Surviving the Pandemic Financially
by John P. Flannery
Across the nation, there are persons hurting, isolated.
We have employers anxious to keep their business a going concern.
They want to treat their work force fairly and to be able to launch again when they receive the all clear. The best of them do.
There are employees out of work. They require work because that’s what they do, and for subsistence.
The hardest hit work forces so far may be restaurants, hotels, and the various forms of travel.
Many are home on sick leave, others at home taking care of someone who is ill.
Congress recently passed a Families-First Coronavirus Response Act.
Soon afterwards, they passed a stimulus bill that divided the nation between a bailout for Wall Street and Main Street.
There may be legislation in the work that may help those businesses who have “business loss” insurance.
There are some answers, some possible solutions, drawn from the recent legislation, and more to come, for those who are quite stressed about the virus and their work.
The new legislation is critical because it may mean the difference between shuttering a business and surviving financially.
I’m most concerned, however, about the small businesses and their workers.
The pertinent provisions that concern small businesses involve sick leave, family and medical leave policies, Unemployment insurance, and Tax credits.
There are also provisions in the stimulus bill that may be as important.
There are a couple of caveats about “business loss” insurance — and that some policies don’t cover a virus or a pandemic; but, there may be a solution for that.
This brief monograph is timely because the law became effective today, April 2, 2020, and will sunset New Year’s Eve.
Consider this outline of the provisions passed by Congress and approved by the President:
I. SICK LEAVE
1. Every employee is eligible for paid sick leave, but only if,
2. The employee is unable to work (not even able to telecommute), and
3. Falls into one of these categories:
a. The employee is subject to a federal, state, or local quarantine or isolation due to COVID-19;
b. A health care provider advised the employee to self-quarantine due to concerns related to COVID-19 (self-imposed quarantine without medical advice does not qualify under the Act);
c. The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
d. The employee is caring for an individual (not limited to family members, although there is a stray reference to family members elsewhere in the Act, so stay tuned) who is either subject to a federal, state, or local quarantine or isolation due to COVID-19 or has been advised to self-quarantine due to concerns related to COVID-19;
e. The employee is caring for the employee’s child whose school has been closed or place of care is unavailable due to COVID-19 precautions; or
f. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretaries of Treasury and Labor. The precise meaning of this sixth reason will be clarified by the Secretary of Health and Human Services.
4. Hours of paid sick leave:
a. 80 hours if a full time employee,
b. The hours worked if a part time employee,
a. For categories 3. a-c above, paid at the regular rate, but not in excess of $511/day and not to exceed $5,110 in total compensation.
b. For categories 3. d-f above, paid at 2/3rd their regular rate, but not in excess of $200 a day, and $2,000 in total compensation.
6. When: This act takes effect beginning April 2nd.
7. Prohibitions: Employers may not require eligible employees to first use other paid leave.
8. Notice: Employers must give notice to employees of their rights — and Secretary of Labor is formulating that notice (expected March 25).
II. Family and Medical Leave
It is important to take note of the fact that the Act makes revisions to the Emergency Family and Medical Leave Expansion Act making some employees eligible if a child’s school or place of care has been closed because of the Coronavirus.
- Caution: You should be aware that normally Family and Medical Leave does not apply to employers with 50 or fewer employees, but this expanded act covers employers with 500 or fewer employees including employers with fewer than 50 employees.
- Eligibility: The Act includes all employees who have worked for covered employers (i.e., those with less than 500 employees) for at least 30 days.
- Term of Leave: An eligible employee may take up to 12 weeks of leave if unable to work (including telework), provided that,
- Child Care: The employee must care for a child under 18 and the child’s school or place of care has closed due to the COVID-19 public health emergency.
- Unpaid/Paid Leave: The initial 10 days of leave are unpaid, but the employee may elect to use his/her accrued paid sick leave and/or accrued vacation during this otherwise unpaid period.
- Amt of Compensation: Past the initial 10-day period, an employee is entitled to receive two-thirds of his/her normal wages for the number of hours he/she would be regularly scheduled to work, up to a maximum of $200 per day and $10,000 in total.
- Application: The employee may apply for leave when the Act is effective on April 2.
- Return to work — 25 or more: In those cases of an employer with 25 or more employees, an employee returning from expanded FMLA leave is entitled to reinstatement to the same or an equivalent position.
- Return to work — less than 25: If the employer has fewer than 25 employees, an employee returning from expanded FMLA leave is entitled to reinstatement to the position held by the employee when the leave commenced unless that position does not exist due to economic conditions or other changes in operating conditions caused by the public health emergency. In such case, the employer must make reasonable efforts to restore the employee to an equivalent position, and if those efforts fail, make reasonable efforts for at least a year to contact the employee if an equivalent position becomes available.
III. Emergency Unemployment Insurance
1. Section 903 of the Social Security Act is amended as follows.
2. To share 1 Trillion Dollars in emergency grants among the several states in the proportion elsewhere provided in the Code.
3. Not later than 60 days after the enactment of the Act, that is, after April 2, 2020.
4. 50% of the total assigned to each state shall be transferred.
