How recent Coronavirus (COVID-19) legislation could impact your business
A variety of Federal Bills (and regulations) as well as many state and local laws and executive orders have been enacted over the past couple of weeks. Some may have direct impact on your business; others may not apply to your Business at all. There is no “one size fits all” approach that will apply equally to all Businesses. Variations will occur depending on what state and local regulations your Business are subject to; what state or local relief programs may be available to your Business.
I. State and Local Executive Orders and Relief Programs
Many of your Businesses may currently be closed due to state or local executive orders that prohibit the operation of non-essential businesses and/or prohibit gatherings of more than X people at once. These orders will in almost every instance also forbid public gatherings for in-person meetings and related Business activities. These rules should be strictly followed. Many of you are at high risk for complications from COVID 19 due to their age or pre-existing health conditions. We should not be looking for “loopholes” to get around the regulations
Businesses still must conduct the minimum business necessary to sustain operations. This includes the payment of bills and maintenance of the Business. These operations could be performed by telephone, electronic meeting sites such as Zoom or Skype, and in many states by authorizing one or more “key” employees, to have access to the Business to perform necessary business.
If your business is closed by local order, you should make sure basic steps have been taken to preserve it. Throw away or donate all perishable products; insure all valuables, heat should be reduced to a level sufficient to protect freezing pipes but low enough to reduce energy costs; and someone should check the Business periodically to make sure no break-in, equipment failure or weather damage has occurred.
Many states have initiated their own loan or grant programs. You need to check with your local accountant to see if any of these programs could provide relief to you. The following list is helpful but may not be exhaustive as these programs arise daily:
II. Federal Laws that May Impose an Obligation on Your Business or State Major Project
On March 18, 2020, President Trump signed into law the Families First Coronavirus Relief Act. This act has a number of separate provisions, many of which apply to individuals. Three are of potential interest to Businesses. Those provisions are:
- The Emergency Family and Medical Leave Expansion Act;
- The Emergency Paid Sick Leave Act;
- Payroll Tax Credits for Employers impacted by the Acts.
A. Emergency Family and Medical Leave Expansion Act
The Emergency Family and Medical Leave Expansion Act will give employees the right to take leave from their jobs if they have worked for the Business or Major Project Commission for at least 30 days and have to stay home to care for a child under the age of 18 whose school (K-12) or child-care was closed due to the public health emergency.
If an employee takes qualifying leave under the FMLA Expansion Act, at the employee’s option he can take the first 10 scheduled days of leave (2 weeks for employees on a 5 day work week) as unpaid leave or he may elect to use any accrued leave instead of taking unpaid leave. After the 10 days, the employer must provide paid leave for each additional day of qualifying leave. The payment for leave must be equal to at least 2/3 of the employee’s regular rate of pay.
Employees are entitled to take up to 12 weeks of qualifying leave, which is in addition to the unpaid 10-day leave referenced below under the Emergency Paid Sick Leave Act. The pay is limited however to the lesser of 2/3 of the employee’s weekly pay or $200/day per employee regardless of the employee’s compensation level. This leave is job-protected and the employer must return the employee to the same or equivalent position upon their return to work, unless the employee’s job no longer exists due to the coronavirus pandemic, which requires employers to then make reasonable efforts to restore the employee to an equivalent position. The Bill expires on December 31, 2020. Please note: This obligation does not arise for employees who are on lay off due to lack of work or an order of closure by state or local executive order. Thus, it will only come into play if your Business is open for business and an employee is required to stay home to care for a minor child who is homebound due to a school or daycare closure order.
B. The Emergency Paid Sick Leave Act
This Bill requires all employers to provide full-time employees with 2 weeks (80 hours) of paid sick leave and part-time employees with a pro rata share of paid sick leave, for the following reasons:
- the employee is subject to a quarantine or isolation order related to COVID-19;
- the employee has been advised by a health care provider to self-quarantine because of COVID-19;
- the employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
- the employee is caring for an individual subject or advised to quarantine or isolation;
- the employee is caring for a son or daughter whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 precautions; or
- the employee is experiencing substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
If one of these qualifying basis for leave arises, the employer must compensate the affected employees for any paid sick time they take at their regular rates of pay (2/3 of regular pay if the leave is being used to care for a family member or child). The sick leave is available for immediate use by employees, regardless of length of employment. Additionally, part-time employees are entitled to the number of hours of paid sick time equal to the number of hours they work, on average, over a 2-week period.
Please note: This obligation does not arise for employees who are on lay off due to lack of work or an order of closure by state or local executive order. Thus, it will only come into play if your Business is open for business and an employee is required to stay home for one of the six listed reasons.
C. Payroll Tax Credits for Employers impacted by the Acts
If a Business incurs expenses under either the Emergency Family and Medical Leave Extension Act or the Emergency Paid Sick Leave Act, it will receive a dollar for dollar tax credit against its present or future payroll tax payments. In other words, ultimately there will be no cost to the employer but it will have to front the money for the wage payment.
