SBA Finally Provides PPP Forgiveness Guidance

Late last week, the Small Business Administration posted interim rules and the application for employers to complete when seeking forgiveness of their Paycheck Protection Program (“PPP”) loan. This guidance, which for many businesses comes almost at the end of the 8-week covered period for spending PPP funds, provides employers with many of the answers we have been waiting for since the CARES Act was passed in March.

Of course, that means that this guidance may be too late for some of us to correct actions we already took when we first received the PPP funds. But there are some strategic decisions that you can still make if you act quickly.

The basics of the loan forgiveness have been explained in more detail and in layman’s language in the U.S. Chamber of Commerce’s Guide to PPP Loan Forgiveness, which I highly recommend that you download. But here are some basic forgiveness criteria that we have been waiting on:

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Whew! Your PPP Loan Was “Necessary”

The Small Business Administration and the Treasury Department finally have eased the minds of many Paycheck Protection Program borrowers who borrowed less than $2 million about whether the funds had to be returned because they might not have been borrowed in good faith. Nothing like having the government wait until the last minute, since borrowers who were considering returning their funds had a deadline of today (May 14) to return them (now extended to Monday, May 18).

This all started because publicly-traded chain restaurants like Shake Shack and Ruth’s Chris Steak House were excoriated when it became known by the American public that they borrowed PPP money that was promoted as helping small businesses. Facing scorn and public outcry, Treasury Secretary Stephen Mnuchin and SBA Administrator Jovita Carranza promulgated a scary and overly-broad FAQ #31, which said in part:

Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.

Mnuchin promised that every business that borrowed more than $2 million would be audited, but he didn’t say that smaller borrowers would not be audited. On top of that, he also threatened criminal action against borrowers whose loans weren’t “necessary”.

He also established a safe harbor date by which companies who now believed their loans might not be absolutely “necessary” could return the money and avoid jail. That date was May 7. Then it was extended to May 14 (today). And then extended again to Monday, May 18.

These pronouncements terrified many small business owners who were now second-guessing whether they should have borrowed PPP funds at all.

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Texas Employer Requirements for the “Great Reopening”

Governor Greg Abbott is allowing retail businesses to reopen for curbside and home delivery on Friday, April 24, and is talking about allowing many other businesses, like hair salons, to reopen soon. But Texas employers should know that there are many requirements to protect your employees and customers from COVID-19 that you must address before you reopen.

The Department of State Health Services has condensed the “retail to go” requirements down to two pages here, and employment lawyers like me expect that similar precautions will be required as other businesses start to serve customers again.

The first decision an employer in the Texas Panhandle must face is whether to reopen at all. Gov. Abbott specifically said on Wednesday, April 22, in radio interviews, “there are some counties where the coronavirus outbreak is still progressing too rapidly, and they may not be able to fully participate in the initial phase of reopening until they get the spread of the coronavirus in their county under control.” Guess which counties he specifically named? Moore, Potter and Randall. Yes, friends, we are now a hot spot in Amarillo. The virus is not “under control” here, according to our governor.

Our area is seeing the kind of spike in COVID-19 cases that should make you at least carefully consider waiting to reopen. However, if you decide that economically you must open your retail business for curbside and delivery, or another business once allowed, here are the minimum requirements for employers, according to the DHSH guidance regarding the Texas Retail to Go Order:

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Loan Approval

PPP Loan Tips for Texas Employers

So your Texas Panhandle company has received Paycheck Protection Program (“PPP”) funds, hopefully, and now you are wondering how to use those funds to maximize your loan forgiveness.

Local banks moved very quickly to assure that more than $750 million of the stimulus funds will help small businesses in our area. We all have 8 weeks to spend these funds legally and wisely to hopefully avoid any repayment of these federal loans, effectively turning them into government grants.

In the end, all of us want to use the funds to keep our employees and our businesses going in these challenging times. But there is little guidance from the Small Business Administration on how to do that. As things stand today (things are changing rapidly, so check with your employment lawyer before you make any final decisions), here are the important tips for small Texas employers about spending your PPP money:

When do I spend this PPP money?

The actual CARES act says that you must spend your PPP funds in the 8-week “covered period” after “the origination date” of your loan. The SBA has decided that the 8 weeks starts running the day that your loan was funded. That means that the date that the loans hit your account is when the clock starts running. For example, if you received your funds on April 6, 2020, you have until June 1, 2020 to spend the money.

How do I spend this PPP money?

