Cares Act, Paycheck Protection Program, EPL and EFMLA Updates

Posted by Lori Alala on March 30, 2020

With all the guidance, information and calls we’ve been handling over the last two weeks, many of our clients are really seeing how we are different – not simply trying to sell something, but proving our value as a business partner for you. We really hope you see how our approach is better and know that we are very honored to assist you through this trying time for your business operations and your employees.

Two quick points on EPL/EFLMA: the law goes into effect April 1, 2020 and we have updated the FFCRA EE Leave Form, which is attached to this email.

If you have questions please do not hesitate to send them on.


With the President’s signature on Friday, this $2.2T effort to keep the economy going during the severe downturn due to COVID-19 was adopted. While it contains other provisions (which will be discussed below), the primary one that will be of interest to our clients with 1-500 employees included in the law’s Paycheck Protection provisions.

This part of the law creates a “loan” pool of $349B has been created to allow small employers to borrow money through an SBA-administered program at many banks to cover expenses through June 30, 2020. But, rather than a loan, the amount borrowed would be forgiven at the end of the eight-week period if certain conditions are met. But there are important details in exactly how the program will work:

Who is eligible for the loan?
You are eligible for a loan if you are a:
• small business that employs 500 employees or fewer
• tribal business
• 501(c)(19) veteran organization
• 501(c)(3) nonprofit, including religious organization
• Sole proprietor, independent contractor, gig economy worker, or self-employed individual

What is the maximum amount I can borrow?
The most any small business is eligible to borrow is 250 percent of their average monthly payroll, health benefit costs and retirement benefit payments, based on the previous 12 months, with a limit of $10 million. Monthly payroll costs may include wages, commissions, salaries or similar compensation to an employee or independent contractors, cash tips, vacation, parental leave, medical and sick leave, allowance for dismissal or separation and state or local income taxes. However payroll costs may not include compensation of any individual employee in excess of an annual salary of $100,000 (meaning that you can only count the prorated amount of the first $100,000 of annualized income for those employees), payroll taxes, compensation for employees living outside the U.S. and any paid leave benefits under FFCRA.

This amount is intended to cover 8 weeks of payroll expenses and any additional amounts for making payments towards debt obligations. This 8 week period may be applied to any time frame between February 15, 2020 and June 30, 2020. Seasonal business expenses will be measured using a 12-week period beginning February 15, 2019, or March 1, 2019, whichever the seasonal employer chooses.

Where can I apply for a loan through the Paycheck Protection Program?
You can apply at any lending institution that is approved to participate in the program through the existing U.S. Small Business Administration (SBA) 7(a) lending program. There will also be other lenders approved by the Department of Treasury for this program. THEY ARE THE PRIMARY DISTRIBUTION ARM FOR THESE FUNDS. You do not have to visit any government institution to apply for the program. You can contact your bank or find SBA-approved lenders in your area through SBA’s online Lender Match tool.

Can you explain how the loan is forgivable?
We’ll do our best based on what the bill’s language states with the knowledge that how it is implemented by the SBA and lenders may vary slightly. There are two considerations: how did your employee headcount change and what did you spend the money on?

How do we calculate how much of the loan will be forgiven based on headcount and payroll?
The amount of the loan that would be forgiven is determined by looking at average FTE (which appears to be the same definition as under the ACA) during the two month loan period and comparing that to either the average FTE count during the period between February 15-June 30, 2020 or the period between January 1-February 15, 2020. If less, then the amount would be reduced by the percentage drop. If more, then there is no reduction in how much of the loan amount to be repaid could be reduced based on headcount. But also be aware that there may be a further reduction in the forgiveness amount based on salary reductions of more than 25% for workers making less than $100,000 per year

As an example, between January 1 – February 15 you average 56 FTEs and between February 15 – June 30, you average 54 FTEs. During the two months beginning when your business took out the loan and seek forgiveness under this program, your average FTE count is 51. Because of the drop in your average FTE, you would have 94.4% of the loan forgiven, assuming you maintain salaries at or above 75% of their pre-February 15 level.

There is some protection when the employer eliminated some positions between February 15 and April 25, 2020, and decides to rehire the same number of full time equivalent employees that were eliminated, or reinstates salary and wages (for those making less than $100,000 per year) that were cut by more than 25%. In that scenario, then the loan forgiveness amount will not be reduced.

