimulus bill to assist companies from collapsing under the ravages of COVID-19. It is expected that this bill will provide relief to many, if not all, small businesses currently engaged in the food and beverage industry. Major discussion points aimed to assist individuals and businesses large and small include the following:

  • One-time cash payments of $1,000 (or more) for each eligible wage earner
  • Expansion of unemployment benefits
  • Corporate tax reductions

Small Business Loans

Food and beverage companies should speak to your banker as soon as possible and have an open and transparent dialog about how the current situation is affecting your business. Banks are willing to work with your company and want to be kept up to date on how your company intends to operate in the immediate future. They can’t help you if they don’t know your situation.

In addition, the federal government’s Small Business Administration (SBA) is offering up to $2 million in Economic Injury Disaster Loans for small businesses in eligible areas impacted by COVID-19. Please see the SBA resource page for eligibility and how to apply.

For Los Angeles, the City’s Small Business Emergency Microloan Program is offering loans ranging from $5,000 to $20,000 with zero to 3-percent interest rates.

With respect to private and nonprofit companies assisting food and beverage companies, the James Beard Foundation started a Food and Beverage Industry Relief Fund to provide micro-grants to independent food and beverage small businesses in need. Additionally, the Restaurant Workers’ Community Foundation formed a COVID-19 Emergency Relief Fund for small businesses and their restaurant workers and is accepting donations.

Results of the Impact of COVID-19 on Food Processors

Food Safety Magazine just released a survey of 330 food companies requesting their input on how COVID-19 was affecting their current business operations. The results of the survey are very interesting, including questions raised over the concern of travel bans on employees, the effect of increased or decreased production and the ability to operate in the future under current conditions. I found that the most interesting question and results were in the area of changing food demand. Although 37 percent of respondents have seen an immediate decrease in sales, another 24 percent have experienced increases (those processors in the area of dry goods, rice, dry beans and other ingredients). See the full study results here for more information.

The Food and Beverage Practice at GHJ will continue to monitor the situation and is available to assist you and answer questions as needed. Please do not hesitate to reach out to your GHJ accountants and business advisors so we can support you and your business.

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Donald Snyder

Donald Snyder, CPA, has more than 30 years of experience in public accounting. He provides audit, accounting and advisory services to clients in numerous industries, including food and beverage, restaurant, manufacturing, wholesale/distribution and technology. Donald is a well-known business…Learn More