All information in this COVID-19 Response Resource issue is effective as of April 9, 2020.
Over the past couple of weeks, employers have been overwhelmed with a barrage of new federal legislation and regulations in response to the COVID-19 pandemic. For businesses with fewer than 500 employees, the Families First Coronavirus Response Act (FFCRA) has created new employee leave rights, and the Coronavirus Aid Relief and Economic Securities Act (CARES) has created an opportunity to shift eight weeks of payroll obligations onto the federal government through Paycheck Protection Program (PPP) loans. Below are five key items employers should be thinking about right now as they plan to navigate the next few months of this unprecedented economic challenge.
Number One: Develop and Distribute FFCRA Leave Policies
The FFCRA creates new leave rights for employees related to the COVID-19 pandemic, including two weeks paid sick leave, if the employee is diagnosed with COVID –19, or is under a quarantine or government directive to stay at home, or if the employee must miss work to care for a family member who is sick or under a quarantine or local directive to stay at home. The FFCRA also provides up to 12 weeks for an employee to stay at home to care for a child whose school or day care has closed because of COVID-19. Employees with fewer than 50 employees may be exempt from providing the 12-week leave right for an employee to care for a child whose school or day has closed under certain circumstances.
Most employees have heard something about the new leave rights under the FFCRA. Employers should develop policies outlining an employee’s rights under the FFCRA and how those rights will be administered under the FFCRA. It is important to delineate the “rules” regarding the new leave rights up front, in writing, so that employees and human resource managers have a clear understanding about how FFCRA leave is going to be administered by the employer.
The approved poster from the Department of Labor regarding FFCRA, which employers are required to post at the work place or otherwise deliver to employees, provides basic information but does not address many issues such as intermittent leave under the FFCRA, teleworking and what happens if the employer’s place of business is closed or if the employer no longer has work for the employee after the FFCRA has gone into effect. In short, the poster is required, but it is insufficient for employers who wish to clearly protect rights they may have in administering FFCRA leave. Employers with fewer than 50 employees who may claim the “fewer than 50-employee” exemption should have a policy explaining that fact.
Number Two: Keep Your Workforce Busy if You Receive a PPP Loan
Employers who have applied for a PPP loan have likely done so to take advantage of the debt forgiveness provisions. PPP loans are primarily designed to enable employers to keep paying employees for a period of eight weeks. If employers do not lay off employees or reduce their wages by more than 25 percent, the PPP loan amount may be forgiven. If some or all employees are laid off or have their wages reduced by more than 25 percent, loan forgiveness is proportionately reduced.
Many employers are applying for PPP loans even if they do not currently have a full workload for their employees. Employers have asked, “Can I still get loan forgiveness even if I don’t have work for employees to do?” The answer is yes. As long as the employee is kept on the payroll and paid at least 75 percent of his or her regular wage, payroll payments to the employee for the first eight weeks after PPP loan proceeds are received by the employer will likely be forgiven. If there is not enough “regular” work for your employees, consider keeping them busy improving their skills or attending to projects that were neglected in busier times. For example, consider having employees with different but similar jobs cross-train each other on their respective job tasks so that your work force becomes more “skills diverse” and employees can cover for each other in times of need. Senior salespeople could provide training sessions for younger salespeople regarding marketing and sales techniques. Manufacturing supervisors could provide training sessions for younger workers to improve their manufacturing technique. The point is: If your employees do not have enough “regular” work to fully occupy their time during the first eight weeks after receiving a PPP loan, use this period to improve your work force’s skill set and the efficiency of your business operation. Do not use the first eight weeks after receiving a PPP loan as a vacation; use it for self-improvement. But, be careful about any action that could be considered a change or alteration of the duties of an exempt employee under the Fair Labor Standards Act.
Number Three: Develop Contingency RIF Plans Now
No one knows what the next few weeks or few months will bring with the economy and your business. If you receive a PPP loan, you have eight weeks of payroll assistance which will help with cash flow. But that eight weeks will end, and you may be faced with the same serious economic conditions that you now face. All companies should consider how they will respond, if their business continues to face challenges over the next several weeks or months. Even if you have been able to avoid a reduction in force (RIF) to date, now is the time to develop contingency plans that may include a reduction in the future. When conducting a RIF, the business should prepare a written analysis of the economic challenge the business is facing; how a reduction in force will help solve that challenge; and state objective criteria for selecting the employees who are let go. It is important that the selection criteria be determined by a diverse group of management employees to avoid claims that the RIF was done in a discriminatory manner. Think now about what the objective criteria may look like. Think now about who will make up the group deciding on the objective criteria upon which the RIF is based. Proper advance planning for a RIF will lead to a more organized, coherent process – if a RIF ultimately happens, rather than a quick, rushed process which increases the potential for mistakes.
Number Four: Consider Approaching Lenders, Landlords and Other Third Parties about Deferrals of Long-Term Payment Obligations
When the CARES Act was first announced, many employers heard the word “bailout” and assumed their problems were solved. That is not the case. As indicated above, PPP loans are designed to help employees by maintaining their paychecks for the first eight weeks after an employer receives PPP loan proceeds. The willingness of the federal government to carry payroll for eight weeks is a significant benefit to companies, but the economic hardship faced by companies may not end in eight weeks. Even if a company has received or will receive a PPP loan, company managers should consider approaching lenders, landlords and other counter-parties, to whom the business owes long-term payment obligations, about deferrals or modifications of the underlying agreement’s payment terms, particularly after the eight-week period of the PPP loan has ended and the company is again liable for its payroll.
Number Five: Talk to Your Tax Attorney or Accountant About the “Lesser Lights” of the CARES Act
The PPP loan program is the “rock star” of the CARES Act; everyone knows it, and everyone wants a piece. However, there are other significant tax advantages offered in the CARES Act of which most companies are not aware, some, which are mutually exclusive with PPP loans. Such benefits include modification of depreciation rules; modification of net operating loss carry back rules; and a payroll tax credit (which is mutually exclusive with receiving a PPP loan). There are other less-visible aspects of the CARES Act which companies should explore with their tax attorney or accountant and consider when planning how to navigate the next few months.
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