Families First Coronavirus Response Act (FFCRA)
This legislation requires employers of less than 500 employees to provide paid time off for workers affected by the Coronavirus. The benefits provided to employees under the FFCRA are in addition to those otherwise provided by the employer. Under the FFCRA, full-time
employees will be entitled to up to 80 hours of paid time off and part-time employees up to the number of hours they typically work over a two-week period.
Employees will be able to take time off with pay if they are unable to work or tele-work, and their benefits will be determined by the reason they are unable to work.
If an employee is unable to work for the following reasons, they are to be paid their regular rate of compensation for up to 80 hours (two weeks) limited to $511.00 per day and $5,110.00 in the aggregate:
The employee is subject to a governmental ordered quarantine or isolation order;
The employee has been advised by a health care provider to self-quarantine due to Coronavirus concerns; or
The employee is experiencing Coronavirus symptoms and is seeking a medical diagnosis.
If an employee is unable to work for the following reasons, they are to be paid at least 2/3 of their regular rate of pay for up to 80 hours (two weeks) with a limit of $200.00 per day and $2,000.00 in the aggregate:
The employee is caring for an individual who is subject to a quarantine or isolation order, or who has been advised by a health care provider to self-quarantine;
The employee is caring for a child if a school or place of care has been closed due to
Coronavirus; orThe employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.
There are things that every employer should note:
The employee cannot be required to utilize other paid leave before seeking leave under the FFCRA;
Employers cannot require the employee to search for or find a substitute worker;
Employers can require employees to follow reasonable notice procedures after the first day of leave;
Emergency paid sick leave will not carry over from one year to the next;
Small businesses with fewer than 50 employees may qualify for an exemption to provide leave due to school closings and child care unavailability if the leave
requirement would jeopardize the viability of the business; andPerhaps most importantly, employers cannot retaliate or discriminate against an employee in any way for using emergency paid sick leave, filing a complaint, or testifying in any action brought under the FFCRA.
Under the FFCRA, employers will be able to recover amounts paid for emergency paid sick leave through a tax credit applied to certain taxes under the Internal Revenue Code for each calendar quarter equal to 100% of the amount of leave paid during that quarter. Leave payments will not be considered wages for employer taxation purposes. Self-employed individuals may also be entitled to a tax credit for a “sick leave equivalent amount” or “family leave equivalent amount” due to being unable to work for the reasons listed above. For more detailed explanation of the tax ramifications, we recommend that you consult with your tax professional.
Emergency Family and Medical Leave Expansion Act (EFMLEA)
The EFMLEA expands the current Family and Medical Leave Act (FMLA). It now provides leave for employees of employers with less than 500 employees. To be eligible for leave
under the EFMLEA, the employee must have been employed for at least 30 days (or 30 of the 60 prior to a layoff if rehired). Under this Act, employees are eligible for up to 12 weeks of leave due to school closings and unavailability of child care. If leave is taken under the EFMLEA, the employee is eligible for the following:
First 10 days: The employee can elect to substitute any accrued vacation, personal, medical or sick leave, including emergency sick leave (FFCRA leave); and
After the first 10 days: Leave must be paid at an amount not less than 2/3 of the employee’s regular rate of pay based on the number of hours the employee would normally work; however, the employer is not required to pay more than $200.00 per day or $10,000.00 in the aggregate per employee.
The EFMLEA provides job protection and restoration rights to the employee by requiring the employer to return them to their position at the end of the leave or an equivalent position with equivalent pay, benefits and terms. There are exceptions to that requirement for employers of less than 25 employees.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
The CARES Act is the legislation that you hear a lot about because it provides direct payments to American tax payers. However, there are benefits for business and
employers as well. Among those benefits are:
Employers may be able to delay payment of 2020 payroll taxes until 2012 and 2022;
Net operating loss rules are changed, lifting the 80% rule and allowing carry backs for five years;
Excess loss limitation rules for pass-through entities (S Corps, LLCs, partnerships) are
suspended;Interest expense limitations are increased to 50% from 30% for tax years beginning in 2019 and 2020; and
Of significant note to most businesses is the loan program known as the Paycheck Protection Program.