How can I use the money such that the loan will be forgiven?
The amount of principal that may be forgiven is equal to the sum of expenses for payroll, and existing interest payments on mortgages, rent payments, leases, and utility service agreements for a two month period in which these covered expenses are incurred and paid. The employer can choose a two month period between February 15 and June 30, 2020. Payroll costs include employee salaries (up to an annual rate of pay of $100,000), hourly wages and cash tips, paid sick or medical leave (that is not otherwise being reimbursed through the FFCRA’s EPL and EFLMA provisions), and group health insurance premiums. If an employer uses the Paycheck Protection Program for other business-related expenses than those stated above (like purchasing inventory), that portion of the loan will not be forgiven.

What are the terms of this loan?
If the full principal of the PPP loan is forgiven, the borrower is not responsible for the interest accrued in the 8-week covered period. The remainder of the loan that is not forgiven will operate according to the loan terms agreed upon between by you and the lender. However, the maximum terms of the loan feature a 10-year term with interest capped at 4 percent and a 100 percent loan guarantee by the SBA. You will not have to pay any fees on the loan, and collateral requirements and personal guarantees are waived. Loan payments will be deferred for at least six months and up to one year starting at the origination of the loan.

What if I have already laid off or furloughed workers?
To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

Strategic Considerations: How We Can Help You
We believe there are a number of ways we can help you with aspects of this law. Since our primary business is working with employers on managing their health care costs, we can assist with making sure you can justify your employee health benefit costs including the placement of an aggregate stop-loss policy for Health Reimbursement Arrangements (even for existing policies) or providing actuarial and compliance support for reserves related to future claims for partially self-funded plans. When you add these services to our expertise in calculating FTEs and providing the best in our industry compliance work leaves you in the best possible hands during this incredibly complex time.

CARES ACT – Other Key Provisions

There are a couple of other sections of the law that will impact employers:

Unemployment Changes
The Act also includes a very broad expansion of unemployment eligibility and payment for an interim period due to the COVID-19 epidemic.

Expanded eligibility for unemployment. This law expands the types of individuals who are eligible for unemployment benefits, to include those who are furloughed or out of work as a direct result of COVID-19, self-employed or gig workers, and those who have exhausted existing state and federal unemployment benefit provisions. The only individuals expressly excluded from coverage are those who have the ability to telework with pay and those who are receiving paid sick leave or other paid benefits (even if they otherwise satisfy the criteria for unemployment under the new law).

Expanded Unemployment Payment. The law provides an increase of $600 per week in the amounts customarily available for unemployment under state law. (Please note that this is different than what we were previously stated that it would be up to $600 to make the unemployed individual whole – I’m sorry for passing along bad information – DCS) This increase applies for unemployment payments made from the date of the law’s enactment through July 31, 2020 (approximately four months). Remember that unemployment income is subject to income taxes, but the additional unemployment compensation provided is not considered “income” for purposes of Medicaid and CHIP.

Who is eligible for unemployment? Individuals must be able and available to work and actively seeking work (the requirement to be seeking work has been waived in the interim by many states), unless they are unable to do so as a result of COVID-19 illness, quarantine, or movement restriction. Any fraudulent intent or misrepresentations to obtain payments to which an individual is not entitled will result in ineligibility for any other unemployment compensation benefits under the new law as well as criminal prosecution. Overpayments may be taken back by the state agencies.

Doesn’t this mean that employees will want to be laid off since they could make more money by being on unemployment? It could, but remember they must have been laid off, furloughed or terminated without cause to be eligible for unemployment. I believe this additional income will result in the states being more diligent to ensure that every person seeking unemployment is eligible for the benefit and not just seeking the compensation since it would mean more money.

Other Business Provisions

Employee Retention Credit for Employer Subject to Closure Due to COVID-19. Eligible employers will receive a credit against applicable employment taxes for each calendar quarter in an amount equal to 50% of the qualified wages with respect to each employee. The amount of qualified wages taken into account for each eligible employee, however, will not exceed $10,000 per calendar quarter and the credit will not exceed the applicable employment taxes owed for such calendar quarter. The aforementioned credit is not applicable if the employer is also taking advantage of the small business interruption loan.

