Co-Editors, Scott A. Witty, saw@hanftlaw.com and Richard R. Burns, rrb@hanftlaw.com, or 218.722.4766. Please feel free to forward this e-mail or share it with others. If there are other topics of interest to you or any other suggestions concerning this newsletter, please let us know.
This Month’s Topics:
- PAYROLL PROTECTION ACT LOAN FORGIVENESS
- Families First Coronavirus Response Act – Paid Leave requirements ‑ UPDATED
- ADA CLAIMS RISK AMIDST COVID-19 PANDEMIC
- Tip Of The Month
PAYROLL PROTECTION ACT LOAN FORGIVENESS
The information contained herein is provided as a summary of our current understanding regarding the terms of forgiveness for loan proceeds received under a Payroll Protection Program Loan (“PPP”). The PPP program was recently instituted under the CARES Act (the “Act”), which was passed to deal with the continuing economic impacts of the Covid-19 epidemic. Due to the timeline of events and constantly evolving state of affairs we expect that additional guidance will be released by the Small Business Administration in the coming days and weeks. Therefore, the following information and analysis may be subject to change.
For example purposes only, assume you have averaged $100 in monthly payroll expenses, as defined by the Act, for the preceding 12 months. This would qualify you for loan proceeds in the amount of $250 (i.e. two and a half times the average monthly payroll expense). The $250, in order to be fully forgiven, needs to be spent within 8 weeks of receipt of funds. In addition, for any amount that is forgiven, 75% of that amount must be spent on payroll expenses (the definition of payroll expenses is the same definition as what was used to determine the loan amount). The remaining 25% if not spent on payroll expenses must be spent on other forgivable purposes defined in the Act, such as mortgage interest, rent payments, and certain utility costs.
Further, based on the example loan amount, payroll for an 8-week period would be roughly $200 (likely slightly less because there are more than 28 days/4 weeks in a month), which is 80% of $250. As a result, even if 100% of average payroll is paid it would be just above the required 75%.
Critically, if you have experienced a decrease in payroll, even without a reduction in employees, it could be problematic to obtain 100% forgiveness. It should also be noted that there is separate provision in the law that looks to February – June 2019 and compares FTE’s to the same period in 2020. For example, if there were 10 FTE’s in 2019 and only 7 now, there would be a 30% reduction in the forgiveness amount. So back to the example loan amount of $250, the employer would only be able to qualify for at most $175 in forgiveness even if all $250 was ultimately spent on payroll. Note the legislation mixed up the numerator and denominator in the math formula so as written it would actually be a 70% reduction rather than 30%, but it’s anticipated this will be fixed in the SBA regulations.
There are also provisions in the Act that permit an employer to hire back employees prior to June 30, 2020. It is anticipated the rehired employees will count towards FTE’s for February 2020 – June 2020, which would increase the forgiveness amount if there has been a decrease in FTE’s since 2019. Further, additional reductions in the forgiveness amount may be imposed for both reductions of the number of employees in excess of 25% or an employee’s salary of more than 25% from the time the loan is granted to eight weeks.
Finally, it is recommended that loan proceeds be deposited in a separate account in order to more easily demonstrate how the funds are spent for forgiveness purposes. For any amount of the loan that is not forgiven payments will be deferred for 6 months. The loan will have two year maturity timeline with an interest rate of 1%, which has changed from the initial IRS guidance which stated 0.5%.
Families First Coronavirus Response Act – Paid Leave Requirements ‑ UPDATED
The information covered herein is provided as an update and supplement to our previously delivered information regarding the paid leave requirements of the Families First Coronavirus Response Act (“FFCRA”). Due to the timeline of events and constantly evolving state of affairs, we expect that additional guidance may be released by the Department of Labor (“DOL”) in the coming days and weeks. Therefore, the following information may be subject to change.
