Martha Zackin

COVID-19: Return to Work Q&As

/in , , , , , , , , /by

By Bello Welsh LLP

  1. What safeguards should employers consider implementing to protect employees (and customers, visitors, and vendors) after state and local authorities allow non-essential businesses to reopen?

The following list is compiled from guidance published by the Centers for Disease Control and OSHA:

  • Develop an infectious disease preparedness and response plan
    • Identify a workplace coordinator responsible for COVID-19 issues
    • Identify which workers, customers, individuals may be exposed (or transmit), or where within the work place such exposure/transmission may occur
    • Develop contingency plans
      • Increased rate of worker absenteeism
      • Need for social distancing, staggered work shifts, and other exposure-reducing measures
      • Need to modify existing supply chains
    • Actively encourage sick employees to stay home
    • Review policies and consider implementing new policies (see Q&A 13, below) to make sure that policies and practices are consistent with public health recommendations, as well as applicable laws
    • Support respiratory etiquette and hygiene
    • Increase environmental cleaning and disinfection
    • Maintain a healthy work environment (for example, improving building ventilation systems)
  1. Does fear of contracting COVID-19 justify an employee’s refusal to work on-site?

An employee’s fear about contracting the virus will not typically justify a refusal to work, unless the fear is related to a serious health condition.  In that circumstance, the employee could be eligible for traditional FMLA leave subject to the normal notice and certification process, but only if the underlying condition would independently be eligible for FMLA leave.

That said, while not likely, an employee could refuse to work if he/she has a good faith, reasonable, and demonstrable fear that they are in “imminent danger” of immediate death or serious physical harm.  According to OSHA and as applicable to COVID-19, the following conditions must be met before a hazard becomes an imminent danger:

  • There must be a threat of death or serious physical harm. “Serious physical harm” means that a part of the body is damaged so severely that it cannot be used or cannot be used very well.
  • For a health hazard there must be a reasonable expectation that toxic substances or other health hazards are present and exposure to them will shorten life or cause substantial reduction in physical or mental efficiency. The harm caused by the health hazard does not have to happen immediately.
  • The threat must be immediate or imminent. This means that the employee must believe that death or serious physical harm could occur within a short time, for example before OSHA could investigate and remedy the situation.

There also is the potential that employees could cite to the protections for “concerted” activity as a basis for refusing to work.  Section 7 of the National Labor Relations Act (NLRA) extends broad-based statutory protection to employees who engage in “protected concerted activity for mutual aid or protection.” This protection, which applies in both union and non-union environments, include circumstances in which two or more employees act together to improve their employment terms and conditions and could encompass situations where employees participated in a “concerted refusal” to work in unsafe conditions.  If this situation presents itself, we strongly recommend consulting legal counsel before taking any action.

  1. Can an employer discipline or terminate an employee who refuses to report to work from a generalized fear of contracting COVID-19?

Generally, an employer may discipline or terminate a worker who refuses to work (or return to work).  While in ordinary circumstances this would be deemed a resignation and disqualify the individual from receiving unemployment benefits, it remains to be seen how unemployment agencies will handle such cases in the context of COVID-19.

  1. Does the previous answer change if the employee refused to return to work for one of the reasons identified in the “CARES” Act that provides eligibility for unemployment benefits?

Probably not.  Eligibility for unemployment is a distinct issue from the right to discipline or terminate an individual. The Coronovirus Aid, Relief, and Economic Security Act (“CARES Act”) provides for Pandemic Unemployment Assistance (“PUA”) for individuals who certify that they are otherwise able and available to work (within the meaning of state law), but are unemployed, partially unemployed, or unable or unavailable to work for a wide range of reasons related to COVID-19.  For more information about expanded eligibility for unemployment benefits under the CARES Act, please see our Alert dated March 30th on this topic. That said, employers should consider the practical “fall-out” from terminating an individual in such circumstances in terms of employee relations, social media about the company, and the like.

  1. What if the employee refuses to return to work because he or she is in a high-risk group, such as over the age of 65 or with an underlying health condition?

This is a complex subject as it requires balancing obligations and rights in a way that is highly dependent on the facts of the situation.  In the case of an underlying health condition, an employer would be required to explore reasonable accommodations for an employee who refuses to report to work because of a health condition that meets the definition of a “disability.”  In accordance with EEOC guidance, accommodations could include: increasing distancing or installing barriers that reduce the chances of exposure; elimination of marginal job duties; temporary transfers to a different position; or modifying a work schedule or shift assignment.  Employers may also choose to place an end date on the accommodation.  An employer may also grant an accommodation on a temporary basis until, for example, government recommendations on social distancing are relaxed.  These situations are highly fact specific, and you should consult with legal counsel if this type of scenario presents itself.

  1. Can employees insist that they be allowed to continue working remotely?

In most circumstances, no.  There could be situations, however, where an employer would need to consider work from home as a reasonable accommodation for a “disability” under the ADA or applicable state law. To date, neither the EEOC nor the Massachusetts Commission Against Discrimination has provided guidance as to whether either would consider COVID-19 to be a “disability,” in and of itself.  It is likely that there will not be a single answer to this question, and it may well depend on the severity and longevity of the COVID-19 infection for an individual.  Again, if this situation presents itself, you should consult legal counsel before taking action.

  1. May employers implement health screening protocols before allowing employees to return to the workplace?

Yes, to determine whether those entering the workplace would pose a direct threat to health in the workplace.  Appropriate health screening protocols may include asking about symptoms, taking workers’ temperature, and conducting or requiring COVID-19 tests.

Symptom screening: Employers may ask all who enter the workplace whether they have exhibited COVID-19 symptoms. When asking about specific symptoms, employers should rely on the CDC, other public health authorities, and reputable medical sources for guidance on emerging symptoms associated with the disease.

Temperature taking:  Although measuring an employee’s body temperature is generally considered to be a prohibited medical examination, because the CDC and state/local health authorities have acknowledged community spread of COVID-19 and issued attendant precautions, employers may measure employees’ body temperature. However, employers should be aware that some people with COVID-19 do not have a fever.

Employers that decide to take the temperature of those entering the workplace should consider various related logistical issues, such as: what type of device to use; who will be the temperature taker; what type of protective equipment should the temperature taker wear; and how to protect the health and confidentiality of the employees being tested.

COVID-19 testing:  Yes.  Although a COVID-19 test will be deemed a “medical test” and therefore it must be “job related and consistent with business necessity,” the latest guidance from EEOC is such tests are permissible.

Employers of course should ensure that the tests are accurate and reliable.  For example, employers should review guidance from the FDA about what may or may not be considered safe and accurate testing, as well as guidance from CDC or other public health authorities, and check for updates.

Employers may also ask that employees have a COVID-19 test taken elsewhere, with the results presented to the employer before entering the workplace.  The employer will be required to pay for the test.

Antibody testing:  There is no specific guidance yet regarding whether an employer can take or require an antibody test, although ultimately, as the science around antibody testing develops, this is likely to be subject to the same standard as a COVID test.  At this time, however, there remains substantial medical debate about whether the presence of COVID-19 antibodies means that the person with the antibodies is immune and, if so, how long the immunity lasts.  And, although the FDA has approved certain antibody tests under its “emergency use” authority, as of yet, these tests have not been subject to rigorous validation studies.  Further, the presence of antibodies does not rule out that the individual with antibodies has a current COVID-19 infection.  Given the uncertainty, we recommend caution in this area, and further consultation before implementing this form of testing.

