Normally, when a new federal law affecting employers and employees is enacted, employment lawyers and their clients have plenty of time to get up to speed. In the typical instance, we have had the opportunity to follow a long legislative process leading to the new law, the new law will often not go into effect until some future date, and it often takes years for relevant regulations to be promulgated.
But these are not normal times. In a matter of few weeks, we have seen the enactment of the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act — two major pieces of legislation that affect the employment relationship — followed by “temporary” or “interim final” rules that became effective immediately. We have also received a fair share of conflicting guidance from the government about what the new laws mean. While there are still many unanswered questions about both the FFCRA and CARES Act, here some questions for which we now appear to have clearer answers:
- Paid sick leave and expanded family and medical leave act under the FFCRA are only available for eligible employees for whom work is available. Given that there are many employees who have had to stay home with their children because schools have closed, many employers wondered whether they might be able to provide all of these employees with expanded paid family and medical leave under the FFCRA, and subsequently claim a tax credit for costs incurred in paying for that leave.
It is now clear that an employee will only be eligible for paid sick leave or expanded (paid) family medical leave if there was available work that the employee cannot do because he falls into one of the eligible categories. If the employer has been forced to shutter its operations and the employee performed a job that could not be done remotely, that employee would not be entitled to paid benefits under the FFCRA.
- Employer payments to independent contractors or sole proprietors cannot be included in an eligible borrower’s “payroll costs” when applying for PPP loans under the CARES Act. Because the CARES Act definition of “payroll costs” included payments to independent contractors and sole proprietors, many companies initially concluded that they could include those costs when seeking a PPP loan. It is now clear, however, that only independent contractors and sole proprietors can seek loans for themselves based on payments that they received for their work. This was Congress’ way of ensuring that “gig workers” who work for themselves would also be able to benefit from the government’s relief.
Admittedly, some employers may have workers who are classified as independent contractors but probably should have been classified as employees. While those employers may want to talk to their employment lawyers about reclassifying those workers, unless the employer wants to invite an audit form the IRS and Department of Labor, employers should only include salary and compensation that has been previously paid to W-2 employees when applying for PPP loans.
- “Payroll costs” should exclude employee cash compensation in excess of an annual salary of $100,000.00, but can include non-cash benefits like retirement and healthcare insurance premiums. Until yesterday, it was not clear to companies applying for PPP loans whether they could include non-cash benefits like retirement and healthcare insurance premiums for employees who earned more than $100,000 in salary, which led to the strange situation where employers were including in excess of $100,000 of payroll costs for employees earning less than $100,000 (e.g., $90,000 salary plus $25,000 in non-cash benefits), but not including non-cash benefits for employees earning more than $100,000. It is now clear that employers only need to cap the salary and not the non-cash benefits. The Small Business Administration has also stated that payroll costs should not be reduced by taxes that have been withheld from the employee’s salary.