Update to Emergency Paid Sick Leave (“EPSL”)
Previously guidance by the DOL indicated that Shelter in Place and other workplace closure orders would not satisfy the first COVID-19 qualifying reason—that the employee is subject to a federal, state, or local quarantine or isolation due to COVID-19—and therefore would not be eligible for EPSL. But recent guidance issued by the DOL has stated otherwise.
Now, Shelter in Place and other workplace closure orders will satisfy the first COVID-19 qualifying reason if the employee is unable to work (or to telework) even though the employer still has work that could be done but for the order. An employee may take EPSL only if they are prevented from working or teleworking due to an isolation or quarantine order. Accordingly, the question is whether the employee would be able to work or telework “but for” being required to comply with a quarantine or isolation order.
An employee may not take EPSL, even if subject to one of these orders, when the employer does not have work for the employee as a result of the order or other circumstances. This is because the employee would be unable to work if they were not required to comply with the quarantine or isolation order.
Small Business Exemption Guidance
A small employer with fewer than 50 employees is exempt from the requirement to provide paid leave under EPSL or the Emergency Expansion of the Family Medical Leave Act (“EFMLA”) for an employee to care for the employee’s son or daughter whose school or place of care is closed, or child care provider is unavailable for COVID-19 related reasons, when:
1. Such leave would cause the small employer’s expenses and financial obligations to exceed available business revenue and cause the small employer to cease operating a minimal capacity;
2. The absence of the employee or employees requesting such leave would pose a substantial risk to the financial health or operational capacity of the small employer because of their specialized skills, knowledge of the business, or responsibilities; or
3. The small employer cannot find enough other workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services the employee or employees requesting leave provide, and these labor services are needed for the small employer to operate at a minimal capacity.
For these reasons, the employer may deny EPSL or EFMLA only to those otherwise eligible employees whose absence would cause the small employer’s expenses and financial obligations to exceed available business revenue, pose a substantial risk, or prevent the small employer from operating at minimum capacity, respectively.
If an employer decides to deny EPSL or EFMLA to an employee whose child’s school or place of care is closed, or whose child care provider is unavailable, the small employer must document the facts and circumstances that meet the criteria for reasons 1, 2, or 3 (above), in order to justify the denial. The employer should not send these documents to the DOL but should keep the documents and records for its own files for at least four years.
Exemption for Health Care Providers and Emergency Responders
EFMLA and EPSL both provide that an employer may exclude employees who are health care providers or emergency responders from leave requirements under the FFCRA.
A health care provider, for this purpose, is anyone employed at any doctor’s office, hospital, health care center, clinic, post-secondary educational institution offering health care instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, any facility that performs laboratory or medical testing, pharmacy, or any similar institution, employer, or entity. This includes any permanent or temporary institution, facility, location, or site where medical services are provided that are similar to such institutions. This definition includes any individual employed by an entity that contracts with any of the above institutions, employers, or entities institutions to provide services or to maintain the operation of the facility. It also includes anyone employed by any entity that provides medical services, produces medical products, or is otherwise involved in the making of COVID-19 related medical equipment, tests, drugs, vaccines, diagnostic vehicles, or treatments. This also includes any individual that the highest official of a state determines is a healthcare provider necessary for that state’s response to COVID-19.
An emergency responder, for this purpose, is an employer who is necessary for the provision of transport, care, health care, comfort, and nutrition of such patients, or whose services are otherwise needed to limit the spread of COVID-19. This includes but is not limited to military or national guard, law enforcement officers, correctional institution personnel, fire fighters, emergency medical services personnel, physicians, nurses, public health personnel, emergency medical technicians, paramedics, emergency management personnel, 911 operators, public works personnel, and persons with skills or training in operating specialized equipment or other skills needed to provide aid in a declared emergency as well as individuals who work for such facilities employing these individuals and whose work is necessary to maintain the operation of the facility. This also includes any individual that the highest official of a state determines is an emergency responder for that state’s response to COVID-19.