For information about maintaining the confidentiality of the results of health screenings, see Q&A 11 and 12, below.

  1. May an employer who implements health screening protocols before allowing employees to return to the workplace limit the screening protocols to high-risk individuals?

Likely no.  Limiting screening to individuals who otherwise are protected by anti-discrimination laws, such as individuals over a certain age, who are pregnant, or who have underlying medical conditions, will be viewed by the EEOC and similar state agencies as unlawful discrimination.

  1. If an employee has symptoms of COVID-19 such as a fever, chills, or other symptoms recognized by the CDC or other governmental health authorities, can an employer send the individual home and when can they return to work?

Yes.  Although an employee has a fever or other symptoms common to COVID-19, employers may (and should) send the employee home.

Current CDC guidelines indicate that individuals with COVID-19 who have self-isolated may leave isolation after having no fever for 72 hours without the use of fever-reducing medication, other symptoms have improved, and 7 days have passed since symptoms first developed.  The most common period of time before an individual should return to work is, therefore, 14 days.  We are unaware of any guidance from the CDC that directs how long an individual should self-isolate after having a fever but experiencing no other symptoms of COVID-19.

  1. May employers discipline employees who fail to follow employer-imposed safety policies/guidelines (including refusing to allow health screening)?

Yes, but of course discipline should be implemented in a manner unrelated to any protected status.  For example, an employer may not discipline a “high-risk” individual (i.e., an older worker or one with an underlying medical condition) who refuses to follow safety guidelines, but not respond in a similar manner to an employee engaged in the same conduct who is deemed “low risk.”

  1. May an employer maintain records relating to health screening and, if so, how should these records be maintained?

Employers may- and should- maintain records of health screenings, including an employee’s statement that they have or suspect they may have the disease, or the employer’s notes or other documentation from questioning an employee about symptoms.  However, as is required under the ADA, all medical information about a particular employee should be stored separately from the employee’s personnel file, and access should be limited.

  1. May an employer disclose the name of a worker who tests positive for COVID-19?

The answer to this is complicated, as the ADA and FMLA both prohibit the disclosure of information regarding the medical condition or history of an employee.  Accordingly, many advisors recommend that employers disclose that a co-worker or visitor to the workplace has tested positive or been exposed to COVID-19 without disclosing any identities.

This unfortunately can conflict with efforts to control the potential spread of COVID-19.  It is important from a public health perspective that those who have been in close contact with a person infected with COVID-19 be given sufficient information so they can take precautions to minimize the risk posed to themselves and others with whom they have close contact.  We recommend that an employer seek permission from an infected individual to disclose his or her identify; if permission is refused, the employer should consider whether the public health benefit outweighs the risk.  Consulting with legal counsel in such situations is strongly advised.

An employer also should ask an employee who has tested positive for COVID-19 for a list of all individuals with whom he or she came into contact in the workplace over the prior 14 days, as well as office areas and shared spaces visited.  The fact that another individual has potentially been exposed should then be disclosed to anyone in the workplace who may have had contact with the infected individual, or who may have visited the same spaces within the offices over the prior few days (without necessarily disclosing the identity of the infected individual).

  1. What policies should employers consider implementing or updating as employees begin to return to the workplace?

Employers should review current policies and practices and/or implement new policies and practices, consistent with public health recommendations and applicable laws, relating to the following topics:

  • Sick leave.
  • Flexible work arrangements. This includes alternate worksites (telework), hours (staggered shifts), and meeting and travel options.
  • Health and workplace safety standards, including physical layout (separating work-spaces to maintain distance), environmental controls, and personal protective equipment.
  • Stagger scheduled breaks and presence in common areas (cafeterias).
  1. Are the circumstances of the pandemic relevant to whether a requested accommodation can be denied because it poses an undue hardship?

In general, an employer does not have to provide a reasonable accommodation if doing so poses an “undue hardship,” which means “significant difficulty or expense.”  However, it is becoming clear that this concept, which has been interpreted narrowly and strictly by the EEOC and courts, will be applied more flexibly in the COVID context.  The EEOC itself has published guidelines reflecting that an accommodation that would not have posed an undue hardship outside of the pandemic may pose one now.  For example, EEOC has reflected that it may be significantly more difficult now to conduct a needs assessment or to acquire certain items, and delivery may be impacted, particularly for employees who may be teleworking.  Similarly, EEOC has noted that it may be significantly more difficult to provide employees with temporary assignments, to remove marginal functions, or to readily hire temporary workers for specialized positions.  Also, prior to the COVID-19 pandemic, the EEOC and courts typically found that most accommodations do not pose a significant expense when considered against an employer’s overall budget and resources.  But, even the EEOC concedes that the sudden loss of some or all of an employer’s income stream because of this pandemic is now relevant, as are the availability of discretionary funds.  If a particular accommodation poses an undue hardship, employers and employees should work together to determine if there may be an alternative that could be provided that does not pose such problems.

 

Martha Zackin

COVID-19 Challenges: More Q&As for Employers – Department of Labor Regulations on Paid Leaves under the FFCRA

/in , , , , , , , , /by

By Bello Welsh LLP

The Families First Coronavirus Response Act (FFCRA) requires employers with fewer than 500 employees[1] to provide (1) up to 80 hours of paid sick leave to any employee who is unable to work for any of six enumerated reasons, and (2) up to twelve weeks of leave (of which ten weeks are paid) to any employee who has been employed for at least 30 days, in order for the employee to care for a child whose school or daycare has closed or whose childcare provider is unavailable.[2]  Our prior client alert provides a detailed overview of the fundamental requirements of the Emergency Paid Sick Leave Act (EPSLA) and expanded FMLA (E-FMLA) leave entitlements.  In recent days, the United States Department of Labor (DOL) has issued regulations and expanded its Q&A’s to provide additional clarification regarding several aspects of how the leaves are to be administered.  Following up on our prior set of Q&As, this document addresses some of the questions that employers may be facing as they create processes and policies to comply with the new laws.

Question 24:      Are there constraints on the qualifying reasons for leave pursuant to the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act? 

Answer 24:         Yes.  The DOL regulations provide detailed descriptions of the circumstances under which leave may be taken, which are important for employers to understand when evaluating leave requests.  For example, the regulations provide that an employee may take leave only if the employer has work for the employee, and the employee would be able to perform work (either at the normal workplace or by telework) but for the reason for leave.  Additional clarifications include the following:

Emergency Paid Sick Leave Act (EPSLA):  Paid sick leave may be taken for one of six qualifying reasons.

