Over the weekend there were important clarifications to the Families First Coronavirus Response Act (FFCRA) exclusions for small businesses under 50 employees via the Department of Labor Q&A page.  

Additionally, this email has some broad outlines of the Coronavirus Aid, Relief, and Economic Security (CARES) Act benefits for small business.

DOL CLARIFICATIONS to FFCRA Exemptions from Paid Sick Leave and Emergency Family and Medical Leave:

58. When does the small business exemption apply to exclude a small business from the provisions of the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act?

An employer, including a religious or nonprofit organization, with fewer than 50 employees (small business) is exempt from providing paid sick leave and expanded family and medical leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons when doing so would jeopardize the viability of the small business as a going concern. A small business may claim this exemption if an authorized officer of the business has determined that :

1.     The provision of paid sick leave or expanded family and medical leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity; 

2.     The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or 

3.     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 labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.
59. If I am a small business with fewer than 50 employees, am I exempt from the requirements to provide paid sick leave or expanded family and medical leave?

A small business is exempt from certain paid sick leave and expanded family and medical leave requirements if providing an employee such leave would jeopardize the viability of the business as a going concern. This means a small business is exempt from mandated paid sick leave or expanded family and medical leave requirements only if the: [CIP Emphasis Added]

  • employer employs fewer than 50 employees;
  • leave is requested because the child’s school or place of care is closed, or child care provider is unavailable, due to COVID-19 related reasons; and
  • an authorized officer of the business has determined that at least one of the three conditions described in Question 58 is satisfied.

The Department encourages employers and employees to collaborate to reach the best solution for maintaining the business and ensuring employee safety. 

As with previous information, this is subject to change – remember this is Q&A guidance and it does not have the authority of official rule making.

The Paycheck Protection Program
The maximum loan amount available to employers and other eligible recipients will be in an amount that is equal to roughly 2.5 months of the applicant-employer’s average “Payroll Costs.” The loan cannot exceed a total of $10 Million. For the purposes of calculating an eligible borrower’s maximum loan amount, “Payroll Costs” under the law is defined as:
  • Salary, wage, commission, or similar compensation;
  • Payment of cash, tip, or equivalent;
  • Payment for vacation, parental, family, medical, or sick leave (not including payments made under the Families First Coronavirus Relief Act (FFCRA))
  • Allowance for dismissal or separation;
  • Payment required for the provisions of group health care benefits, including insurance premiums;
  • Payment of any retirement benefit; or 
  • Payment of State or local tax assessed on the compensation of employees (the government will not pay the payroll taxes that an employer owes the federal government.); and
  • The sum of payment of any compensation to or income of a sole proprietor that is a wage, commission, income, net earnings from self-employment, or similar compensation that is not more than $100,000 in 1 year, as pro-rated for the covered period. 

Importantly, any compensation received by an individual employee, independent contractor, or self-employed individual, in excess of an annual salary of $100,000 may not be included in either the initial calculation of payroll costs nor can it be included for purposes of obtaining loan forgiveness.

Loan recipients may use the proceeds to cover specified business costs with the potential of obtaining up to 100% in loan forgiveness. In other words, if an employer or other eligible borrower uses the loan proceeds to cover the costs that Congress is encouraging them to cover, the debt will be completely cancelled. 

Those costs include:
  • Payroll costs; 
  • Payments related to the continuation of group healthcare benefits during periods of paid sick, medical, or family leave, and insurance premiums; 
  • Employee salaries (excluding compensation amounts in excess of $100,000), commissions, or similar compensation;
  • Payments of interest on any mortgage obligation (not including interest on any prepayment of or payment of principal on a mortgage obligation);
  • Rent (including rent under a lease agreement);
  • Utilities; and 
  • Interest on any other debt obligations that were incurred before the loan began. 

Employers who apply and accept a loan under this program should be aware that if they subsequently reduce the number of employees on their payroll, reduce the pay of their employees, or both, the total amount of loan forgiveness available to them will face a potential corresponding reduction. 

The CARES Act also expands access to SBA Express Loan and expands Eligibility under the Small Business Act to the Economic Injury Disaster Loan Program (EIDL)

In addition to the incentives for employers to retain their workforce through favorable loans and loan forgiveness, the CARES Act includes tax incentives for employers.

The CARES Act provides employers with a refundable payroll tax credit of 50% on qualified wages (including health benefits) paid to employees between March 31, 2020 and December 31, 2020. The payroll tax credit will apply to the first $10,000 in eligible compensation.

In order to be deemed eligible for the payroll tax credit, the employer must:

  • Have had its operations fully or partially suspended as a result of a COVID-19 related shut down order; or 
  • Have incurred a decline in gross receipts by more than 50% when compared to the same quarter in the prior year. 

The payroll tax credit is based on qualified wages paid to the employees. Whether or not the employer has paid “qualified wages” will depend on the number of employees employed by the company.

For employers with more than 100 full-time employees  – qualified wages are wages that are paid to employees, despite the fact that they are not providing services due to a COVID-19 related shut down order.

For Employers with 100 or less employees –  qualified wages will be paid to employees, whether the employer is open for business or not. 

Employers, including self-employed individuals, will also be allowed under the CARES Act to defer their share of Social Security taxes paid on their employees’ wages over the course of two years. Half of all deferred Social Security taxes must be paid by December 31, 2021, while the second half of all deferred Social Security tax payments must be paid by December 31, 2022.