EFMLA and an Employee’s Prior Use of FMLA Leave
If employer was covered by the FMLA prior to April 1, 2020, the employee’s eligibility for EFMLA depends on how much leave the employee has already taken during the 12-month period that employer uses for FMLA leave. An employee may take a total of 12 workweeks for FMLA or EFMLA during a 12-month period. If an employee has taken some, but not all of the 12 workweeks of FMLA, the employee may take the remaining portion of leave available. If an employee has already taken 12 workweeks of FMLA leave, they may not take additional EFMLA.
Closure of Business / Furlough of Employees
If a business closes or furloughs its employees—due to economic reasons or a state Stay-at-Home Order—the employees should apply for unemployment benefits, rather than paid leave. Employees who are off work (prior to April 1 or after April 1 but before the employee needs leave) for either economic reasons or a Stay-at-Home Order are not eligible for paid leave under the FFCRA because neither reason qualifies for EPSL or EFMLA.
Below are the specific examples mentioned when employees may be eligible for unemployment benefits, rather than EPSL or EFMLA:
1. Employer closed its worksite prior to April 1, 2020;
2. Employer closed its worksite on or after April 1, 2020, but before employee went out on leave;
3. Employer closes worksite while employee is out on EPSL or EFMLA (but employer must pay employee for any EPSL or EFMLA used before the employer closed);
4. Employer’s worksite is open, but employee is furloughed on or after April 1, 2020; or
5. Employer closes worksite on or after April 1, 2020, but informs employee it will reopen some time in the future.
If an employer reduces employee’s scheduled work hours, the employee is not eligible for EPSL or EFMLA for hours they are no longer scheduled to work. But an employee may take EPSL or EFMLA if a COVID-19 qualifying reason prevents employee from working full schedule.
Health Insurance
If employer provides group health coverage that an employee has elected, employee is entitled to continued group health coverage during EFMLA leave on the same terms as if they continued to work. If an employee is enrolled in family coverage, the employer must maintain coverage during the employee’s EFMLA leave. Employees must generally continue to make any normal contributions to the cost of their health coverage.
An employer must continue an employee’s health coverage if the employee elects to take EPSL. Under HIPAA, an employer cannot establish a rule for eligibility or set any individual’s premium or contribution rate based on whether the individual is actively at work, unless absence from work due to any health factor is treated, for purposes of the plan or health insurance coverage, as being actively at work.
Tax Credits and Required Documentation
Covered employers qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the FFCRA. Qualifying wages are those paid to an employee who takes leave under FFCRA for a qualifying reason, up to the appropriate per diem and aggregate payment caps. Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage.
Employers will verify eligibility for EPSL or EFMLA credits if the employer receives a written request for such leave from the employee in which the employee provides:
1. Employee’s name;
2. Date or dates for which leave is requested;
3. A statement of the COVID-19 related reason the employee is requesting leave and written support for such reason; and
4. A statement that the employee is unable to work, including by means of telework, for such reason.
In the case of a leave request based on a quarantine order or self-quarantine advice, the employee’s statement should include the name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine, and, if the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the employee.
In the case of a leave request based on a school closing or child care provider unavailability, the statement from the employee should include the name and age of the child (or children) to be cared for, the name of the school that has closed or place of care that is unavailable, and a representation that no other person will be providing care for the child during the period for which the employee is receiving EFMLA and, with respect to the employee’s inability to work or telework because of a need to provide care for a child older than fourteen during daylight hours, a statement that special circumstances exist requiring the employee to provide care.
Employers may request that employees provide additional materials for the employer to support a request for tax credits pursuant to the FFCRA. But an employer is not required to provide leave is materials sufficient to support the applicable tax credit have not been supplied.
Regardless of whether leave was approved or denied, employers must retain all documentation provided by employees for four years. If an employee gave oral statements in support of their request for EPSL or EFMLA, the employer is required to document and keep the information for four years.
In order to claim tax credits from the IRS, employers should maintain the following records for four years:
1. Documentation to show how the employer determined the amount of qualified sick and family leave wages paid to employees that are eligible for the credit, including records of work, telework and qualified sick leave and qualified family leave.
