Much has changed since our March 16th Q&A, March 20th Paid Sick Leave Update, and March 27th Q&A newsletters: the Department of Labor (DOL) issued new guidance regarding COVID-19-related paid leave, the Paycheck Protection Program was launched, and the majority of states in the U.S. have issued "stay-at-home" orders. In this third installment of COVID-19 Q&A for Independent Schools, the Venable Independent School Law team addresses the common questions arising from this continuously changing landscape.
Families First Coronavirus Act
The Families First Coronavirus Response Act (FFCRA) officially took effect on April 1 and requires schools to provide partially paid leave to eligible employees for COVID-19-related reasons until December 31, 2020.
I've Been Struggling to Make Sense of the FFCRA. What Is My School's Liability Exposure?
DOL has announced that it will observe a temporary period of non-enforcement until April 17, 2020. A temporary period of non-enforcement means that DOL will not bring enforcement actions for FFCRA violations; however, schools should make reasonable, good faith efforts to comply with the FFCRA and must remedy any violations as soon as practicable. Once enforcement begins, failure to pay EPSL leave will be treated as a violation of the Fair Labor Standards Act, and failure to provide EFMLA leave will be treated as a violation of the FMLA (unless you are a school that is not otherwise subject to the FMLA).
How Can I Tell if My School Is Covered by the FFCRA?
The FFCRA applies to schools with fewer than 500 employees in the U.S. To determine if your school is a covered employer, count all of the following employees, as of the time an employee would take FFCRA leave: full-time and part-time employees, employees on leave, temporary employees, and employees who are jointly employed with another employer. Do not count any independent contractors. Do not count any employees who were laid off or furloughed and have not yet been called back to work at the time the employee seeks to take leave.
As staffing needs may fluctuate and change in the coming weeks and months, schools will need to consistently reassess whether they are required to provide leave based on varying staffing levels. If your school has already laid off or furloughed employees to bring you under the 500- employee count, you will be required to provide leave. If you later hire additional employees and/or recall laid-off or furloughed employees, determine whether doing so brings your employee count above 500 for purposes of providing FFCRA leave.
My School Is Small and Can't Spare Any Employees. Are Any Exemptions Available?
Schools with fewer than 50 employees may be exempt from the obligation to provide FFCRA leave – but would be exempt from providing leave only for childcare reasons under both the EPSL and EFMLA. Schools will still be expected to provide FFCRA leave for all other COVID-19-related reasons.
Schools may be exempt from providing childcare leave under the FFCRA if (1) the paid leave and financial obligations exceed available business revenue, causing the school to cease operating at a minimal capacity; (2) the absence of the employees requesting leave would pose a substantial risk to the financial health or operational capacity of the school, because those employees have specialized knowledge, skills, or responsibilities; or (3) the school does not have sufficient qualified employees to substitute for the absentees so that the school can operate at a minimum capacity.
There is no specific procedure to follow to be qualified as a school exempt from providing FFCRA childcare leave. Rather, schools that are denying leave on this basis should document the facts and circumstances supporting its determination and maintain those records in the school's files. DOL regulations state that such documentation should be retained for four (4) years, but your document retention policy may require that you retain such documentation for a longer period of time.
My State Is Under a Stay-at-Home Order. Is My Staff Eligible for EPSL?
It depends. Among other things, employees may be eligible for EPSL if the employee is unable to work or telework because they are subject to a federal, state, or local COVID-19 quarantine or isolation order. DOL has now clarified that the term "quarantine and isolation orders" includes stay-at-home orders. However, the fact that you have employees under a stay-at-home order does not automatically render them eligible for leave. Stay-at-home orders generally exempt employees whose presence on campus is necessary to maintain the physical plant, or who are responsible for keeping IT services running. Employees who are not otherwise exempted from a stay-at-home order are not eligible for EPSL leave due to government quarantine if the school (1) has work for the employee to do; (2) permits the employee to work from their home; and (3) there are no other extenuating circumstances that would prevent the employee from working (i.e., a power outage at home).
What Kind of Documentation Should I Collect from Employees?
It depends on the reason for leave. Generally speaking, employees must provide documentation supporting the need for leave, which should include the date or dates for which leave is requested; a statement of the COVID-19-related reason for the employee's leave; and a statement that the employee is unable to work, including telework. To the extent the need for leave is a result of an order issued by a government entity, the employee should identify the relevant entity. To the extent the need for leave is directed by a healthcare provider, the employee should identify the relevant healthcare provider.
When the need for leave is due to childcare reasons, the employee should provide (1) the name of the child; (2) the name of the school or other childcare provider; and (3) a statement that no other suitable person (such as a co-parent) is available to care for the child.