III. Relief for Small Businesses during the Coronavirus Crisis
A. Coronavirus Aid, Relief, Economic Security Act (CARES ACT)
On March 25, 2020, a $2 trillion stimulus package was announced that includes $367 billion in loan guarantees to help keep employees on the payroll who need to stay home or shelter in place (up to eight weeks of assistance) (Payroll Protection Program “PPP”). In addition to loan guarantees, small businesses can defer their payroll taxes until 2021 or 2022. All loans are processed through your local lender subject to rules and regulations imposed by the Small Business Administration (“SBA”). Historically, SBA loan programs define “small businesses” with reference only apply to “for profit” entities. Nonprofit entities have been historically excluded from all SBA loan programs.
Who Is Eligible?
The plain language of the CARES ACT states the PPP applies to “small businesses” (generally those with fewer than 500 employees) as well as “nonprofits”. This reference to “nonprofits” in the body of the statute created an initial impression it would be available to all nonprofits which would include Businesses. HOWEVER, since its passage, regulations have been released and those regulations limit its application to “small businesses” and 501(c)(3) and 501(c)(19) entities. All other nonprofit groups appear to be excluded from the program. This includes our Businesses that are “fraternal” organizations formed under 501(C)(8). Thus, it appears this program is only available to Businesses with a “for profit” business, that have payroll expense.
How Much Can an Eligible Entity Apply For?
The maximum loan amount will be 2.5 times the average monthly payroll costs for the one-year period before the loan is made, with consideration for any seasonality-based adjustments or a shorter period for businesses less than a year old.
What are the Loan Terms?
The maximum loan term will be up to 10 years. Interest payments will be deferred for the period of one year. The loans will be unsecured and will not require a personal guarantee. The loan will be eligible for forgiveness in an amount (not to exceed the principal amount of the loan) equal to the sum of::
- payroll costs,
- utility payments, and
- interest payments on secured debt obligations (including mortgages) incurred in the ordinary course of business prior to March 1, 2020.
- in each case, paid during the eight-week period commencing on the date of origination of the loan.
The amount of loan forgiveness will be reduced by any reductions in employee wages (in excess of 25% for any employee) or a reduction in the number of employees during the covered period in accordance with the terms of the program.
Procedure for the Loan Forgiveness
A borrower will be required to submit an application in support of loan forgiveness directly to the lender. Within 90 days after the loan forgiveness amount has been determined, the SBA will reimburse the lender directly for the principal amount of any forgiven debt, plus interest accrued through the date of repayment. There are conditions for loan forgiveness, so don’t assume forgiveness is automatic and any forgiveness (if available) will be based upon factors like your payroll costs, rent, utilities, and interest payments on debts you had previous to receiving the aid—and as reviewed by the lender.
Use and Timing of Loans
Loan proceeds do have some restrictions. Payroll, rent, utilities, and sick leave are among the approved uses for the funds. They may also be used to make interest payments on other debt that was incurred before the March 1, 2020 deadline. The deadline for applying is June 30, 2020. Loan applications opened on April 3, 2020.
B. Economic Injury Disaster Loan (“EIDL”)
The EIDL program is offered to “small businesses” and “nonprofits”. It is not clear whether the phrase “nonprofit” is used to include all nonprofit entities, which would include our Businesses, or are limited to 501(C)(3) and (19) entities as the PPP loans under the CARES ACT appear to be. In the absence of clear regulations (which may be published soon) the only way to find out is to apply and see if your business is eligible. The EIDL is a low-interest, fixed-rate loan that can provide up to $2 million in assistance for a small business. SBA’s Economic Injury Disaster Loan (EIDLs) funds come directly from the U.S. Treasury. Applicants do not go through a bank to apply, and instead, apply directly to SBA’s Disaster Assistance Program. Actual loan amounts are based on the amount of economic injury. These loans provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing because of COVID-19. The EIDL helps meet the necessary financial obligations that your business or private non-profit organization could have met had the disaster not occurred. EIDLs do not replace lost sales or revenue and must be repaid with the exception of the emergency loan provision below.
If an applicant has an emergency need for cash, it may request an advance of an amount up to $10,000 after submitting an application. The SBA will verify eligibility based on the applicant’s self-certification of eligibility and provide the advance within three days of the application. The amount advanced may be used to:
- Provide paid sick leave to employees unable to work because of COVID-19;
- Maintain payroll to retain employees;
- Purchase materials that are no longer available from original supplier;
- Make rent or mortgage payments; and
- Repay obligations that cannot be met due to revenue loss.
Importantly, the applicant is not required to repay the advance, even if denied a loan.
A business that is eligible for a PPN loan under the CARES ACT may simultaneously apply for and receive an advance under the EIDL program. However, if a business receives an advance and is subsequently approved for a loan under PPP, the advance amount shall be reduced from the “loan forgiveness” amount of the PPP loan.
To apply for the COVID-19 Economic Disaster Loan, complete the on-line application on the SBA’s website: https://covid19relief.sba.gov/#/.