Paycheck Protection Program
The Paycheck Protection Program (PPP) is a $350 billion program intended to provide small businesses with eight weeks of cash flow assistance through federally guaranteed loans that are potentially forgivable. The funding is meant to help retain workers, continue payroll, and cover rent, mortgage and utility expenses. The loans are to cover certain expenses dating from February 15, 2020 to June 30, 2020. It is available to self-employed individuals.
The Paycheck Protection Program is an extension of the SBA 7(a) program, but differs from the SBA’s disaster loan program in that the money can only be used to pay payroll expenses, rent, mortgage interest, and utility expenses. The program will be subject to SBA rules that have not yet been written, and subject to implementation by participating banks. Therefore, the following is based on information currently available.
To qualify for a PPP loan, your business has to have no more than 500 employees (subject to certain exceptions), and you have to certify that (i) you intend to use the money to retain workers, maintain payroll, or make rent, mortgage, or utility payments, and (ii) that the “uncertainty of current economic conditions makes necessary the loan request” to support your ongoing business operations. You do not have to show that you cannot borrow elsewhere.
The loans are unsecured and no personal guarantee is required. Loan terms are negotiable, but interest is capped at 1% and repayment, if repayment is required, can be over a period as long as ten years. Guaranty fees are waived. Loan amounts are based on the average monthly amount from the one-year period before the date of the loan, with a maximum of
2.5 times the average monthly “payroll costs.” For self-employed individuals, the loan amount will be based on Schedule C profit. There is an absolute limit of $10 million.
The loans can be used to pay salaries, commissions, and similar compensation, payroll taxes, health care benefits including leave benefits and insurance premiums, mortgage interest (but not principal), rent, utilities, and interest on other debt that was incurred before the covered period. Depositing the funds into a separate account from which permitted expenses are paid will provide a good audit trail.
The key benefit of the PPP loans is that they are potentially forgivable. The statute provides:
Forgiveness – An eligible recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the covered period [eight-week period beginning with the date of the loan]:
(1) Payroll costs;
(2) Any payment of interest on any covered mortgage obligation;
(3) Any payment on any covered rent obligation;
(4) Any covered utility payment.
“Payroll costs” is defined very broadly and includes salary, wages, commissions, vacation pay, medical leave, allowance for dismissal or separations, group health care benefit costs, retirement benefits, and payroll taxes. Certain items are excluded from “payroll costs.”
The amount of forgiveness is also dependent on a headcount calculation based on the number of employees during the “covered period” compared to the number of employees during one of the following periods (at the employer’s election) – (a) the period of February 1, 2029 to June 30, 2019, or (b) the period of January 1, 2020 and February 29, 2020. The net effect seems to be that if your employee count is lower during the “covered period” than it was during the benchmark period, then the amount of forgiveness will be reduced. There is also a reduction in forgiveness if there was a reduction in pay of more than 25% for any individual full-time employee who earned less than $100,000.00 per year. Those reductions do not apply if you are fully staffed by June 30, 2020.
The are also a number of unknowns in the legislation. First, “covered period” is used differently in different parts of the statute. It is not clear how the various meanings of
that term will line up. It is also unclear whether payroll costs include payments to independent contractors. The calculation of the forgiveness amount for sole proprietors is also uncertain. Also uncertain is when banks will be able to fund the loans, and what you will have to do to apply. Finally, as mentioned, the SBA is charged with creating rules for the program, and we will not know what those are for some time.
SBA Disaster Relief Loans
Disaster relief loans are available from the SBA to provide relief to businesses from natural disasters. The program has been extended to small businesses that have experienced losses due to the Coronavirus pandemic. The loans carry a 3.75% interest rate, are typically capped at $2 million, and the proceeds can be used for virtually all business expenses. The loans are not subject to forgiveness. Like all SBA loans, they are administered and made by participating banks.