As perhaps an unintended consequence of the emergency legislation passed by Congress last week, many small business owners might conclude that they need to rush formal termination notices to their employees before April 1, 2020.
The Families First Coronavirus Response Act (“FFCRA”) creates an emergency sick leave benefit and also modifies the Family Medical Leave Act (“FMLA”) to expand coverage and require a paid benefit for employees of small businesses. The cost of these new benefits for employees must be borne by their employers, although employers can get 100% reimbursement for these costs through payroll tax credits and IRS refunds. The effective date of the FFCRA is April 1, 2020. This offers small business owners a small window of opportunity to avoid liability for these new mandated benefits, because any employee terminated before April 1, 2020 will not be covered by the new law.
FFCRA generally applies to all privately owned small businesses with fewer than 500 employees, BUT there is an exemption available for small businesses with fewer than 50 employees from the requirement to provide leave due to school closings or child care unavailability IF the leave requirements would jeopardize the viability of the business as a going concern (it is admittedly not entirely clear what “jeopardizing the viability of the business as a going concern” means, but guidance will soon be forthcoming).
For an owner considering its options on what to do with underutilized or idle staff, making the termination official–and documenting that it occurred on or before April 1–could spare the employer a meaningful expense (even if reimbursable) at a time when it is perhaps already starting to face severe cash flow pressures with no definitive recovery in sight. Some employers may even be pushed to accelerate the time table for inevitable terminations, so as to avoid these new FFCRA obligations.
However, the $2 trillion federal relief package that appears will soon be passed by the House and signed by the President will, if adopted in its current form, include $350 billion in loans to small businesses, including (i) short-terms loans to help businesses cover payroll, rent, and other expenses (including forgiveness provisions if the business owner retains employees), (ii) $17 billion to help small businesses repay existing debt, (iii) $10 billion in grants of up to $10,000 each to help small businesses pay operating costs (iv) $260 billion in emergency unemployment insurance benefits to provide an extra 13 weeks of coverage and weekly benefit increases of up to $600, (v) deferral of business payroll taxe obligations until 2021-2022, (vi) tax credits to employers who continue to pay furloughed workers, and (vii) temporary waiver of penalties for virus-related withdrawals from retirement accounts.
Owners should not merely focus on the short term economics of the situation. There are other strategic and intangible factors to consider. Recruiting and retaining high-quality employees is not easy, and it would be unwise to underestimate the value that loyal, hardworking employees contribute to any small business.
Business owners should consult with their tax, financial, and legal advisors as soon as possible to balance the costs and benefits of retaining versus terminating staff in navigating the economic impact of the COVID-19 crisis, understanding that time is of the essence.
Below you will find links to the Guidance issued by the Department of Labor. There is a Fact Sheet for Employees, a Fact Sheet for Employers, and a Questions and Answers link. This guidance is only the first round of information that will be coming from the DOL’s Wage and Hour Division, and it appears further small business and taxpayer relief is on the way, so stay safe and stay tuned for further updates.