  1. The employee is subject to a government-issued “quarantine or isolation order” related to COVID-19. This includes quarantine, isolation, containment, shelter in place, or stay at home orders issued by any government authority that causes the employee to be unable to work, as well as a government advisory that categories of citizens, such as those of certain age ranges or with certain medical conditions, should shelter in place, stay at home, isolate, or quarantine.
  2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19. This encompasses a health care provider’s advising an employee to self-quarantine not only because the provider believes the employee has or may have COVID-19, but also where the provider believes the employee is “particularly vulnerable” to COVID-19.
  3. The employee is experiencing symptoms of COVID-19 and seeking medical diagnosis from a health care provider. The relevant symptoms include fever, dry cough, shortness of breath, or any other COVID-19 symptoms identified by the U.S. Centers for Disease Control and Prevention.
  • Importantly, leave taken for this reason is limited to time the employee is unable to work because the employee is taking “affirmative steps” to obtain a medical diagnosis, such as making, waiting for, or attending an appointment for a test for COVID-19.  Thus, while an employee may not take paid sick leave to self-quarantine without seeking a medical diagnosis, the employee need not actually have received a diagnosis to be eligible for time off for this reason if, for example, the time is needed to try to get tested, or if the employee is continuing to experience symptoms while awaiting results and is unable to telework while the employer has work for the employee.  (In addition, if the employee exhibits COVID-19 symptoms, and seeks medical advice, but is told they do not meet the criteria for testing and is instead advised to self-quarantine, the employee may be eligible for leave under the second reason for EPSLA leave, described above, provided the employee meets all the requirements spelled out above.)
  1. The employee is caring for an individual who is subject to a government quarantine or isolation order related to COVID-19, or an individual who has been advised by a health care provider to self-quarantine due to concerns related to COVID-19. While the use of the term “individual” in the statute could be interpreted as effectively limitless, the regulations clarify that the term refers to an immediate family member, a person who regularly resides in the employee’s home, or a similar person with whom the employee has a relationship that creates an expectation that the employee would care for the person if he or she were quarantined or self-quarantined. The leave also is not available if the individual in fact does not depend on the care.
  2. The employee is caring for his or her son or daughter[3] whose school or place of care has been closed for a period of time, or the child care provider is unavailable, for reasons related to COVID-19. An employee may take leave for this purpose only if no other suitable person (such as a co-parent, co-guardian, or the usual child care provider) is available to care for the son or daughter during the period of such leave.
  • The definitions here are intentionally broad. For example, “place of care” includes not only daycares, but also before and after school care programs, summer camps, and respite care programs, among others, while a “child care provider” includes any individuals who provide childcare on a regular basis, whether paid or unpaid, licensed or unlicensed, including babysitters, extended family and neighbors. In addition, a school or place of care is considered “closed” if the physical location is closed, even if the school or place of care has moved to online or similar instruction models.
  • The regulations do not specify how an employer would determine whether another suitable person is “available,” but presumably employers may inquire and accept the employee’s response.  In an apparent discrepancy, the regulations relating to required documentation require that in seeking such leave, the employee must represent that no other suitable person “will be caring” for the child.  Employers may wish to include both phrases in any documents used by employees to request leave.
  • As we discussed in our initial client alert regarding these regulations, employees must provide certain specific information regarding the child and the school or care provider at issue.  While, as noted above, an employee may qualify for leave only if another suitable individual is not “available,” the employer is required to obtain and maintain a record of the employee’s representation that no other suitable individual “will be caring” for the child.  In addition, the IRS guidance on documentation required for the associated tax credit provides that, as to children over the age of 14 where time off is sought during daylight hours, the employee must provide a statement that special circumstances exist requiring the employee to provide care. The regulations do not provide guidance on how employers are to determine whether someone else is “available” or “caring” or what “special circumstances” may be or to what extent they must be described or verified.  At a minimum, it is recommended that these items be included in any paid sick leave request form.
  1. The employee has a “substantially similar condition,” as specified by the Secretary of Health and Human Services (HHS). To date, HHS has not identified any “substantially similar condition” that would allow an employee to take leave for this purpose.

Emergency Family and Medical Leave Expansion Act (E-FMLA)

As discussed in our prior client alert, the E-FMLA provides that an employee may use E-FMLA leave if the employee is unable to work or telework due to a need to care for the employee’s son or daughter whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 related reasons.  The requirements for taking leave for this purpose are the same as the requirements for taking such leave pursuant to the EPSLA.

Question 25:      Can a small business seek a hardship exemption from the EPSLA and E-FMLA, and if so, what is the process for doing so?

Answer 25:         Yes, but the exemption is limited, and available only to employers with fewer than 50 employees, if providing leave to employees to care for a son or daughter whose school or place of care is closed or unavailable would jeopardize the viability of the business as a going concern.  There is no such exemption from the need to provide EPSLA leave for reasons 1-4 or 6 (described above).  To be eligible for this exemption, an authorized officer of the small business must have determined that one of the following conditions exists (and must document that determination and retain the documentation):

  • the leave would result in the small business’s financial obligations exceeding available business revenues and cause the business to cease operating at a minimal capacity;
  • the absence of the employee(s) requesting such leave would entail a substantial risk to the financial health or operational capabilities of the business because of their specialized skills, knowledge of the business, or responsibilities; or
  • there are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the work of the employee(s) requesting leave, and such work is needed for the small business to operate at a minimal capacity.

Employers should carefully consider whether a leave request would in fact result in one of these narrow circumstances occurring. For example, a request by a junior level employee for intermittent E-FMLA one day per week is unlikely to preclude the business from operating at minimal capacity or create a substantial risk to its finances or operations, even in a relatively small business.  (See also our Q&A for Employers #22, discussing intermittent leave.)

Question 26:      How does an employer determine if it has fewer than 500 employees, for purposes of coverage under the EPSLA and E-FMLA?

Answer 26:         Employers must count all full-time and part-time employees employed within the U.S. (including the District of Columbia and all U.S. territories and possessions), measured at the time the employee would take leave. This includes all current employees regardless of tenure, employees on leave of any kind, employees of temporary placement agencies who are jointly employed by the employer and another employer, and day laborers supplied by a temporary placement agency.

Of note, an employer that implements a “furlough” under the FFCRA may still be obligated to count those employees for purposes of determining employer coverage if the terms of the job action make it more akin an unpaid leave than a to a layoff.  However, such furloughed employees would not be entitled to take EPSLA or E-FMLA leave for any time when no work is available to them (e.g. during the furlough).

A corporation is typically considered a single employer, and all of its employees within the U.S. should be counted together regardless of their location. Two or more entities are generally separate employers, unless they meet the joint employer test under the FLSA or the integrated employer test under the FMLA, in which case, the employees of all entities making up the joint or integrated employer must be counted.

Question 27:      The EPSLA and E-FMLA provisions of the FFCRA apply to employers with fewer than 500 employees.  What date is used for purposes of determining the 500-employee threshold?

Answer 27:         The temporary regulations provide that the 500-employee threshold is determined as of the date an employee needs to take leave.  Therefore, if an employer that currently has more than 500 employees goes below the 500-employee threshold while the FFCRA is in effect (through December 31, 2020), for example as a result of layoffs due to the COVID-19 pandemic, the employer will be subject to the FFCRA as of the date its headcount falls below 500.

For example, if an employer has 525 employees on April 30, 2020, and one of its employees is unable to work starting on that date because s/he has been advised by a health care provider to self-quarantine due to COVID-19 concerns, the employer will not be required to provide paid leave under the FFCRA to that employee.  If, however, the employer lays off 25 employees on May 1, 2020 and another 25 employees on June 30, 2020, the employer will be required to provide paid leave to another employee who is unable to work for the same reason starting on July 1, 2020.  Under current DOL guidance, an employer that drops below the 500-employee threshold would not be required to provide leave retroactively to an employee who did not qualify at the time leave would have started but whose leave, if available, would have been in effect on the date the employer begins to be subject to the FFCRA.  Conversely, an employee who qualifies for and goes out on leave is entitled to the full amount of leave even if the employer’s employee headcount goes above the threshold during the leave.

Question 28:      Do the usual FMLA job restoration regulations, including the exception for employers that are able to demonstrate that an employee would not otherwise have been employed at the time s/he requests reinstatement, apply to employees who take E-FMLA leave under the FFCRA?