State Stay-at-Home Orders
Currently, nearly every state and the District of Columbia have issued orders directing individuals to remain at home, with few exceptions. But what does this mean for schools with employees still working on campus? Each state order is different, so schools are encouraged to review their state stay-at-home order carefully to determine whether any exceptions exist that would allow certain school employees to continue to work on campus while the order is in effect.
What Is Considered an Essential Business?
What is considered an essential business for purposes of a stay-at-home order differs from state to state. Some states choose to define this in the order itself, while others refer back to guidance from the Department of Homeland Security (DHS). Generally speaking, essential businesses include grocery stores, restaurants serving food for delivery and carryout, convenience stores, gas stations, pharmacies, hardware stores, pet shops and animal services, medical facilities, home healthcare services, childcare facilities, banks and other financial service providers, and other professional services.
When a stay-at-home order refers back to DHS, it is referring back to those critical infrastructure sectors that the DHS Cybersecurity and Infrastructure Security Agency (CISA) identified as "essential." Of those, education facilities are classified as essential as a subsector of the government facilities sector.
School employees may be exempt or partially exempt from the stay-at-home mandate, depending on the specific terms of the stay-at-home order.
Which Employees Are "Essential"?
If schools are not classified as an essential business in your state, certain employees may still be considered essential (and thus exempt from the stay-at-home mandate) for the purposes of maintaining "minimum basic operations" of the school. "Minimum basic operations" may generally include:
- maintenance, cleaning, and security of school property;
- oversight and maintenance of the IT infrastructure and other functions necessary to ensure that the school's distance-learning program is functional and to ensure that other employees are able to successfully work remotely; and
- processing payroll, employee benefits, and other related functions.
Depending on the scope of the stay-at-home order, employees performing these functions may still be permitted to work on campus.
Do Employees Working on Campus Need Written Permission to Leave Home?
Although not expressly addressed in each state's stay-at-home order, schools may consider providing letters to employees who are exempt and are reporting to work. Providing such a letter may reassure employees who may be concerned about law enforcement stops when traveling to and from the school while the stay-at-home order is in effect.
These letters should include the employee's name, a description of reasons why the employee must continue to report to work in person, and, if applicable, a statement explaining why the school is exempt from the state order. Finally, the letter should designate a point of contact at the school, as well as that individual's contact information, to respond to any questions in case the employee is stopped by law enforcement.
The CARES Act
Paycheck Protection Program Small Business Loans
As many schools are already aware, the hallmark of the CARES Act is the Paycheck Protection Program, which allocates a total of $349 billion to loans to help schools and other small businesses remain afloat during the COVID-19 pandemic and the country's response efforts. Independent schools registered as 501(c)(3) nonprofit organizations that have fewer than 500 employees are generally eligible for loans of the lesser of 2.5 times their average monthly payroll costs or $10M. The purpose of the loan is to pay employees and maintain operations between February 15, 2020 and June 30, 2020 because of the uncertainty of the current economic conditions. Loans may be partially or totally forgiven. Repayment of any amount that is not forgiven may be deferred for up to one year and will be subject to a 1% interest rate. Loans must be repaid in two years.
Does Taking a PPP Loan Constitute the Receipt of Federal Financial Assistance?
Currently, there is no definitive guidance specific to independent schools on whether the PPP loans will be considered federal financial assistance for purposes of requiring independent schools to comply with certain federal laws, such as Title VI of the Civil Rights Act of 1964, Title IX of the Education Amendments Act of 1972, and Section 504 of the Rehabilitation Act. The SBA loan application and SBA regulations state that entities accepting SBA financial assistance must comply with nondiscrimination laws, with reference to Title VI, Title IX, and the Age Discrimination Act. In addition, the SBA's April 3, 2020 guidance for faith-based organizations indicated that the funds would be considered "federal financial assistance" for the purposes of nondiscrimination obligations, but that such obligations would extinguish on forgiveness and/or full repayment of the loan. The outstanding question is whether the SBA will take the same position regarding other organizations, including independent schools, that are not faith-based. SBA regulations, guidance, and the application do not specifically reference Section 504 of the Rehabilitation Act, and it is not entirely clear whether those regulations will apply to schools that accept financial assistance under this program. Nevertheless, schools are likely considered recipients of federal financial assistance and should consider proactive compliance strategies.
How Do I Count Employees for Purposes of the Loan?
SBA guidance provides three different acceptable methods for counting employees: (1) conduct an average employee count for the previous twelve (12) months; (2) calculate the average number of employees for calendar year 2019; or (3) count the average number of employees per pay period in the twelve (12) completed calendar months prior to the date of the loan application.
How Do I Determine My Average Monthly Payroll Costs?
As with the employee count, SBA guidance provides two acceptable methods for determining average monthly payroll costs. Either (1) aggregate and average payroll costs for the previous twelve (12) months; or (2) aggregate and average payroll costs for the calendar year 2019.
