How Can Smaller Businesses Battling Cash Flow Concerns Comply with FFCRA?

We are all engaged in the new practice of social distancing in order to try to stem the tide of COVID-19 incidence. It’s not easy, that’s for sure.

(Here in my house, I am worried that my youngest child, a 15 year-old boy, may be killed outright by his older sisters—they would like him to improve on distancing.)

As federal and state governments ramp up their assistance for businesses suffering from quarantines, isolation, and social distancing, last week, I provided the “down and dirty” basics about the Families First Coronavirus Response Act (FFCRA).

Amy, Can You Provide A Recap of FFCRA

Of course! Under the FFCRA, employers must provide paid sick leave to employees under certain circumstances that I detailed in that earlier post—10 days of paid leave at their regular rate of pay (capped at $511 daily and $5,110 total) for those sick with COVID-19 or who must quarantine themselves; and 10 days of paid leave at two-thirds of their regular rate of pay (capped at $200 daily and $2,000 total) for those that need to care for those quarantined or sick, have children at home because schools are closed or a child care provider is not available because of the crisis.

Then, paid family leave requires employers to pay for twelve weeks of job-protected leave for employees who cannot work because their child’s school or daycare is closed or unavailable due to COVID-19. Bear in mind, most kids’ schools are closed. So, if you are a parent of a child under 18 years old, this is likely to affect you—and your employer. I’m got the details for you in the previous post; for example, teleworkers are ineligible for this leave.

Ten weeks must be paid at two-thirds of the employee’s regular pay rate, capped at $200 daily and $10,000 total for the duration of leave.

These leaves are on top of whatever leave benefits an employer already provides for its employees. An employee who has already been laid off is not eligible for leave under FFCRA because…the person was laid off! FFCRA only applies to currently employees. Laid off workers may contact their state unemployment insurance commission or agency for relief.

Recognizing that FFCRA will tax employers (pun intended), it provides employers with a refundable tax credit equal to 100% of the family leave wages that were paid, even for those who are self-employed (the tax credit is in the form of a credit against self-employment tax in the amount equal to the qualified leave – sick or emergency family).

BUT, employers only realize these tax credits when the payroll tax is paid. In addition, because the initial two work weeks of emergency paid sick leave covers not only employees who have COVID-19 or who may have it but also employees subject to a quarantine or isolation order, we’re talking about most employees who work for employers with less than 500 employees. As of last night, employees Ohio, Louisiana, and Delaware joined New York, California, Illinois, Connecticut, and New York in issuing stay-at-home orders. That’s a whole lot of employees.

In actuality, I’ve been wondering how employers afford this, especially those companies in states under isolation orders and deemed “nonessential.” The revenue stream for so many of these businesses have slowed to a trickle or stopped, which leads me to this question:

What if an employer lacks the cash to pay for these leaves? Tax credits that apply to 2020 taxes do not help employers that cannot pay now due to liquidity issues.

What is, say, a pet shop owner with a dog walking business going to do? Or another nonessential business?

Options For The Cash Flow Problem and FFCRA Compliance

First, businesses with less than 50 employees can seek an exemption from the U.S. Department of Labor (DOL) from providing emergency family medical leave if the leave requirements would jeopardize the viability of the business as a going concern. I expect DOL will issue guidelines for businesses seeking a hardship waiver this week about what would “jeopardize” a business.

Second, employers may seek a loan from the U.S. Small Business Administration (SBA) if the business has suffered substantial economic injury as a result of COVID-19. Owners of restaurants, bars, gyms, yoga studios, gift shops, and other businesses struggling financially because of state orders aimed at curbing the spread of the new coronavirus can now apply for long-term federal disaster loans from the SBA.

Let’s break down how this works.

Before the enactment of FFCRA, the feds passed the Coronavirus Preparedness and Response Supplemental Appropriations Act, which provides working capital loans of up to $2 million per borrower to “qualifying businesses,” at low rate, i.e., 3.75% interest rate for for-profit companies and 2.75% for nonprofit organizations. These are low-interest loans, funded by the federal government, available to small businesses affected by the COVID-19 pandemic under the SBA’S Economic Injury Disaster Loan Program.

These are working capital loans. That is, your business can use this type of low-interest loan to pay existing fixed debt, employee payroll, accounts payable, and other expenses of operation, including FFCRA sick leave and emergency medical leave, according to the SBA.

Wait, wait, wait. What is a qualifying business?

A qualifying business is (i) one located in a state where the Governor of said state declared the area to be in a state of emergency and (ii) one that cannot obtain a loan from other sources. The SBA is not underwriting these loans based on creditworthiness. If the business existed on March 1, 2020, and had employees, it is eligible.

Applying for Economic Injury Disaster Loan assistance is now available to affected small businesses within these states: Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Illinois, Indiana, Louisiana, Maine, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, and West Virginia. 

According to the SBA, the loans will help alleviate financial strain and allow businesses to pay bills, payroll, and accounts payable, with long-term payments stretching up to thirty years.

I’m impressed by this. I admit it.

These are challenging times for employers and their families.