Answer 28:         Yes.  Employers subject to the E-FMLA are also subject to the usual FMLA job restoration obligation, and therefore must restore any employee who has taken E-FMLA leave to the same or equivalent position at the end of the leave.  The temporary regulations track the existing FMLA regulations by providing that the FFCRA does not protect an employee from employment actions, such as layoffs, that would have affected the employee regardless of whether leave was taken.  The employer also has the same burden to show that an employee would not otherwise have been employed at the time reinstatement is requested in order to deny restoration to employment.

As to employers with fewer than 25 employees, the FFCRA includes an additional exception to the job restoration obligation, which appears to impose a greater obligation on small businesses.  As per the FFCRA, such small employers are excluded from the job restoration obligation if the position no longer exists when an employee seeks to return from E-FMLA leave because of an economic downturn or other conditions caused by a public health emergency (i.e., due to COVID-19 related reasons), although the employer must attempt to contact the employee if an equivalent position becomes available in the next year.

Question 29:      Do the 80 hours / 2 weeks of paid sick leave available under the EPSLA for caring for a child whose school or childcare is closed or unavailable due to COVID-19 cover the first 10 days of unpaid leave under the E-FMLA?

Answer 29:         Yes, if the employee has not previously used EPSL for other reasons, the first two weeks of E-FMLA may be paid as EPSL (up to 80 hours), regardless of whether this is more or less than 10 workdays for the employee in question.  Of note, however, the pay available through EPSL is capped at 80 hours, regardless of the employee’s regular hours of work in an average workweek, whereas the pay available through E-FMLA for the remaining 10 weeks does not have an hours cap.  Therefore, full-time employees who regularly work more than 80 hours in a two-week period will not recover pay for their full hours of work through EPSL, but their full hours of work must be taken into account when determining E-FMLA pay.

Question 30:      Can an employee take EPSLA or E-FMLA leave for periods of time that work is not available to that employee, for example if the employee’s hours have been reduced or if the employee’s place of work has temporarily closed due to COVID-19 related government orders?

Answer 30:         No.  EPSLA and E-FMLA leaves are only available when the employer has work for the employee, which the employee is unable to perform due to a qualifying reason.  For example, an employee whose hours of work were reduced by the employer from 5 days to 3 days per week because of a COVID-19 related business downturn may not take either EPSLA or E-FMLA leave to cover the 2 days the employee is no longer scheduled to work, and an employee whose workplace has closed (and who cannot work from home) also may not take EPSLA or E-FMLA leave for any reason.

Question 31:      If a new hire took EPSLA or E-FMLA leave with their prior employer, do they get the full amount of leave entitlement at my company? 

Answer 31:         No.  Each individual is only eligible for 2 weeks of EPSLA leave and 12 weeks of E-FMLA leave total between April 1, 2020 and December 31, 2020, regardless of where they are employed at the time they take leave.  This also suggests that the non-retaliation provisions apply regardless of whether the individual took leave at a prior employer.  Because employers may only receive tax credits for payments made pursuant to the FFCRA, employers should consider inquiring about prior EPSLA and E-FMLA leave use on any employee leave request form to avoid paying out leave for which the employer will not be reimbursed.

Question 32:      How do we calculate EPSL or E-FMLA pay to an employee who regularly works overtime?  What if the employee works some shifts for which the employee is paid a shift differential?

Answer 32:         For pay under both the EPSLA and E-FMLA, the employer must determine the employee’s “average regular rate.”  First, the “regular rate” is determined by taking the employee’s pay over a six-month period, excluding the amounts specified in Section 7(e) of the Fair Labor Standards Act, such as gifts, vacation or holiday pay, expense reimbursements, discretionary bonuses, and premium pay for overtime (that is, the additional 0.5x of pay).  Second, the “average regular rate” is determined by taking a weighted average based on the number of hours worked over the 6-month period (or, if the employee has not been employed for 6 months, then over the entire term of employment).  That rate is then used to calculate pay during leave covered by the EPSLA and the E-FMLA.

In the case of an employee who is paid based solely on a single hourly rate, the average regular rate for purposes of the EPSLA and E-FMLA is simply the employee’s usual hourly pay rate.  This is so regardless of whether the employee regularly works and is paid overtime because overtime premiums are not included in the calculation of the average regular rate.

In the case of an hourly employee who is sometimes paid a shift differential, the average regular rate must include not just the usual hourly rate, but also the shift differential.  Accordingly, the regular rate is determined by taking the employee’s total pay (including shift differentials paid but not including the premium portion of overtime pay or other excluded amounts) and dividing this by the total hours of work (including overtime hours).  This results in a (weighted) average regular rate, and it is this rate that is used to calculate pay during paid time off, rather than, for example, the rate that would apply to the hours or shift for which the employee takes leave.

[1] In addition, public employers are subject to the FFCRA regardless of size, as follows: the sick leave provisions apply to the federal government, federal agencies, and state and local governments, while the extended family leave provisions apply to non-federal public agencies, and federal employees covered by Title I or Title II of the FMLA.

[2] An employer of a health care provider or emergency responder may elect to exclude such employee from these leave provisions.

[3] The term “son or daughter” includes the employee’s own biological, adopted, or foster child, stepchild, legal ward, or child for whom the employee is standing in loco parentis (i.e., someone with day-to-day responsibilities to care for and financially support the child), under the age of 18. The term also includes an adult son or daughter who is incapable of self-care because of a mental or physical disability.

 

Martha Zackin

OSHA Publishes New Guidance on COVID-19-Related Reporting Requirements

/in , , , , /by

By Bello Welsh LLP

On April 10, 2020, the Occupational Safety and Health Administration (“OSHA”) issued enforcement guidance, limiting employers’ obligation to report employees’ COVID-19 illness.  As we noted in our prior Employer Q&A (#17), ordinarily an illness is recordable if the illness is contracted as a result of the employee performing their work-related duties, and if it requires medical treatment beyond first aid or days away from work.  Moreover, under earlier OSHA guidance, it was explicit that COVID-19 should not be treated like the seasonal flu, which is not subject to reporting obligations.  Since COVID-19 was not otherwise excluded, employers were obligated to determine whether any employee who ended up testing positive for COVID-19 had contracted it as a result of their work-related duties.  Under this newly-issued guidance, OSHA will not require employers (other than employers of workers in the healthcare industry, emergency response organizations of healthcare providers and first responders), to make work-relatedness determinations of COVID-19 exposure, except where:

  • There is objective evidence that a COVID-19 case may be work-related. This could include, for example, a number of cases developing among workers who work closely together without an alternative explanation; and
  • The evidence was reasonably available to the employer. For purposes of [the enforcement] memorandum, examples of reasonably available evidence include information given to the employer by employees, as well as information that an employer learns regarding its employees’ health and safety in the ordinary course of managing its business and employees.

Prior guidance made no such limitation or presumption, but instead referred employers back to regulations directing that “work-relatedness is presumed for injuries and illnesses resulting from events or exposures occurring in the work environment.”

