These are unprecedented times, with information changing daily and multiple emergency executive orders taking effect in response to the COVID-19 outbreak. These events are largely having a devastating effect on all industries, including the temporary staffing sector.
Many of our staffing industry clients, particularly in the hospitality industry and certain light industrial spaces, are experiencing severe and immediate business contractions. Others, including healthcare and certain logistics related sectors, are experiencing increases in demand.
Citrin Cooperman is working diligently to stay on top of industry developments that are affecting our staffing clients. We know you have many questions and we are going to do our very best to provide you with the latest information. Below are links to industry resources and updates on events that have taken place to date:
Families First Coronavirus Response Act
U.S. Treasury Acts to Defer Certain Tax Liabilities
Business Interruption (BI) Insurance
FAMILIES FIRST CORONAVIRUS RESPONSE ACT
On March 18, 2020, the Senate passed (and the President signed) an amended House of Representatives Families First Coronavirus Response Act (FFCRA) bill, enacting the bill into law. In its mission to help those affected by the Coronavirus, the FFCRA does many things. Below are excerpts of Act, as initially interpreted:
Employment issues: Consult with your attorney regarding your responsibilities as an employer.
Emergency Paid Sick Leave Act Employers with less than 500 employees are required provide to each employee paid sick time for any of the following uses:
- To self-isolate because the employee is diagnosed with COVID-19 (“qualified paid sick leave”)
- To obtain a medical diagnosis or care if such employee is experience the symptoms of COVID-19
- To comply with a recommendation or order by a public official with jurisdiction or a health care provider on the basis that the physical presence of the employee on the job would jeopardize the health of others
- To care for a child if the school or place of care has been closed due to the COVID-19 (“qualified family leave”)
The amount of sick time to which an employee is entitled shall be as follows:
- Full-time employees, 80 hours
- Part-time employees (temporary contract employees) a number of hours equal to the number of hours that such employee works, on average, over a two-week period
With respect to an employer that provides paid leave on the day before the enactment of the Act:
- The paid sick time under this Act shall be made available to employees in addition to such paid leave; and
- The employer may not change such paid leave on or after such date of enactment.
- An employee may first use other paid leave provided by the employer before the employee uses the paid sick time under the Act.
Emergency Family and Medical Leave Expansion Act
For employers with fewer than 500 employees, the Act requires employers to provide up to 12 weeks of job-protected leave for any of the following reasons:
- To adhere to a requirement or recommendation to quarantine due to exposure to or symptoms of COVID-19
- To care for an at-risk family member who is adhering to a requirement or recommendation to quarantine due to exposure to or symptoms of COVID-19
To care for a child of an employee if the child’s school or place of care has been closed, or the child-care provider is unavailable, due to a COVID-19
Employees will receive a benefit from their employers that will be no less than two-thirds of the employee’s usual pay.
Emergency Unemployment Insurance Stabilization and Access Act of 2020
- The State ensures that applications for unemployment compensation, and assistance with the application process, are accessible in at least two of the following: in-person, by phone or online. The State has demonstrated steps it has taken or will take to ease eligibility requirements and access to unemployment compensation.
Tax Credits for Paid Sick and Paid Family and Medical Leave
- Employer tax credits. The Act provides tax credits to employers to cover wages paid to employees while they are taking time off under the bill's sick leave and family leave programs, typically through tax credits that reduce employment taxes that would otherwise be remitted by the employer quarterly.
- The sick leave credit for each employee would be equal to his wages, limited to $200 per day ($511 per day while the employee is receiving paid sick leave to care for themselves, or is subject to a federal, state or local quarantine order). An additional limit applies to the number of days per employee – generally the tax credit is limited to 10 days of sick time per employee.
- The family leave credit for each employee is limited to $200 per day with a maximum of $10,000.
- The credits are refundable to the extent they exceed the employer's payroll tax.
