COVID-19 Legislation: Obligations and Resources for Small and Mid-Sized Employers
Owners and executives of small and mid-sized businesses have been in crisis management mode over the last few weeks, as COVID-19 has rapidly evolved from a potential business concern into a dominant economic force. We’ve all been required to adapt our operations to this new environment, and we are navigating this situation along with customers and vendors who have also been affected. Amidst all this, we are concerned for the health and safety of our loved ones, our employees, and their families.
As we’ve been working hard to manage our teams, Congress and federal agencies have also been putting measures in place to address the crisis. New laws have imposed new obligations on employers, and the CARES Act currently under consideration would make additional resources available to help small and mid-sized businesses weather the storm. We thought it would be helpful to summarize some of the most important aspects of this legislation for employers.
- The Families First Coronavirus Response Act (FFCRA) requires employers with fewer than 500 employees to offer paid leave to employees who become sick with COVID-19 symptoms, who need to care for someone sick with COVID-19, or who need to care for a child whose school or child-care provider is closed. The cost of providing paid leave will be fully reimbursed through payroll tax credits or refunds.
- Under the stimulus bill passed by the Senate, known as the CARES Act, businesses with fewer than 500 employees would be eligible for federally guaranteed “Paycheck Protection” loans to fund payroll costs, rent, and certain other fixed expenses. These loans would be eligible for forgiveness to the extent employers keep people on payroll during this crisis. The bill is designed to keep people employed by backstopping employers’ ongoing costs.
What You Should Do
- If you are covered by the Act (e.g., if you have fewer than 500 employees), you are required to inform employees of their rights under the FFCRA by posting or emailing the DOL notice found here. Additionally, you should work with your payroll provider to ensure any costs related to providing FFCRA-covered leave are recorded appropriately so that you can claim reimbursement from the IRS.
- If you’re considering applying for a loan under the Paycheck Protection Program when available, you should begin to gather key financial documentation: tax returns for the business and its owners, financial statements, leases or mortgage documents, and payroll summaries. While these loans are not available yet, there is likely to be significant demand. The more quickly you’re prepared to apply and provide necessary information, the better.
Families First Coronavirus Response Act (FFCRA)
The Department of Labor issued guidance on March 25 to inform employers of their obligations under this Act. The Act applies to employers with fewer than 500 employees. Employers with fewer than 50 employees may qualify for an exemption to some of the requirements if they would jeopardize the viability of the business (further guidance on such exemptions is expected in April). Key requirements include:
- Two weeks of paid sick leave at the regular rate of pay, up to $511 per day, for any employee who is quarantined or experiencing COVID-19 symptoms and seeking a medical diagnosis
- Two weeks of paid sick leave at 2/3 of the regular rate of pay, up to $200 per day, for any employee who is caring for someone under quarantine OR caring for a child whose school or child-care provider is closed because of COVID-19. Note that employers with fewer than 50 employees may qualify for an exemption from the requirement to provide leave for child-care purposes.
- After the first two weeks, up to 10 weeks of paid expanded family and medical leave at 2/3 of the regular rate of pay, up to $200 per day, for any employee who has been employed for at least 30 days and who needs to care for a child whose school or child-care provider is closed because of COVID-19. Note that employers with fewer than 50 employees may qualify for an exemption from this requirement.
Per IRS guidance, employers will be reimbursed for 100% of the cost of providing paid leave and continuing health insurance coverage under the FFCRA. Reimbursement will be through dollar-for-dollar offsets of payroll tax obligations, or through refunds if payroll taxes aren’t sufficient to provide reimbursement. Importantly, employers may not require an employee to exhaust their PTO or sick days in order to qualify for sick leave under the FFCRA. Employers will be required to provide notice of these rights to employees, See here for the poster provided by the DOL.
Coronavirus Aid, Relief and Economic Security Act (CARES Act) – Small Business Provisions
The CARES Act, not yet enacted into law, is an emergency stimulus bill of unprecedented size and scope. Among its provisions are aid to large businesses that have been adversely affected, direct payments to most Americans, and additional resources for hospitals and healthcare providers. For small and mid-sized businesses, the most critical feature is a temporary expansion of federally guaranteed SBA 7(a) loans, a provision known as Paycheck Protection Loans. Under this provision, affected businesses and certain not-for-profits with fewer than 500 employees would be eligible for loans to cover payroll, rent, and other fixed expenses. Employers who maintain employment levels from the pre-COVID period will also be eligible for loan forgiveness. Key highlights include:
- Eligible businesses can qualify for a loan equal to 2.5x average monthly payroll costs for the previous 12 months (excluding any compensation over $100k for any individual)
- The loan may be used for payroll costs, mortgage, rent and utility payments, and interest on pre-existing debt
- Borrowers can qualify for loan forgiveness for payroll costs and certain other fixed expenses incurred in the eight-week period after the closing date of the loan. Importantly, loan forgiveness would be proportionally adjusted for any layoffs or reductions in salary exceeding 25%. Additionally, forgiveness would not apply to compensation in excess of a $100k annual cap per individual.
In addition to the loans described above, businesses may be eligible for other forms of emergency aid, including Economic Injury Disaster Loans through the SBA. The purpose of this legislation is to enable firms to retain employees and pay their critical expenses through a period of uncertainty and revenue loss. Additional details about eligibility, where to apply for such loans, and underwriting requirements would be expected within 30 days of the law being enacted.