Martha Zackin

Massachusetts Attorney General Revises FAQs on COVID-19

/in , , , , , , , /by

By Bello Welsh LLP

The Massachusetts Attorney General’s Office, Fair Labor Division, has updated its list of Frequently Asked Questions About COVID-19, including an expanded response to the question of whether an employer that conducts a temporary layoff must pay final pay—including accrued vacation—at the start of the layoff (now numbered Question 3).  The AG’s original response reflected that when an employer conducts a “temporary layoff,” accrued vacation is due at the start of the layoff.  The revised response adds that if an employer takes an action that is intended to continue the employment relationship, for example instituting a “furlough” in which health and other benefits are maintained, the AG will not consider this to be a discharge for purposes of the Wage Act, and accrued vacation pay will not be due at the start of the furlough.  However, if an employer becomes unable to continue contributions toward employee benefit plans, this will be deemed a discharge, triggering the employer’s obligation to make full payment on the next regular pay day.

In short, in this revised response the AG draws a distinction between a “temporary layoff,” in which the employment relationship is severed (even if temporarily) and another action (sometimes called “furlough”) in which the relationship continues to some degree.  Regardless of what nomenclature is used, employers considering reductions should be aware of the AG’s position on this issue.

The revised FAQ document contains several other new items, including references to paid sick leave and emergency FMLA under the FFCRA (which we discuss here, here and here), high level descriptions of the CARES Act (which we discussed here, here and here) and information for independent contractors.  The FAQ also highlights certain state-specific relief available to small businesses, including a fund run through the Mass Growth Capital Corporation and disaster assistance loans.

Of interest for employers, these new and revised FAQs confirm that the Massachusetts Earned Sick Time Law is a separate benefit, and that employers may not require employees to use sick time under the Massachusetts statute (or other employer-provided paid leave) before using the new federal paid sick time entitlement.

Martha Zackin

Federal Pandemic Unemployment Compensation Program under the CARES Act

/in , , , , , /by

By Bello Welsh LLP

On April 4, 2020, the Department of Labor published Unemployment Insurance Guidance Letter (“UIPL”) 15-20, which includes implementing and operating instructions for the Federal Pandemic Unemployment Compensation (“FPUC”) Program provided for as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act of 2020.

In short, the FPUC Program provides eligible individuals with $600 per week in addition to the weekly benefit amount they receive from certain other unemployment compensation programs, including CARES Act programs such as the Pandemic Unemployment Assistance (“PUA”) program (applicable to self-employed individuals and independent contractors) and Pandemic Emergency Unemployment Compensation (“PEUC”) (extended benefits).

Importantly, any individual who is eligible to receive at least one dollar ($1) of underlying benefits for the claimed week will receive the full $600 FPUC.  FPUC is payable for weeks of unemployment beginning on or after the date on which the state enters into an agreement with the Department of Labor.  In states where the unemployment benefits week ends on a Saturday, the first week for which FPUC may be paid is the week ending April 4, 2020, provided an agreement was in place no later than March 28, 2020. In states where the unemployment benefits week ends on a Sunday, the first week for which FPUC may be paid is the week ending April 5, 2020, provided an agreement was in place no later than March 29, 2020.  FPUC is not payable for any week of unemployment ending after July 31, 2020.

Individuals are only entitled to benefits if they are no longer working through no fault of their own, and remain able and to work.  Quitting work without good cause to obtain additional benefits under the CARES Act qualifies as fraud.

 As with regular unemployment compensation, states will decide eligibility for FPUC based on eligibility for the underlying program; claimants do not have to separately apply for FPUC.  Also states, not employers, are required to notify potential eligible individuals of their entitlement to FPUC.

Martha Zackin

FFCRA: Intersection of Emergency Paid Sick Leave, Paid E- FMLA, and FMLA Leave

/in , , , , , , , , , , , /by

By Bello Welsh LLP

As described in detail in our prior Alert, the federal government signed into law the Families First Coronavirus Response Act (FFCRA) to help workers impacted by the current COVID-19 health emergency.  Under the FFCRA, employees of businesses of fewer than 500 employees may be eligible for paid sick leave or paid family leave under certain COVID-19-related circumstances.

There are two types of paid leave available under the FFCRA—emergency paid sick leave and emergency paid family and medical leave (“E-FMLA”).   Click on the links for a summary of the Department of Labor’s guidance and for Q&A.

Emergency Paid Sick Leave Act (“EPSLA”)

EPSLA leave is available to all employees, regardless of tenure. Employees are eligible for this leave if they meet one of the following conditions:

  1. They are subject to a federal, state or local quarantine or isolation order related to COVID-19;
  2. They have been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  3. They are experiencing symptoms of COVID-19 and are seeking a medical diagnosis;
  4. They are caring for an individual[1] who is subject to a quarantine or isolation order or has been advised by a health care provider to self-quarantine;
  5. They are caring for a child because the child’s school or place of care is closed or the child’s care provider is unavailable due to a public health emergency; or
  6. They are experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor. No such specifications have yet been published.

If there is work available for an employee, but that employee cannot work (either in the office or remotely), that employee is entitled to EPSLA.  Importantly, an employee’s entitlement to and use of paid sick leave may not be used to reduce or eliminate any other right or benefit to which the employee is entitled under any law, collective bargaining agreement, or employer policy that existed prior to April 1, 2020 (the effective date of the FFCRA).  In other words, EPSLA cannot count against an employee’s balance or accrual of any other source or type of leave.  Moreover, employers and eligible employees may agree (where Federal or state law permits) to have paid leave supplement EPSLA pay so that the employee receives up to the full amount of his or her normal pay.  EPSLA leave also cannot be used retroactively – the law does not establish any right or entitlement to be paid for any unpaid or partially paid leave taken before April 1, 2020, even if that leave was taken for one of the six qualifying reasons listed above.

Emergency Family and Medical Leave Expansion Act (“E-FMLA”)

This leave is available to all employees who have been employed for at least 30 calendar days (including, in certain instances, rehired employees).  An employee is eligible for up to twelve weeks of E-FMLA leave if he or she is unable to work (either at the employer site or remotely) in order to care for a child[2] because the child’s school or place of care is closed or because their child’s childcare provider is unavailable due to the public health emergency (reason #5, above).

E-FMLA benefits run concurrently with EPSLA leave.  This means that if an employee takes two weeks of EPSLA leave to care for a child (under reason #5), the employee would be eligible to take an additional ten weeks of paid E-FMLA leave.  If, on the other hand, the employee took EPSLA leave for one of the other qualifying reasons, he or she would still be eligible for up to twelve weeks of E-FMLA leave; however, the first two weeks of the E-FMLA leave would be unpaid, unless the employee had accrued paid leave that could be used during that period.  If accrued leave was available, the employer and employee may agree to allow the employee to use accrued paid leave during that two-week period.

Thereafter, for the remaining period of E-FMLA leave, the employee may choose, and the employer may require, that accrued leave be used concurrently with E-FMLA leave.  In that instance, the employee must be paid the full amount to which he or she is entitled under existing paid leave laws or policies for the period of leave taken, up to 100% of regular pay (and the employer may claim the tax credit available under the FFCRA, even if the paid time off comes from the employee’s accrued leave bank).  If accrued leave is exhausted before the end of the E-FMLA benefits period, the employer must pay at least the required E-FMLA amount (which is capped at $200 per day).

Importantly, employees are only entitled to a total of twelve weeks of FMLA leave per the employer’s FMLA year, including E-FMLA, so if an employee has already taken some or all of his or her FMLA leave, their available E-FMLA leave will be reduced by the amount taken.  An employee is still eligible for the two weeks of paid sick leave, however, even if he or she has taken all twelve weeks of FMLA leave.

E-FMLA benefits will end on the earlier of the date on which the public health emergency ends or the employee receives full benefits under these laws.