2. Documentation to show how the employer determined the amount of qualified health plan expenses that the employer allocated to wages.
3. Copies of any completed Forms 7200, Advance of Employer Credits Due To COVID-19, that the employer submitted to the IRS.
4. Copies of the completed Forms 941, Employer’s Quarterly Federal Tax Return, that the employer submitted to the IRS (or, for employers that use third party payers to meet their employment tax obligations, records of information provided to the third party payer regarding the employer’s entitlement to the credit claimed on Form 941).
For more information, see the Department of the Treasury’s website.[1]
[1] Information: https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs; https://www.irs.gov/pub/irs-drop/n-20-21.pdf; Tax Credit Form: https://www.irs.gov/pub/irs-pdf/f7200.pdf
ADA CLAIMS RISK AMIDST COVID-19 PANDEMIC
The Americans with Disabilities Act (ADA) prohibits discrimination on the basis of disability by, among other things, requiring reasonable accommodations and preventing employers from asking employees medical questions or requiring medical examinations. However, there are exceptions if the employee poses a “direct threat to the health and safety.” The Equal Employment Opportunity Commission (EEOC) regulations implementing the ADA define “direct threat” as a “significant risk of substantial harm to the health or safety of the individual or others that cannot be eliminated or reduced by reasonable accommodation,” and advises COVID-19 is a “direct threat” which warrants exceptions. For example, employers may take employees’ temperatures—which is typically a prohibited medical examination under the ADA—and ask employees who report feeling sick questions about their symptoms. Additionally, employers may ask certain medical questions to screen new hires for COVID-19 symptoms and rescind job offers if a new hire shows COVID-19 symptoms and cannot safely enter the workplace according to public health authority workplace safety guidance. Still, this presents a gray area because it is unclear whether COVID-19 is or could be a disability under the ADA. Currently the EEOC recommends employers follow guidance from public authorities on maintaining workplace safety, but employers reducing workers should make sure employees are let go for a legitimate, nondiscriminatory reason. If layoffs and force reduction disparately impact individuals with disabilities, ADA claims may still be viable. The EEOC and public health authorities will update guidance for employers and workplace safety measures as the COVID‑19 pandemic evolves.
TIP OF THE MONTH:
Non-competes have become so prevalent that it is estimated that 20% of employees are covered by one. Nineteen attorney generals, including Minnesota Attorney General Keith Ellison, have urged the Federal Trade Commission to treat abusive worker non-compete clauses as a form of unfair competition. Some states have responded by greatly limiting their applications, including California that has almost completely eliminated them. In Washington, employees who earn less than $100,000 cannot be subject to an enforceable non-compete. Minnesota and Wisconsin have so far not limited non-competes beyond traditional limitations of duration and scope. A better solution at least in the sales area is to have a strong non-solicitation provision limiting workers from going across the street and taking their prior customers with them. In other fields, a strong confidentiality provision to protect intellectual property and financial data may be very helpful, but it is difficult to determine its breach, and there are practicable limitations on enforceability.
Hanft Fride’s business and trial lawyers are located at 1000 U.S. Bank Place, in Duluth, Minnesota. Visit our website at www.hanftlaw.com for general information on the firm and our attorneys. Our employment lawyers include Tom Torgerson, Rob Merritt and Scott Witty. Richard Burns is now of Counsel.
The information provided in this E-letter is general in nature and should not be used as a substitute for professional services and advice. The communication and receipt of this information is not intended to create an attorney-client relationship. Readers should consult with their legal counsel before taking any action on matters covered in this E‑letter.
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Copyright 2020 by Hanft Fride, P.A. All rights reserved. Hanft Fride, A Professional Association, 1000 U.S. Bank Place, 130 W. Superior Street, Duluth, MN 55802. Phone 218.722.4766; Fax 218.529.2401.
[1] Information: https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs; https://www.irs.gov/pub/irs-drop/n-20-21.pdf; Tax Credit Form: https://www.irs.gov/pub/irs-pdf/f7200.pdf