Recession

Everything Business Owners Need to Know About the FFCRA, Cares Act, and Coronavirus Recession

As the COVID-19 pandemic sweeps the globe, it continues to wreak havoc on the US and global economy. The continued escalation of COVID-19, and its economic ramifications, have instigated what economists are referring to as the "Coronavirus Recession." For many business owners and employees, it's the second recession they've experienced, coming a little over a decade after the 2008 great recession.

The US Federal Government recently passed the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act to support business owners and the US economy during this time. Business owners who understand where we're at currently with the COVID-19 pandemic, what the coronavirus recession will look like, and how the FFCRA and CARES acts can help businesses recover can use that information to weather this storm.

The Coronavirus Recession: Where We're At Now

At the time of writing this article, around 10 million people have filed for unemployment in the last two weeks. To put that into perspective, the previous record occurred in 1982, when 695,000 people filed for unemployment. In the last week alone, nearly ten times that many people have filed.

Economists at the New York Times estimate that, as of April 3, 2020, the unemployment rate is hovering close to 13%. That's the highest level since the Great Depression, overshadowing the 2008 Great Recession's unemployment levels of around 10%.

These figures paint a grim picture. That's because the US economy has never quite experienced something like the COVID-19 pandemic.

The Forecast for the Coronavirus Recession

Unlike the 2008 Great Recession, the Coronavirus Recession wasn't caused by a market collapsing or a bubble bursting. It's the result of a pandemic that has forced businesses to close doors and consumers to stay inside. With many businesses non-operational and consumers unable to inject money into the economy, it's little wonder we're experiencing a recession.

Fortunately, the outlook of the Coronavirus Recession should—at least hypothetically—be more hopeful than the 2008 Great Recession. In theory, when the virus is more controlled, and mass outbreaks are less common, the economy should rebound fairly quickly. While economists predict rough first, second, and in some cases third quarters, most are in agreement that the economy will rebound by either the third or fourth quarter of 2020, or the first quarter of 2021.

What the economy battles now is uncertainty. Economists predict the economy will rebound when the COVID-19 pandemic is more contained, but the virus itself remains a largely unknown quantity. It could mutate, causing vaccine development to take longer. If quarantines or stay-at-home orders are lifted prematurely, another wave of mass infections could kick-off. The US Federal Government will need to find a way to combat these uncertainties to initiate an economic rebound, and that could take a while.

Fortunately, the nature of the Coronavirus Recession as a pandemic-instigated economic downturn has made the Federal Government less leary about large stimulus packages than they might be in a market-instigated recession. On March 27, President Donald Trump signed into law the CARES Act, a historic $2 trillion stimulus package designed to help preserve businesses and keep the economy afloat. The FFCRA act is intended to complement the CARES act by ensuring employees receive paid sick leave when necessary during the COVID-19 pandemic. Understanding the FFCRA and Cares Act can help business owners keep their enterprises viable during the Coronavirus Recession.

Everything You Need to Know About the FFCRA

The Families First Coronavirus Response Act (FFCRA) requires employers to supply employees with paid sick leave and additional family and medical leave during the COVID-19 pandemic. The FFCRA will last from April 1, 2020, through December 31, 2020.

Employees of private-sector employers with under 500 employees (and certain public sector employers) must sign up for the FFCRA to receive benefits.

There are six COVID-19 related reasons an employee can qualify for paid sick, medical or family leave under the FFCRA:

  1. They're subject to a Federal, State, or local quarantine or stay-at-home order.
  2. A health care provider advises them to self-quarantine.
  3. They're experiencing COVID-19 symptoms or are seeking a medical diagnosis.
  4. They're caring for an individual affected by COVID-19.
  5. They're caring for a child whose school or place of care is closed.
  6. They're experiencing any number of substantially similar conditions, as specified by the US Department of Health and Human Services (DHHS).

Under the FFCRA, employees are entitled to the following:

  • Up to two weeks (80 hours) worth of paid sick leave. Part-time or hourly employees receive the equivalent of two weeks’ worth of work in sick leave. Sick leave pay should either be the regular rate of pay, or the Federal minimum wage, whichever is higher.
  • If the employee takes leave for reasons 1-3 listed above, they're entitled to 100% paid leave, up to $511 daily or $5,110 total.
  • If the employee takes leave for reasons 4 and 6, they're entitled to 50% paid leave, up to $200 daily or $2,000 total.
  • If the employee takes leave for reason 5, they're entitled to up to 12 weeks of paid leave, up to $200 daily or $12,000 total.

The US Department of Labor (DOL) released a mandatory employee rights poster intended to spread awareness of the FFCRA. EMPLOYERS ARE REQUIRED TO DISTRIBUTE THIS POSTER TO EMPLOYEES VIA EMAIL OR ONLINE BY APRIL 1.

If an employer has made reasonable efforts to comply with the Act, they cannot be punished for violating the Act prior to April 17, 2020. Employers who violate the Act after that date will suffer penalties and enforcement by the US Department of Labor's Wage and Hour Division (WHD).