[1] Of note, while the covered individuals are not limited to family members, the preamble to the DOL regulations states that “paid sick leave may not be taken to care for someone with whom the employee has no personal relationship.  Rather, the individual being cared for must be an immediate family member, roommate, or a similar person with whom the employee has a relationship that creates an expectation that the employee would care for the person if he or she self-quarantined or was quarantined.”

[2] While the E-FMLA statutory text specifies that the child must be under 18 years of age, the EPSLA does not have this limitation, and both laws refer to the definition of “son or daughter” under the FMLA, which includes not only children under 18, but those over 18 who are incapable of self-care because of a mental or physical disability.  The DOL has decided to interpret the E-FMLA and the EPSLA consistently with the FMLA.

Martha Zackin

COVID-19: Department of Labor Issues Regulations Implementing the Families First Coronavirus Response Act’s New Emergency Paid Leave Requirements

/in , , , , , , , /by

By Bello Welsh LLP

The Families First Coronavirus Response Act (FFCRA), enacted on March 18, 2020, creates two new emergency paid leave requirements related to the COVID-19 pandemic: up to two weeks of paid sick leave and up to twelve weeks of expanded FMLA (e-FMLA) leave, ten of which are paid.  Bello Welsh previously posted a summary of the FFCRA, available here.

On April 1, 2020, the United States Department of Labor (DOL) issued temporary regulations to implement the FFCRA’s leave entitlements.  The regulations and supplementary information provided by the DOL (available here)  clarify ambiguities in the FFCRA and provide further guidance to employers.  While we will be providing further analysis of the regulations and their implications in the coming days, certain key provisions of the regulations are summarized below.

Documentation from Employees

Employees are required to provide, and employers must retain, documentation of the need for paid sick leave or e-FMLA.  Regardless of the reason for leave, employees must provide the following:

  • Employee’s name;
  • Date(s) for which leave is requested;
  • Qualifying reason for the leave; and
  • Oral or written statement that the employee is unable to work because of the qualified reason for leave (if the employee provides an oral statement, the employer must document it and retain the documentation).

Additionally:

  • An employee taking paid sick leave because s/he or an individual for whom s/he is caring is subject to a federal, state, or local government quarantine or isolation order must provide the name of the government entity that issued the order;
  • An employee taking paid sick leave because a health care provider advised the employee or an individual for whom s/he is caring to self-quarantine due to concerns related to COVID-19 must provide the name of the health care provider;
  • An employee taking paid sick leave or e-FMLA leave to care for a son or daughter whose school has been closed or whose childcare is unavailable due to COVID-19 must provide: (a) the name of the son or daughter being cared for; (b) the name of the school, place of care, or childcare provider that has closed or become unavailable; and (c) a representation that no other suitable person will be caring for the son or daughter during the period for which the employee takes paid sick leave or e-FMLA leave.

The employer may also require any other documentation necessary to support a request for tax credits under the FFCRA.  Thus, to the extent the IRS issues guidance requiring additional documentation, employers should require employees to provide it.  The IRS’s current guidance on FFCRA tax credits is available here.  Notably, absent the IRS issuing guidance to the contrary, employers may not require doctor’s notes.

Employees or Family Members Particularly Vulnerable to COVID-19

Many employers have asked whether employees in high-risk categories (due to advanced age or underlying medical conditions) are entitled to paid sick time if they do not report to work for fear of contracting COVID-19 and are unable to telework.  Under the regulations, the answer is yes, so long as the employee has been advised by a health care provider to self-quarantine based on a belief that the employee is particularly vulnerable to COVID-19 or a federal, state, or local government authority has advised categories of citizens (e.g., those of certain age ranges or with certain medical conditions) to shelter in place, stay at home, isolate, or quarantine.  Employees must provide the documentation described above (including the name of the relevant governmental authority or health care provider) to substantiate the need for leave.

By contrast, an employee is not eligible for paid sick time because a member of his/her household or other close family/friend is in a high-risk category, unless: (1) the other individual depends on the employee for care; (2) the other individual has been advised by a government authority or health care provider to quarantine, self-quarantine, isolate, stay at home, or shelter in place; and (3) the employee is unable to work or telework due to the need to care for the individual.

Telework

An employee may take paid sick or e-FMLA leave if s/he is unable to work or telework as a result of the qualifying reason for leave.  Telework is considered an option only if: (1) the employer has work for the employee; (2) the employer permits the employee to work from the employee’s location; and (3) there are no extenuating circumstances (including but not limited to serious COVID-19 symptoms) that prevent the employee from performing the work.

The DOL encourages employers to implement highly flexible telework arrangements that allow employees to perform work, potentially at unconventional times, while tending to family and other responsibilities, such as teaching children whose schools are closed for COVID-19 related reasons.

Other Provisions

The regulations and supplementary information contain detailed guidance on the items discussed above and a number of other issues, including the scope of the qualifying reasons for which employees may take paid leave; the amount of leave and pay available for sick time and e-FMLA; employee eligibility criteria; employer coverage; intermittent leave; the interaction between paid sick leave, e-FMLA, and typical FMLA; employer and employee notice requirements; job protection for employees; and recordkeeping, including documentation required for purposes of obtaining the tax credit.  Individuals responsible for implementing FFCRA leaves should consult the regulations and/or legal counsel to ensure compliance.

 

Martha Zackin

New COVID-19 Tax Credit Guidance available from the IRS

/in , , , , , , /by

By Bello Welsh LLP

The IRS has issued a set of Frequently Asked Questions relevant to the tax credits available for payments made by employers to employees taking leave under the Families First Coronavirus Response Act (FFCRA), enacted on March 18, 2020.  Among other things, this guidance states that if an eligible employer that is required to pay qualified leave wages does not have sufficient federal employment taxes set aside for deposit to cover those payments, it can get an advance of the credits by filing a new Form 7200 (instructions available here).

The IRS has also issued a set of Frequently Asked Questions relevant to the separate refundable tax credits available under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, for employers incurring payroll costs and experiencing economic hardship related to COVID-19 (referred to as the Employee Retention Credit).  Of particular interest may be the questions that relate to how employers can claim the tax credits or get advances on the credits.

More information on the FFCRA, the CARES Act, and other COVID-19 related issues is available on the News & Alerts portion of our website, including a summary of key provisions of the FFCRA,  an overview of the CARES ACT (including numerous programs made available to employers), detailed discussion of the Paycheck Protection Program and unemployment related provisions of the CARES Act, and additional analysis of new and existing employer obligations for dealing with the effects of the COVID-19 pandemic.

And as always, you can reach out to any of the attorneys at Bello Welsh LLP for further guidance.