- These rules apply only to wages paid with respect to the period beginning on a date selected by the Secretary of the Treasury, which is during the 15-day period beginning on the date of the enactment of the Act, and ending on December 31, 2020. (Act Sec. 7001; Act Sec. 7003)
- Comparable credits for the self-employed. The Act also provides for similar refundable credits against the self-employment tax. It covers 100% of a self-employedindividual's sick-leave equivalent amount, or 67% oftheindividual's sick-leave equivalent amount, if they are taking care of a sick family member, or taking care of a child following the child's school closing. The sick-leave equivalent amount is the lesser of average daily self-employment income, or $511/day to care for the self-employed individual, or $200/day to care for a sick family member or child following a school closing. (Act Sec. 7002)
- Self-employed individuals could receive a family leave credit for as many as 50 days, multiplied by the lesser of $200 or their average self-employment income. (Act Sec. 7004)
- These rules apply only to days occurring during the period beginning on a date selected by the Secretary of the Treasury, which is during the 15-day period beginning on the date of the enactment of this Act, and ending on December 31, 2020. (Act Sec. 7002 and Act Sec. 7004)
- Employer FICA exclusion. Under the Act, sick leave and family and medical leave paid under the Act will not be considered wages under Code Sec. 3111(a) (employer tax - old age, survivors and disability insurance portion of FICA; 6.2%). (Act Sec. 7005)
- The new law provides numerous requirements, limitations, and definitions relating to the application of the mandate and the tax credits
U.S. TREASURY ACTS TO DEFER CERTAIN TAX LIABILITIES
On Tuesday March 17, 2020, Secretary of the Treasury Mnuchin announced that the President has authorized the following actions relating to tax returns for 2019:
- Individuals with taxes due on April 15 can defer on a penalty free and interest free basis balances due up to $1 million for a 90-day period of time. Secretary Mnuchin indicated that no application for such a deferral is necessary. The IRS will automatically waive the appropriate amounts of interest and penalties.
- Corporations will qualify for the same relief in amounts up to $10 million.
It is critical to note that, as of this writing, there will NOT be any extension of time to file granted automatically. A taxpayer must file a tax return by April 15th or consider filing an extension by April 15th. On March 20th, Secretary Mnuchin tweeted about a possible extension, but there has been no official notice. As of now, we urge everyone to still file by April 15th.
- Consider applying for SBA Disaster Assistance Loan.
- Start discussions with your landlord to arrange for extended payment terms. Consider the need to renegotiate your lease.
- Conduct a thorough, detailed cash flows analysis to determine upcoming shortfalls, and a “cash burn” rate.
- Discuss payment terms with vendors.
- Monitor customer compliance with payment terms – conduct frank discussions with customers concerning payment expectations, and service delivery implications.
- Due to the directive by a governmental authority that affects access to an insured’s premises, your business interruption insurance might cover the losses.
- Consult with your attorneys (employment and corporate) regarding the treatment of employees, contracts and agreements affected by the reduced business operations.
- Defer new projects and non-essential purchases or contracts.
- Contact your bankers and specialty finance firms to discuss covenants that might be affected, deadlines of reporting that might need to be extended and additional financing for cash flow.
BUSINESS INTERRUPTION (BI) INSURANCE
Although, generally, businesses are not covered by BI insurance, as virus-related losses are specifically excluded from claims, it is expected that the federal government will eventually provide funding. This gap in coverage is also currently being hotly addressed at the state level: COVID-19 - Preparing to File an Insurance Claim for Lost Income.
If this is becomes the case, companies need to be thinking about what financial documents to preserve in order to be prepared to file an insurance claim. A complete Examples of information that a business should proactively collect in order to support a BI claim include:
- Historical and current annual financial statements;
- Federal and state annual tax returns;
- Monthly profit and loss statements;
- Budgets, forecasts or projections done prior to and after the event;
- Monthly bank statements;
- Inventory reports;
- Payroll records;
- Invoices and purchase orders;
- General ledger accounts established to account for any expenses related to the loss such as additional payroll, shipping, temporary facilities, etc.; and,
- Documentation to support extra expenses including receipts, invoices, time sheets, advertising costs, etc.