By Sarah E. Stuart and Jennifer S. Hagerman
There has been an unprecedented demand on the unemployment insurance program due to the effects of COVID-19. Since the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act on March 27, 2020, the Department of Labor has issued guidance to states regarding the provisions of the CARES Act that impact states’ unemployment insurance program. Each state and territory will need to sign an agreement with the Department of Labor for the programs under the CARES Act. The guidance also provides a summary of the various provisions and attempts to clarify the order of payment and overlap of the various types of benefits.
Emergency unemployment relief for governmental entities and non-profit organizations
Section 2103 of the CARES Act provides emergency relief for governmental entities and non-profit organizations who are reimbursing employers, or those who reimburse the state dollar-for-dollar for benefits paid in lieu of paying unemployment insurance premiums. For reimbursing employers, the federal government will reimburse the state monthly for 50 percent of the amount of payments owed by reimbursing employers between March 13, 2020 and December 31, 2020, for all payments made during this period, even if the individual is not unemployed as a result of COVID-19.
Pandemic Unemployment Assistance (PUA)
The Department of Labor guidance states that the CARES Act provides up to 39 weeks of benefits, beginning retroactively on January 27, 2020 through December 31, 2020, for individuals who are self-employed, seeking part-time employment, or whom otherwise would not qualify for regular unemployment compensation or extended benefits under state or federal law. These benefits are available only to those who are otherwise able and available for work, except that they are unemployed, partially unemployed, or unable or unavailable to work because of COVID-19 related reasons.
Pandemic Emergency Unemployment Compensation (PEUC)
PEUC provides an additional 13 weeks of benefits for individuals who remain unemployed from the date the state enters into an agreement with the Department through December 31, 2020. This additional benefit is available to individuals who have exhausted rights to regular unemployment compensation and have no rights to regular unemployment compensation under any other state or federal law, that are able, available, and actively seeking work. States are guided to offer flexibility in the “actively seeking work” requirements if the individuals are unable to search for work due to COVID-19, including illness, quarantine, or movement restriction. This program also places a non-reduction rule on the states (i.e. states may not change the computation method for benefits or maximum benefit entitlement).
Emergency increase in unemployment compensation benefits
Most employers may be familiar with the provision of the CARES Act that increases benefits for eligible individuals an additional $600 per week from the date on which the state enters into an agreement with the Department of Labor through July 31, 2020. States are prohibited from reducing the maximum benefit entitlement based on this program. This benefit is available to individuals collecting regular unemployment compensation, pandemic emergency unemployment compensation, pandemic unemployment assistance, extended benefits, short-time compensation, trade readjustment allowances (TRA), disaster unemployment assistance (DUA), and self employment assistance (SEA). The benefit is taxable, but will not be considered for income eligibility for Medicaid or Children’s Health Insurance Program (“CHIP”) eligibility.
Other Changes
The federal government is now offering full federal funding of the first week of compensable regular unemployment for states that do not require a waiting week. Tennessee has agreed to waive its one week waiting period to allow access to these funds.
States that have an existing short-time compensation (STC) program or enact a new law providing for the payment of STC will be eligible for 100 percent reimbursement of STC benefit costs, up to 26 weeks. These programs may be used to reduce the hours for a group of workers to avoid layoffs and these workers receive a partial unemployment benefit payment.
The guidance also stresses the importance of program integrity and notes that anyone who quits work without good cause to obtain additional benefits would be committing fraud and would be subject to prosecution.
Each of these programs will go into effect beginning the date on which the state enters into an agreement with the Department of Labor. The benefit programs included in the CARES Act will be reimbursed to state agencies through the U.S. Department of Treasury, with funding for emergency relief for governmental entities and non-profit organizations being transferred from the federal unemployment account to state unemployment accounts.
By Lisa A. Krupicka
On March 30, 2020, the eve of the April 1 effective date of the Families First Coronavirus Response Act (FFCRA), the U.S. Department of Labor (DOL) published a set of frequently asked questions (FAQs) that finally answered some of the questions implementing employers were having to make educated guesses about with regard to the FFCRA. These 59 (Why 59? Feel free to speculate on Twitter) questions and answers can be found at https://www.dol.gov/agencies/whd/pandemic/ffcra-questions. This article will summarize some of the most useful guidance.