Martha Zackin

Coronavirus Aid, Relief, and Economic Security Act (CARES Act): What Employers Need to Know

/in , , , , , , , , /by

By Bello Welsh LLP

The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed March 27, 2020, estimated at $2 trillion, includes billions of dollars in assistance to individuals and businesses of all sizes.  The following describes highlights of the historic legislation relevant to most U.S. employers:

  • Emergency EIDL Grants: The CARES Act adds fast access to grants of up to $10,000, in the form of a cash advance on an application for an Economic Injury Disaster Loan (EIDLs) through the Small Business Administration (a program that existed prior to the CARES Act).  Small businesses (those with 500 or fewer employees, sole proprietors, and independent contractors) are eligible to apply, and will receive funds within three days.  Importantly, so long as the application is made during the period January 31, 2020 to December 31, 2020, the advanced amount does not need to be repaid even if the applicant is not approved for the underlying EIDL.  EIDL applications are available here.
  • Paycheck Protection Program: As discussed in detail in our summary, employers of 500 or fewer employees may take out forgivable loans of up to $10 million (or a cap tied to prior average payroll costs) to cover payroll, rent and certain other costs through June 30, 2020. Such loans are eligible for forgiveness (in part or in whole), in an amount equal to the sum of costs incurred and payments made during the 8-week period beginning on the date of the origination of the loan. The amount of loan forgiveness is reduced if the employer reduces headcount or wages by certain amounts unless the reductions are restored by June 30, 2020.  PPP applications are available here.
    • This program creates an incentive for businesses to maintain or restore employment impacted by COVID-19 pandemic mitigation measures or related business downturn.
  • Expanded Unemployment Benefits: As discussed in our alert, laid off employees are eligible for an additional $600 per week on top of existing unemployment benefits, for up to four months, and unemployment benefits are extended to others not traditionally eligible, such as the self-employed, independent contractors, and those with limited work history.  States that repeal the common one-week “waiting period” (such as Massachusetts) will receive federal funding for this first week of benefits.  Additional weeks of unemployment benefits, up to a maximum of 39 weeks of benefits, will also be made available (through December 31, 2020) if state benefits run out.
    • Paradoxically, the flat dollar amount boost to unemployment may result in some lower wage earners receiving more through unemployment than through the employer, and the fact that workers will receive these additional benefits may well create an incentive for employers to shed employees from payrolls.
    • Additionally, while involuntary separations usually result in increased rates for employers, states are considering mitigating the impact of such potential rate hikes given the widespread pandemic-related job actions, and Massachusetts has already announced that at minimum, rates will not increase before January 2021.
  • Business Tax Relief Provisions (Subtitle C): While individuals will receive checks of up to $1,200, businesses will also benefit from certain forms of tax relief (listed by the Senate Finance Committee) intended to increase cash flow to help sustain business operations and payroll, including, for example:
    • Refundable payroll tax creditof 50% of quarterly wages on up to $10,000 in “qualified wages” paid per employee from March 12, 2020 to the end of the calendar year (including qualified health plan expenses properly allocable to such wages for the employee).  This is in addition to any credits against payroll taxes which are taken to fund paid sick leave and emergency FMLA leave paid to employees under the new Families First Coronavirus Response Act (FFCRA), detailed in our separate alert.  The credit is available to firms in existence in 2020 which were fully or partially suspended due to government-ordered virus-related shutdowns or other restrictive measures, and to businesses experiencing a decrease in gross receipts of 50% or more when compared to the same quarter in 2019.  For businesses with an average of over 100 full time employees in 2019, the credit is available for employees retained but not currently working due to the crisis; for smaller firms the credit applies to all employee wages.
      • The maximum amount of the credit is $5,000, and it is “refundable” in that any amount that exceeds the employer’s employment taxes for the quarter will be paid to the employer as if it were a tax overpayment.
      • Of note, to determine employer size the IRS will use the “single employer” definition under the Internal Revenue Code.
    • Delay of estimated tax payments for corporations until October 15, 2020.
    • Delay of payment of employer payroll taxes (e.g. employer share of Social Security tax), with deferred payments payable over the following two years (first half by December 31, 2021, second half by December 31, 2022).
    • Modifications for net operating losses (NOLs) to allow businesses to carry losses from 2018, 2019, or 2020 back five years, and to temporarily remove the taxable income limitation to allow an NOL to fully offset income (including through amendment of prior year returns). These modifications are also available to pass-through businesses and sole proprietors.
    • Acceleration of the ability to recover AMT credits.
    • Temporary increase in the limit on the amount of interest expense businesses are allowed to deduct on their tax returns, from 30% to 50% of the taxable income for 2019 and 2020.

Additional emergency funds will also be made available to U.S.-based businesses in the airline industry (including passenger and cargo air carriers; Part 145 regulated businesses that perform inspection, repair, replace, or overhaul services; and ticket agents); to businesses critical to maintaining national security; and for the Federal Reserve System to make loans, loan guarantees, and other investments to provide liquidity to the financial system.  Businesses that accept these amounts will be subject to certain additional conditions, including a 1-year prohibition on stock buy-backs and dividend payouts, and temporary limitations on layoffs.

While many of the measures making the headlines are geared toward bolstering small businesses (those with 500 or fewer employees) or specific industries (airlines, healthcare, etc.), this appropriation includes a provision that targets U.S.-based mid-size businesses (between 500 and 10,000 employees).  Specifically, part of the appropriation described above requires the federal government to “endeavor to seek the implementation of a program or facility” to provide financing to banks and other lenders that make direct loans to such mid-sized businesses with interest rates capped at 2% per annum.  These loans would be subject to similar restrictions, such as requiring that funds be used to retain or restore employment at 90%, that jobs not be outsourced or offshored, and that the business not engage in stock buy-backs or dividend payouts.

Unlike the airline, national security and federal reserve lending funds, however, this potential funding would also require recipients not to abrogate existing collective bargaining agreements during the term of the loan plus 2 years, and to remain neutral in union organizing efforts during the term of the loan.  These provisions may not withstand legal scrutiny in the long run, however, as they may run afoul of the National Labor Relations Act and First Amendment rights of businesses.  In addition, given that the CARES Act only provides that the government must “endeavor to seek the implementation” of a program with these parameters, it remains to be seen when and if mid-sized businesses will be able to obtain these funds.

We will continue to monitor legal developments related to COVID-19 and provide updates as new laws and regulations applicable to employers are enacted.

Martha Zackin

Forgivable Small Business Loans Available Pursuant to the Keeping American Workers Paid and Employed Act (under the CARES Act)

/in , , , , , , , /by

By Bello Welsh LLP

In response to the COVID-19 emergency, the federal government has passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which, among numerous other provisions, makes available forgivable loans for small businesses impacted by COVID-19.[1] Such loans may be used toward payroll costs, as well as covered mortgage, rent, and utility payments, and the program includes incentives for employers to retain or rehire employees.  The following is a summary of these provisions, found in the Keeping American Workers Paid and Employed Act (“KAWPEA,” Title I of the CARES Act).

ELIGIBILITY FOR PAYCHECK PROTECTION PROGRAM

The “Paycheck Protection Program” (PPP) makes available forgivable (partially or in whole), low-interest loans to small businesses, defined as an entity that employs no more than 500 employees during the covered period,[2] including individuals employed on a full-time, part-time, or other basis. The maximum loan amount available is 2.5 times the employer’s average total monthly “payroll costs” (as defined) during the one-year period before the date on which the loan is made,[3] up to a maximum of $10 million.[4]

“Payroll costs” include payments of compensation to employees, including salary, wages, commissions, or similar amounts; cash tips or the equivalent; vacation, parental, family, medical, or sick leave; allowance for dismissal or separation; payment required for the provision of group health insurance benefits or retirement benefits; and payment of state or local tax assessed on the compensation of employees.  Payments of compensation to a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation are also considered “payroll costs” for purposes of determining the loan amount.[5]  Compensation paid to any individual worker that exceeds $100,000 per year (prorated for the covered period) is excluded from payroll costs, as are certain federal employment taxes, the compensation of an employee whose principal residence is outside of the United States, and qualified sick leave or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.