5. Provided, that the state has suffered an increase in applicants more than 10% over the same quarter in the previous year.
6. Employers must notify employees that this insurance is available when the employees separate from the employer.
7. The State must make the applications for unemployment accessible, in person, by phone, or online.
8. The State must keep the applicant informed of the progress of his case.
9. The State must take steps to make the process accessible by waiving work search requirements, and the waiting week, and not charging employers directly impacted by COVID-19 due to an illness in the work place or direction from a public health official to isolate or quarantine workers.
IV. Tax Credits for Paid Sick & Paid Family & Medical Leave.
- Sick Leave
- Employers can claim a tax credit for 100% of the amount required to be paid in sick leave wages.
- Sick leave wages must be paid for up to 10 workdays for a full-time employee (prorated for part-time employees).
- The maximum amount that must be paid in sick leave depends on the purpose for which the sick leave is taken.
- Sick leave wages cannot exceed $511 per day for employees if they are taking leave because (1) the employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19; (2) the employee has been advised by a health care provider to self-quarantine due to COVID-19; or (3) the employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis.
- Sick leave wages cannot exceed $200 per day for employees if they are taking leave because (A) the employee is caring for an individual described in number (1) or (2) above; (B) the employee is caring for their own minor child whose school, place of care, or caregiver is closed or unavailable due to COVID-19; or © the employee is experiencing any other to-be-specified “substantially similar condition.”
- The tax credit amounts for paid sick leave can be increased by the amount employers pay for an employee’s health care plan while they are on leave.
- Family Leave
- The employer tax credit is for paid family leave, required for employees who take leave (are unable to work) because they must care for their own minor child whose school or place of care has been closed due to a COVID-19-related public health emergency.
- The paid leave period for the purposes of the tax credit begins once an individual has taken 10 days of leave for the family leave purpose described above.
- These 10 days of leave may consist of unpaid leave, or an employee may elect to use paid vacation, personal, or another form of paid leave.
- After this 10-day period, employees will receive a benefit from their employers that is at least two-thirds of the employee’s usual pay, but not more than $200 per day.
- The tax credit for family leave wages is limited to $200 per day, and $10,000 total per employee.
- The tax credit amounts for paid family leave can be increased by the amount employers pay for an employee’s health care plan while they are on leave.
V. The Stimulus Bill
The U.S. Senate late Wednesday evening voted in favor of a $2 trillion stimulus package to blunt the harm done by the COVID-19 pandemic.
The House approved the package and the President signed the legislation.
There still may be some “confusion” about the unemployment provisions.
Here are a few of the highlights from this 880-page bill that affect employers and employees, especially in small businesses, as the direct payment, unemployment and loans and grants:
§ The Stimulus Bill expands unemployment insurance from three to four months, and provides temporary unemployment compensation of $600 per week, which is in addition to and the same time as regular state and federal UI benefits.
- Gig workers, freelancers and independent contractors are covered.
- Self-employed persons are covered.
- Benefit amounts calculated based on a formula from the Disaster Unemployment Assistance Program.
- Part time workers are covered, even if the state doesn’t normally cover part-time workers
- If a person has coronavirus, and cannot work, they are covered.
- If a person is quarantined, and must stay home, or can’t get to work because of a quarantine, then covered.
- If a school is closed because of corona virus then a person is eligible for unemployment benefits — if you cannot work.
- LEFT OUT — those who can work from home.
- Normally some states cover 26 weeks, the bill extends that by 13 weeks.
- These benefits are effective from January 27, 2020 to December 31, 2020.
- CAUTION — receiving these benefits could count as income that might disqualify someone from means tested programs but NOT Medicaid or Children’s Health Insurance.
B. LOANS AND GRANTS
Establishes a $500 billion lending fund for businesses, cities and states.
- That specifically includes $25 billion for passenger air carriers, $4 billion for cargo air carriers and $17 billion for businesses that work in national security.
- The rest of the funds, $454 billion, are given wide latitude to provide loans to businesses, states and municipalities.
- The measure includes restrictions on businesses who receive the loans. Those businesses may not issue dividends for up to a year after the loan is no longer outstanding, and must retain 90% of employment levels as of March 24, “to the extent practicable,” through September 30. The loans also cannot last longer than five years.
- There’s a specific provision in the program for direct loans to mid-sized businesses, defined as between 500 and 10,000 employees, as well as non-profit organizations, where no payments will be due for the first six months after the loan is issued.
- A congressional oversight commission will monitor how the money is spent.
C. DIRECT PAYMENT
§ Provides a $1,200 direct payment to many Americans and $500 for each dependent child.
- This is a single payment,
- It’s a full payment for an individual with an income of $75,000 or less, married couples earning $150,000 receive $2,400, no payment for a person earning $99,000, or married people earning $198,000.
- Expect payment within 3 weeks.
- Those receiving social security, retirement and disability will receive payment.
- Unemployed get these payments.
- Veterans get these payments.