- Documentation of Need for Leave. Employers can ask for documentation that a school or daycare is closed or a childcare provider is unavailable in the form of a notice that has been posted on a government, school or daycare website, or published in a newspaper, or an email from the school, daycare or childcare provider. As a practical matter, such documentation should be requested only if the children are home because of lack of daycare or babysitter. Everyone knows the schools are closed. Employers should give their employees ample time to supply this documentation if its employees are at home and have limited means of transmitting documentation electronically or if they do not communicate with their babysitter by electronic means.
- Intermittent Leave for Teleworking Employees. Employers may, but are not required to, agree with an employee who is teleworking that paid sick leave and expanded FMLA leave may be taken intermittently, and this leave can be taken in any increment agreed upon by the employee and employer, including increments of greater than one hour.
- Intermittent Leave for On-Site Employees. If an employee is working at his/her regular worksite, paid sick leave may only be taken in eight-hour increments, and once the employee begins taking paid sick leave, the employee must continue to take it until it either runs out or the employee no longer qualifies for the leave. Expanded FMLA leave may, but is not required to be, taken intermittently if the on-site employee and the employer agree.
- Effect of Furlough/Layoffs. If a business closes or lays off/furloughs some or all of its employees, whether pursuant to a governmental “shelter in place” order or for any other reason, the employer is no longer obligated to offer paid sick leave or expanded FMLA leave to the furloughed/laid off employees, even if they were taking such leave immediately before the closure/furlough/layoff. Of course, employers are not protected from lawsuits if they appear to select for layoff/furlough only those employees who are using or have requested FFCRA leave.
- Supplemented Pay During Leave. Employers may, but are not required to, allow employees using paid sick leave or expanded FMLA for childcare reasons, to supplement their 2/3 pay with their accrued sick leave or vacation balances. Employers may not require employees to supplement in this manner if they do not wish to do so.
- Total FMLA Entitlement Is Not Expanded by the FFCRA. The FFCRA does not change the total amount of leave to which an employee is entitled under the FMLA; it just provides an additional qualifying reason. Employees who have used some or all of their 12-week FMLA leave entitlement during the 12 month period the employer uses for FMLA leave are entitled to only the remaining balance of 12 weeks in which to take expanded FMLA leave under the FFCRA.
- FMLA Balance Does Not Impact Entitlement to Paid Sick Leave. Even employees who have used up all 12 weeks of their FMLA leave entitlement may still take 80 hours of paid sick leave if they meet the qualifications for such leave under the FFCRA.
- Small Business Exemption. If an employer has fewer than 50 employees, it may be exempt from providing either paid sick leave or expanded FMLA leave due to school closures or childcare availability if doing so would jeopardize the viability of the small business as a going concern, as demonstrated by one of the following factors: (1) providing the leave would result in expenses and other financial obligations exceeding revenue and cause the small business to cease operating at a minimal capacity; (2) the absence of employees requesting the leave would entail a substantial risk to the business because of the employees’ specialized skills, knowledge of the business, or responsibilities; or (3) there are not enough available qualified workers who can fill in for the employees requesting leave and their services are needed to keep the business operating at minimal capacity.
This guidance obviously does not answer all questions, and you may have specific situations in which the method of compliance is still not clear. Our Team at BP&J is here to help when you need it.
By Gary S. Peeples
On March 27, 2020, the Paycheck Protection Program (PPP) became law as part of the larger Coronavirus Aid, Relief, and Economic Security Act. The PPP makes available to small businesses nearly $350 billion in low-interest (and potentially forgivable) loans, which may be used to cover payroll and other costs. As anticipated, the Small Business Administration (SBA)—the agency that administers the PPP—recently issued an interim final rule regarding the program. Particular provisions that potential applicants should be aware of are discussed below.