USE OF PAYCHECK PROTECTION LOAN PROCEEDS

Proceeds of a loan covered by the PPP may be used for the following:

  • Payroll costs;
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • Employee salaries, commissions, or similar compensations;
  • Payments of interest on any mortgage obligation (but not prepayment of or payment of principle on a mortgage obligation);
  • Rent;
  • Utilities; and
  • Interest on any other debt obligations that were incurred before the covered period.

While not referenced in the Act, the Small Business Administration’s recently-issued guidance states that at least 75% of the forgiven amount must have been used for payroll.

 APPLICATION AND ADMINISTRATION

Paycheck Protection Loans are fully guaranteed by the federal government, and no personal guarantee and no collateral will be required. While the Act provides that such loans will bear interest at a rate of no more than 4%, the recently-issued guidance states that the interest rate will be .5%. There is no prepayment penalty for any payment made on a covered loan. The loans will be available through Small Business Act (SBA) approved lenders, and the authority to make such loans will be extended to additional lenders as well. Lenders can be found by visiting the SBA’s webpage. During the covered period, lenders will be required to provide complete payment deferment relief for a period of not less than 6 months (including payment of principal, interest, and fees), and not more than 1 year.

While the deadline to apply is June 30, 2020, it is highly likely that the demand will be significant, so employers are advised to apply as soon as possible after determining that a need for the funds exists. The Small Business Administration has announced that small businesses and sole proprietorships may apply beginning April 3, 2020, while independent contractors and self-employed individuals may apply beginning April 10, 2020. A copy of the application is available here.

The applicant for a Payroll Protection Loan must make the following certifications, in good faith:

  • That the uncertainty of current economic conditions makes necessary the loan request to support the recipient’s ongoing operations;
  • That the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments;
  • That the eligible recipient does not have an application pending for a loan for the same purpose and duplicative of amounts applied for or received under a covered loan; and
  • That during the period February 15, 2020-December 31, 2020, the recipient has not received (and will not receive) amounts under the law for the same purpose and duplicative of amounts applied for or received under a covered loan.

Loan forgiveness

 Paycheck Protection Loans are eligible for forgiveness (partial or in whole), in an amount equal to the sum of costs incurred and payments made during the 8-week period beginning on the date of the origination of the loan, including:

  • Payroll costs (excluding compensation paid to any individual worker that exceeds $100,000 per year, prorated for the covered period);
  • Any payment of interest on any covered mortgage obligation (including any indebtedness or debt instrument incurred in the ordinary course of business that is a liability of the borrower, is a mortgage on real or personal property, and was incurred before February 15, 2020);
  • Any payment on any covered rent obligation under a leasing agreement in force before February 15, 2020; and
  • Any covered utility payment for distribution of electricity, gas, water, transportation, telephone, or internet access, for which service began before February 15, 2020.

The borrower must submit an application to the lender to seek loan forgiveness, including documentation verifying the number of full-time equivalent employees on payroll and pay rates, canceled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, covered lease obligations, and covered utility payments, and a certification from an authorized representative of the borrower that such documentation is true and correct and that the amount for which forgiveness is requested was used to retain employees, make interest payments on covered mortgage, rent, or utility obligations, and any other documentation deemed necessary.

The lender will issue a decision on the borrower’s application for loan forgiveness no later than 60 days after receiving the application. Forgiven amounts will be excluded from the borrower’s gross income.

Loans with a remaining balance after the application of loan forgiveness amount will continue to be guaranteed by the federal government. While the Act provides that such loans will have a maximum maturity of 10 years from the date on which the borrower applies for loan forgiveness, the recently-issued guidance states that the loan has a maturity of 2 years. The amount of loan forgiveness cannot exceed the principal amount of the financing made available under the covered loan.

 REDUCTION OF LOAN FORGIVENESS AMOUNT [REVISED]

 The KAWPEA creates incentives for employers to maintain and restore employment and pay levels by providing that the amount of loan forgiveness may be reduced according to a proportional formula, if the employer (1) reduces the average number of full-time employees (FTEs) and/or (2) reduces the total salary or wages of employees who earned $100,000 or less in 2019 by more than 25%.

  • In the case of a reduction of average FTEs, the loan forgiveness will be reduced by the ratio of the average FTEs during the covered period to the average FTEs during a benchmark period. That is, the average monthly FTEs[6] during the covered 8-week period is divided by the average monthly FTEs during the employer’s chosen benchmark period (either 2/15/19 to 6/30/19, or 1/1/20 to 2/29/20, at the employer’s election).  The total amount of the loan eligible for forgiveness is then multiplied by the resulting fraction, which is the ultimate amount of the forgiveness.
  • In the case of a reduction of salary or wages of employees who earned $100,000 or less in 2019 (“relevant employees”), the reduction in the loan forgiveness is equal to the reduction in the wages of these employees that exceeds 25%. That is, the total amount of reductions in the total salary/wages of all relevant employees during the covered 8-week period that are in excess of 25% of the total salary/wages of these employees during the immediately preceding full quarter is subtracted from the amount of loan forgiveness. [7]

However, the amount of loan forgiveness will not be reduced by any reductions that occurred in the period February 15, 2020 through 30 days after the enactment of the CARES Act (April 26, 2020) if, by June 30, 2020, the employer has eliminated those reductions. Further, borrowers with tipped employees may receive forgiveness for additional wages paid to those employees.  As the above reflects, the calculation to determine how the loan forgiveness will be applied to a given employer is complicated and fact-specific, and at this point is made more complicated by ambiguities in the law.  Therefore, we have not provided hypothetical examples here, but we expect there to be further guidance (from the SBA and possibly other agencies) on how to make these calculations.  In the meantime, we can work with clients to provide preliminary advice on how a specific situation may be analyzed.

The Small Business Administration has a webpage dedicated to assisting small businesses navigate available loans, including the PPP.  A link this page may be found here.  The SBA also provides other forms of assistance, including disaster loans and COVID-19 related forgivable advances on such loans.  For more information, visit the SBA site at http://www.sba.gov.

It is our understanding that some banks have already reached out to businesses that may be eligible for PPP loans.  If your bank has not, we suggest that you contact your relationship manager.

We will continue to monitor legal developments related to COVID-19 and provide updates as new laws and regulations applicable to employers are enacted.

[1] Provisions of the CARES Act that significantly expand eligibility for unemployment benefits and increase available unemployment compensation are discussed in Bello Welsh’s prior client alert, available here. Our analysis of additional provisions of the CARES Act, including those relating to business taxes and additional funding sources, is available here.

[2] Importantly for employers in the restaurant and hospitality industries, the PPP also provides that such entities with more than 500 employees are eligible for such loans as long as no more than 500 employees are employed in one physical location.

[3] An alternate calculation is available for seasonal and recently established employers.

[4] The covered period runs from February 15, 2020 through June 30, 2020. During this period, individuals who operate under a sole proprietorship or as an independent contractor, and eligible self-employed individuals, are also eligible to receive a covered loan, a departure from the SBA’s usual loan eligibility requirements.

[5] The statute is ambiguous as to whether a business that uses both employees and independent contractors could include such payments to its independent contractors in determining the loan amount, or whether such payments are only available to an independent contractor seeking a loan on their own behalf.

[6] The average monthly number of FTEs is determined by calculating the average number of FTEs for each pay period falling within a month.

[7]  Note that the statute is ambiguous regarding which calculation should be performed first in the case of a reduction in both FTEs and salary/wages.  Given that the order of the calculation will impact the result, it is expected that agency guidance will resolve this issue.