What Can Affect the Forgivability of the Loan?
Loan forgiveness can be affected by what you use the loan disbursement for and what actions you take with regard to your employees during the initial eight (8) week period. If you use more than 25% of the loan for reasons other than payroll costs; reduce your workforce; or reduce an employee's salary by more than 25% (as compared to the most recent quarter preceding the eight (8) week period), you may be required to pay back a portion of the loan. You can avoid these penalties by either rehiring employees who were previously laid off or increasing previously reduced wages by June 30, 2020.
Organizations must apply for loan forgiveness to their lenders by submitting required documentation and will receive a decision within 60 days.
Can I Amend My Application?
If you have already filed your application, it is permissible that you did so by relying on the guidance that was in effect before April 6, 2020. If your application has not yet been processed, you may also revise your application based on the additional guidance provided by the SBA.
What Should We Do?
While there are still important outstanding issues left to resolve regarding the loan program, we encourage schools to contact their bank to submit an application as soon as is practical while they evaluate the need for the loan and the possible compliance obligations that come with the assistance. PPP loans are being distributed on a first come, first served basis, and the $349 billion allocated to this program is expected to be quickly exhausted. The decision whether to accept the loan, if approved, will require that each school make an individual determination, taking into account whether and the extent to which there is clarification on the implications of taking the loan and, absent definitive clarification, balancing the school's own risk tolerance against its need for the funds.
Employee Retention Tax Credit
The CARES Act also authorizes an employee retention tax credit for schools whose operations were fully or partially disrupted because of a government shutdown due to COVID-19.
How Does the Tax Credit Work?
For schools with over 100 full-time employees, the credit can be taken only with respect to wages paid to employees who (i) are furloughed or (ii) face reduced hours as a direct result of COVID-19. For schools with 100 or fewer full-time employees, all paid wages are eligible for the credit. For this purpose, a full-time employee is an employee who works on average at least 30 hours per week.
The retention credit is calculated by taking 50% of the "qualified wages" from each employee during the eligible period (March 12, 2020 to January 1, 2021). Amounts paid to maintain a group health plan are included as qualified wages as long as they are allocated on a pro rata basis. Qualified wages do not include wages covered by the paid sick and paid family and medical leave credits enacted as part of the Families First Coronavirus Response Act. Similarly, an employer's share of payroll taxes does not include any employment taxes paid with respect to any such wages. The maximum amount of qualified wages that can be used to calculate the credit is $10,000 – meaning the credit itself cannot exceed $5,000 per employee.
Can My School Take the Tax Credit if It Received a PPP Loan?
No. A school is not eligible for the employee retention credit if it receives an SBA loan under the Paycheck Protection Program.
Unemployment Insurance Expansion
The CARES Act also drastically expands existing unemployment benefits, making them available to many individuals who would not otherwise have been eligible for unemployment and whose employment has been impacted by COVID-19.
Who Is Eligible?
The CARES Act extends unemployment insurance benefits to those who are unemployed or partially employed because:
- the individual is diagnosed with COVID-19 or is experiencing symptoms of COVID-19 and is seeking diagnosis,
- a member of the individual's household has been diagnosed with COVID-19
- the individual is providing care for a family member who has been diagnosed with COVID-19,
- the individual is the primary caregiver of a child who is forced to stay home because of school closures due to the virus,
- the individual is unable to reach their place of employment because of quarantine restrictions,
- the individual is unable to go to work because they are advised to self-quarantine by a health provider,
- the individual was set to begin employment but is unable to do so as a result of the COVID-19 emergency,
- the individual has become the head of household because the head of household died from COVID-19,
- the individual has to quit their job as a direct result of COVID-19,
- the individual's employer is closed as a direct result of COVID-19, or
- the individual meets additional criteria established by the Secretary of Labor.
Furloughed employees are also eligible to receive unemployment benefits under the new law. Part-time workers may receive partial benefits. Employees whose hours are reduced because of COVID-19 may also be eligible for partial benefits under state workshare programs.
How Much Do Eligible Individuals Receive?
In addition to the regular unemployment compensation provided by the state, individuals will also receive an additional $600 per week until July 31, 2020.
How Long Do the New Unemployment Benefits Last?
Under the CARES Act, individuals can receive an additional 13 weeks of state unemployment benefits through December 31, 2020, but the additional $600 weekly benefit expires on July 31. 2020.
What Is the Impact on Schools' Unemployment Insurance Premiums?
Independent schools that have unemployment insurance may continue to pay their insurance premiums as usual. For schools that self-fund their unemployment obligations, the CARES Act authorizes such self-funded schools to be reimbursed for 50% of the cost of the unemployment benefits provided to their employees under applicable state law.