The DOL has recently released a few additional guidelines for employers concerning administering FFCRA leaves to employees. Here's what you should know:

  • Leaves aren't available for furloughed employees or employees working reduced hours. If an employee's workplace is closed, they're not entitled to a leave.
  • Leaves aren't available for employees whose workplaces have closed due to the COVID-19 pandemic and orders by their local government.
  • Leaves aren't retroactive. Employees who took leave prior to April 1 are not entitled to FFCRA pay.
  • Emergency Paid Sick Leave (EPSL) and Emergency Family and Medical Leave (EFMLA) can be taken intermittently if so needed.
  • Employees can't use other forms of paid leave in conjunction with EPSL or EFMLA leave.

Since the DOL is enforcing the FFCRA, employers should take time to record when and why employees ask for leaves. Ideally, employers should be able to provide evidence showing an employee request for leave under the FFCRA is valid.

While the FFCRA represents a landmark moment for employee rights in the COVID-19 pandemic, business owners will be equally interested in the recent CARES Act.

Everything You Need to Know About the CARES Act

President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27 with the intent of stabilizing the economy and preventing businesses from closing during the COVID-19 pandemic. The CARES Act allocated $350 billion to help small businesses specifically stay afloat during the pandemic.

Essentially, the CARES Act uses 100% federally guaranteed loans to help small businesses maintain their payrolls during the COVID-19 pandemic. Crucially, THESE LOANS MAY BE FORGIVEN IF THE EMPLOYER MAINTAINS THEIR PAYROLL THROUGH THE CRISIS OR RESTORES THEIR PAYROLL AFTERWARD.

Businesses are eligible to receive a 100% federally guaranteed loan under the CARES Act if they:

  • Employ less than 500 people
  • Meet the SBA's size standard for small businesses
  • Are a 501(c)(3) with fewer than 500 employees
  • Are an individual operating as a sole proprietor
  • Are self-employed and regularly carry a trade or business
  • Are a Tribal business that meets SBA standards
  • Are a 501(c)(19) Veterans Organization that meets SBA standards

Importantly, businesses in the accommodation and food services industries can still qualify for the CARES Act on a per-location basis according to the above guidelines.

In the coming days and weeks, the US Federal Government will release an updated list of lenders and creditors with whom business owners can apply to receive loans. Lenders will be looking for a few things in CARES Act applicants:

  • Business owners should have evidence that the COVID-19 pandemic is directly affecting their business and makes requesting a loan necessary.
  • Business owners will use the loan to retain workers and payroll, or to make vital payments such as mortgage and utility payments.
  • Business owners are not applying for any other loans that interfere with CARES Act loans.
  • Business owners have not received a loan duplicative of a CARES Act loan between February 15, 2020, and December 31, 2020.

CARES Act loans can be worth up to 2.5 times the borrower's (business owner's) average monthly payroll expenses, up to a limit of $10 million.

To calculate your monthly average payroll costs quickly, subtract the sum of excluded payroll costs from the sum of included payroll costs. You'll be left with your average monthly payroll costs.

Included payroll costs are:

  • Salaries, wages, commissions, etc
  • Cash tips or equivalent payments
  • Benefits payments for vacation, parental, family, medical, or sick leave
  • Dismissal or separation allowance
  • Health care benefits payments, including premiums
  • Retirement benefits payments
  • State or local tax payments for employee compensation

For individuals who operate sole proprietorships, or are independent contractors or self-employed, included payroll costs include compensation such as wages or commission that don't exceed $100,000.

Excluded payroll costs are:

  • Compensation for employees in excess of $100,000
  • Payroll taxes, income taxes, and railroad retirement taxes
  • Compensation of non-US-based employees
  • Sick leave wages for which a credit is allowed under the FFCRA

Borrowers are eligible for loan forgiveness equal to the amount they spent on the following items during the eight weeks after receiving a CARES Act loan:

  • Payroll costs
  • Interest on mortgage obligations
  • Rent on a leasing agreement
  • Utility payments
  • Additional wages paid to tipped employees

Declines in payroll costs as a result of releasing employees will result in a reduction on loan forgiveness. However, employers can still retain the full forgiveness amount if they provide evidence of re-hiring employees once the pandemic eases.

There are a few other CARES Act-related items that business owners should be aware of:

  • Small businesses may be eligible to receive emergency grants of $10,000.
  • SBA loans may be waived for up to six months.
  • Businesses that have experienced a 50% decline in gross receipts in a 2020 quarter compared to the same quarter in 2019, or businesses forced to close due to the pandemic, may receive a refundable tax credit for up to 50% of qualified employee wages, up to $10,000 per employee.
  • Businesses can defer payment of employer payroll taxes imposed between now and December 31, 2020. Half of the deferred taxes will be due on December 31, 2021, and the rest will be due on December 31, 2022.

The CARES Act also expands current unemployment benefits, raising the limit of unemployment benefits to 13 weeks and adding $600 to weekly unemployment benefits.

Businesses eligible for loans under the CARES Act should refrain from furloughing or releasing employees if possible. Businesses that are forced to reduce payroll by releasing employees should encourage them to seek unemployment as soon as possible, and should consider a strategy for re-hiring employees released during the pandemic.

Contact Our Experienced Business Lawyers Today

At the Four Rivers Law Firm, our business law attorneys are committed to helping clients navigate trying times successfully. To understand more about how the FFCRA or CARES Act may impact your business, contact us online or via phone at (813) 331-5056.

Note: We remain open during the COVID-19 pandemic. Using our virtual platform, our legal team remains able and willing to provide you with legal assistance. Stay safe! We're here for you.

The information herein is provided by Accurate Employer Solutions.

Categories