D. MORTGAGE AND FORECLOSURE PROTECTION
The bill includes housing protections against foreclosures on mortgages and evictions for renters.
The bill states that anyone facing a financial hardship from coronavirus shall be given a forbearance on a federally backed mortgage loan of up to 60 days, which can be extended for four periods of 30 days each.
The legislation says that servicers of federally backed mortgage loans may not begin the foreclosure process for 60 days from March 18.
The bill also does not allow fees, penalties or additional interest to be charged as a result of delayed payments. It includes similar protections for those with multifamily federal mortgage loans, allowing them to receive a 30-day forbearance and up to two 30-day extensions.
Those with federally backed mortgage loans who have tenants would also not be allowed to evict tenants solely for failure to pay rent for a 120-day period, and they may not charge fees or penalties to tenants for failing to pay rent.
E. FUNDS FOR THE STATES
Direct Economic Stimulus Funding to States, Territories, Local Tribal Governments
§ Provides $150 billion to states, territories, local and tribal governments to use for expenditures incurred due to the public health emergency with respect to COVID-19 in the face of revenue declines, allocated by population proportions.
- Distribution is based on population. No state shall receive a payment for fiscal year 2020 that is less than $1.25 billion.
- 45% of a state’s funds are set aside for local governments, with populations that exceed 500,000, with certified requests to the U.S. secretary of Treasury. Certification requires a signature by the chief executive of the local government that the uses are consistent with certain requirements.
- $3 billion set aside for District of Columbia, Puerto Rico, Virgin Islands, Guam, Northern Mariana Islands and American Samoa.
- $8 billion for tribal governments.
o Funds can be used for costs that:
- Are necessary expenditures incurred due to COVID-19.
- Were not accounted for in the budget most recently approved as of the date of enactment of this section.
- Were incurred during the period that begins March 1, 2020, and ends Dec. 30, 2020.
VI. BUSINESS LOSS
There are businesses that have been crushed by the pandemic, but particularly Restaurants who have to furlough workers, also any travel business, hotels, the entertainment industry, clothing, and more, anything that requires contact in these days when this virus roams so easily from one to another and we’re embracing stay at home defenses — as that appears to be the only sure way to avoid being infected and, perhaps, dying.
The National Restaurant Association wrote the President and congressional leaders to say that their industry’s sales will decline by $225 Billion over the next three months (April — June 2020). They also believe there will be the loss of 5–7 million jobs.
Abercrombie & Fitch expects to lose $60–80 Million in seals this year.
Agilent expects to lose $25–50 Million.
The International Air Transport Association predicted they may lose $113 billion.
There are government sources that say this virus will still be working its will on us through July and August.
Many of these businesses have business loss insurance. But there are also businesses that don’t have insurance.
Or there is some exception or other that bars coverage.
Business loss insurance will pay for the loss of business due to the “suspension” of a business’ “operations” during the “period of restoration.”
The “suspension,” however, must be caused by direct physical loss of or damage to property or premises which are described in the Declarations and for which a business income limit of insurance is shown in the Declarations.
Suspension of operations means the business slows down or stops.
The loss or damage must be caused by or result from a Covered Cause of Loss.
There are nice questions about whether the mere presence of the virus is a physical loss, how about the fear of the presence of the virus?
What if civil authority prohibits access to the premises?
If it is prohibited and the action of the civil authority is in response to dangerous physical conditions.
We have seen in recent days both state and local orders, and “encouragement” from the federal government to go and stay at home and leave the office.
In the City of New York, it said the order relied on the reason that “the virus physically is causing property loss and damage.”
But some policies say they will not pay for loss or damage caused by or resulting from any virus or bacteria or pandemic.
Litigation has and may defeat some exclusions but the real hope is that Congress will decide to back up the cost of these policies given what they will cost the insurance companies, prompting their ability to meet the crisis.
In this edition, the hope is that Insurance companies will agree to waive an exception if the government promises to cover the business loss.
As I’m writing this, that hasn’t happened yet.
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It is hoped that this somewhat detailed outline, but still an outline, clarifies those legislative provisions and the discussion of other issues may be helpful to survive financially.
Otherwise, stay safe.
John P. Flannery, II, Esq.
SUBSCRIBE TO — The Flannery Podcast — http://anchor.fm/john-flannery1
SIGNIFICANT LINKS —
- Department of the Treasury: Assistance for Small Businesses (“The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses. Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.”)
- U.S. Small Business Administration: Coronavirus (COVID-19): Small Business Guidance & Loan Resources (“Relief Options and Additional Resources”)
- U.S. Chamber of Commerce: Responding to Coronavirus (“The latest resources, guidance and insights to protect American businesses, workers and families.”)
- This is the text of the Families First Coronavirus Response Act — and it’s searchable — if you want/ need to drill down to answer your question — https://www.congress.gov/116/bills/hr6201/BILLS-116hr6201eh.pdf
- This is the text of the full stimulus bill — and it’s searchable — if you want/need to drill down to answer your question. https://www.ncsl.org/Portals/1/Documents/statefed/CARES_Act_Final_Version.pdf