An eligible employer is defined as any employer: (i) which was carrying on a trade or business during calendar year 2020, and (ii) with respect to any calendar quarter for which, (a) the operation of their trade or business was fully or partially suspended due to governmental order as a result of COVID-19, or (b) the calendar quarter is within the period beginning with (1) the calendar quarter after December 31, 2019 for which gross receipts for the calendar quarter are less than 50% of the gross receipts for the same calendar quarter of the prior year and the ending with (2) the calendar quarter following the first calendar quarter beginning after the calendar quarter described in (1) for which gross receipts of the employer are greater than 80% gross receipts for the same calendar quarter in the prior year.

Delay of Payment of Employer Payroll Taxes. The CARES Act will allow for most employers to defer paying their share of applicable employment taxes from the time the CARES Act is signed into law through December 31, 2020. Half of this deferred amount would be due on December 31, 2021 and the other half by December 31, 2022.


Here are some more questions that have come up from different folks over the last few days, as well as some additional guidance from USDOL on how these two types of leave will work.

If we are subject to a shelter-in-place or remain-at-home order by the state or local government, is that the same as a quarantine under the Emergency Paid Leave?

No. A Quarantine Order applies to a specific person who may have been exposed to or tested positive for COVID-19. Doctors will produce notes for these. When the governor or a local government issues their shelter-in-place or remain-at-home orders, they do not qualify as a quarantine under EPL. As of March 29, 2020, there has been no government issued quarantine order for a broad population center.

This position was supported in the most recent guidance from USDOL, noting that prior to FFCRA when an employer sent an employee home and stopped paying that employee because it does not have work for the employee to do, regular leave wasn’t available but they may be eligible for unemployment insurance benefits. They also included the example that the same rule would be true whether the employer closes a worksite for lack of business or because it is required to close pursuant to a Federal, State, or local directive.

If we are ordered to close our business due to a shelter-in-place or remain-at-home order, are employees eligible for EPL or EFMLA?

The USDOL said emphatically no to that question. Under their guidance , it would not matter whether the closure occurs before or after the law takes effect, the employee was already out on leave, or the worksite temporarily closes and the employer says it will reopen in the future. Their response ended rather bluntly: in those situations, an employee’s only recourse is to seek unemployment benefits.

If an employee is eligible to work from home, are they entitled to leave under these provisions?

No because they are still working. Remember that if an employee is working from home, they are still entitled to be paid as if at their normal workplace. But if you do not have work that can be performed from home, then they could be laid off or furloughed due to the COVID-19 epidemic and would therefore be eligible for unemployment benefits.

Can an employee use EFMLA similar to traditional FMLA with intermittent leave?

There are two answers for this question from USDOL. For employees who are teleworking, the employer and employee may agree to intermittent leave for any of the covered reasons. But for employees who are working at their normal workplace, intermittent leave is only permitted for employees who are taking leave for school closures or childcare unavailability – but only if the employer agrees. Otherwise they can only take whole day increments. There is no requirement that the leave be taken on consecutive days either.

Can an employee use their sick/vacation/PTO to make up the difference between the 2/3rd income and 100%?

For this question, USDOL said that the employee could but only with the employer’s consent. In answering a similar question, the employer cannot force the employee to use their accrued sick/vacation/PTO either. There must be agreement to “top up” the deficit that may result when FFCRA leave pays out at two-thirds an employee’s regular rate. But also remember that while this difference may be allowed if employees and employers agree, the employer can only take the tax credit up to the maximum amounts – 66.7% or $200 per day.

How would the ACA’s mandate to offer coverage be impacted if we stopped offering coverage due to a closure of our business due to COVID-19?

This question has been a natural one that we’ve answered given our extensive experience with ACA compliance. While it is true that the mandate to offer coverage would continue throughout 2020 based on the 2019 FTE average, it is also important to remember that the Employer Shared Responsibility Penalty is calculated based on monthly full-time employee counts. So if, for instance, your full-time employee count for March 2020 was below 30, then you would not have to pay a penalty for that month. Needless to say, we are ready and able to help answer the complex scenarios that would come up through this process.

What are the penalties for failure to comply with the EPL/EFMLA provisions?

At the 2019 penalty level (these adjust each year), the failure to post and to comply with these requirements carries a penalty of $173 per employee per day, and liability for compensation and benefits lost by reason of the violation plus damages and other relief such as reinstatement, promotion, or any other relief ordered by a court. However in the meantime, the federal agencies have announced their intent to not strictly enforce the rules until April 17, 2020 for employers who are acting in good faith to seek compliance with the law.

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