A. Deadlines and Other Timing Considerations
Funds are available on a “first-come, first-served basis.” Employers should act quickly and contact lenders as soon as possible if they are interested in obtaining a loan under the PPP. Online sources have suggested that some lenders intend to make PPP loans only to existing customers. According to the interim final rule, all PPP loans must be made on or before June 30, 2020.
B. Eligibility for Loans
The SBA has clarified that applicants will be ineligible for a loan under the PPP if any of the following apply: (1) the applicant is engaged in any activity that is illegal under federal, state, or local law (e.g., cannabis businesses because marijuana remains illegal at the federal level); (2) the applicant is a “household employer” (e.g., the applicant employs housekeepers or nannies); (3) a 20% or greater owner of the applicant is incarcerated, on probation or parole, or has been convicted of a felony within the past five years; and (4) the applicant, or any business owned or controlled by the applicant’s owners, has obtained an SBA loan that is delinquent or has defaulted within the past seven years.
C. Maximum Borrowing Amount
The maximum loan amount available under the PPP is the lesser of (1) $10 million or (2) 2.5 times the average monthly payroll for calendar year 2019 (Note: There is some confusion on this point. The loan application refers to calendar year 2019, while the language of the statute and the interim final rule refer to the last 12 months). In the interim final rule, the SBA has provided various examples of how the maximum amount may be calculated. The general formula is below.
- Calculate total payroll costs (payroll costs include compensation, paid leave, payments for the provision of employee benefits, and state and local taxes on employee compensation) for the 12-month period;
- Subtract from the above total any compensation paid to an employee above $100,000;
- Divide the result of step one and step two by 12; and
- Multiply the result of step 3 by 2.5 to ascertain the maximum borrowing amount
The interim final rule makes clear that independent contractors do not count as employees for the purposes of the PPP. Independent contractors and sole proprietors are eligible to apply for PPP loans on their own.
D. Loan Forgiveness and Use of Loan Proceeds
The entire principal amount and any accrued interest may be forgiven if an employer uses the loan proceeds only for permissible purposes (listed below).
In the interim final rule, the SBA has clarified that (1) at least 75% of loan proceeds must be used for payroll costs and (2) no more than 25% of the forgivable portion of a loan may be used for non-payroll costs. Permissible purposes under the PPP are the following: (1) payment of payroll costs; (2) costs relating to the continuation of group healthcare benefits; (3) mortgage payments (prepayments and principal payments, however, are not allowed); (4) rent payments; (5) utility costs; and (6) interest payments on any debt incurred before February 15, 2020.
The interim final rule does not address the sliding scale of loan forgiveness, but it is important to remember that the PPP ties the availability loan forgiveness to the maintenance of headcount and payroll levels. Loan forgiveness will be reduced if an employer reduces its headcount or the compensation of employees by more than 25%. Recipients of PPP loans must provide documentation to lenders in order to receive loan forgiveness.
E. Miscellaneous Loan Requirements and Terms
PPP loans will have an interest rate of 1%. Loans made under the PPP have a maturity date of 2 years. Loan repayment is deferred for 6 months after origination, although interest accrues during this 6-month deferment period. No collateral or personal guarantees are required to receive a loan under the PPP.
To receive a loan, an applicant must certify that: (1) the applicant was in business as of February 15, 2020 and had employees to whom it paid wages; (2) current economic uncertainty makes the loan necessary to support the applicant’s ongoing operations; (3) the loan proceeds will be used to retain workers, maintain payroll, and for other permissible purposes under the PPP; (4) the applicant has not received, and will not receive, another PPP loan; (5) the documentation being submitted is complete and accurate; and (6) the lender will confirm the eligible loan amount using the documents submitted by the applicant. Finally, the interim final rule makes clear that the misuse of PPP loan proceeds may result in various sanctions, including the repayment of the loan proceeds and potential civil and criminal liability for fraud.
F. Parting Thoughts
The SBA has all but declared that the PPP will have more applicants than available funds. For this reason, it is imperative that interested employers—if they have not done so already—contact potential lenders as soon as possible. It is similarly imperative that employers stay in contact with their accountants and attorneys, as this is a rapidly changing area of the law.