The SBA (not the actual statute) requires that 75% of your PPP funds be spent on “payroll costs.” The CARES act defines “payroll costs” this way:

  • Salary, wage, commission, or similar compensation;
  • Payment of cash tip or equivalent;
  • Payment for vacation, parental, family, medical, or sick leave;
  • Allowance for dismissal or separation;
  • Payment required for the provisions of group health care benefits, including insurance premiums;
  • Payment of any retirement benefits; or
  • Payment of state or local tax assessed on the compensation of employees.

The CARES act goes on to point out that the following items will not be considered “payroll costs”, meaning that you cannot claim any forgiveness for these amounts, so they should not be paid out of designated PPP funds:

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Webinar for Texas Employers on CARES and FFCRA

Today, Texas employment attorney Vicki Wilmarth and health insurance benefits expert, Josh Butler, presented a webinar entitled Texas Employer’s Guide to Coronavirus Legal Issues.

Even if you missed the webinar live, you can watch the free 1-hour presentation for an overview about the Families First Coronavirus Response Act (“FFCRA”) (paid leave law) and Coronavirus Aid, Relief and Economic Security Act (“CARES”) (stimulus bill) on your own time. https://youtu.be/BGJCnHOJp18

You can also view the slides from the webinar here.

COVID-19 Paid Leave Laws Affect Small Employers

Congress has passed and President Trump has signed a new law that requires small employers to provide paid leave to employees for two weeks of sick leave and as many as 10 weeks of leave to take care of kids whose schools have closed.

This Families First Coronavirus Response Act (“FFCRA”) goes into effect on April 1, 2020. It requires all employers with less than 500 employees, including very small employers and nonprofits, to pay employees whose absences are caused by the COVID-19 epidemic. The DOL has created a fact sheet and an FAQ to help employers understand these laws better.

Here are a few highlights of the FFCRA law:

Paid sick leave for two weeks is available to all full-time, part-time, temporary, seasonal, and other kind of employee if the employee has to miss work for one of the following reasons:

  1. Employee is subject to government quarantine; or
  2. Employee has been advised by healthcare provider to self-quarantine; or
  3. Employee is experiencing symptoms and seeking a diagnosis; or
  4. Employee is caring for an individual subject to quarantine or self-quarantine as advised by healthcare provider; or
  5. Employee is caring for children under 18 because schools or “caregivers” are unavailable; or
  6. Employee is experiencing any other condition that is substantially similar to COVID-19, as specified in HHS regulations to come.

Paid Family and Medical Leave is available for up to 10 more weeks (after using up 2 weeks of unpaid time or 2 weeks of Emergency Paid Sick Leave as spelled out above) to all full-time, part-time, temporary, seasonal or other kind of employee if the employee has worked for the employer for at least 30 days and then has to miss work for this one reason:

  • The employee is unavailable to work or telework because the employee is caring for a child under the age of 18 because that child’s school or childcare facility is closed because of the coronavirus.

The paid sick leave has to be paid at the employees’ regular hourly rate (including commissions, tips and piece rates, but not overtime rates) if the employee is absent for reasons #1-3, above. The paid sick leave and the paid family and medical leave have to be paid at 2/3 of the employee’s regular hourly rate if the employee is absent for reasons #4-6, above. There are also daily and total caps on the amounts you have to pay the employees for these absences.

Employers with less than 50 employees are subject to these FFCRA paid leave laws, even though you have never before been required to comply with Family and Medical Leave Act or any paid leave law. There is a provision that the Secretary of Labor can exempt a business when giving the leave would “jeopardize the vitality of the business.” In other words, if granting this paid leave could make your company go out of business, and you can prove that in your financials, you might not have to provide this paid leave. You don’t have to get the Secretary of Labor’s permission for this exemption by filing anything, but you will have to be able to document the correctness of your decision after the fact.

This law is not retroactive, meaning you don’t have to pay for leave taken before April 1, 2020, if it wasn’t your company policy to pay employee absences.

However, you also can’t make employees apply your paid time off policy before using this emergency paid sick leave or family leave. It is the employee’s choice alone on how to coordinate their PTO and these paid leave laws.

The good news for employers is that the employer gets a tax credit on payroll taxes for 100% of these amounts paid to employees for emergency sick leave and paid Family and Medical Leave. On the next Form 941 that will be due by July 31, 2020, the IRS will add a line for the employer to take the tax credit. If the amount you paid out to your employees for these paid leave laws exceeds the payroll taxes that you owe, then you are supposed to be able to get a refund from the IRS within 2 weeks after filing your Form 941.

We are still waiting for the Secretary of Labor to provide more guidance through regulations. He should also be providing us with notices, posters and other explanations to give to your employees.

There are also other employment laws that a company has to consider in this crisis, which are summarized here.

Texas Employer’s Legal Guide to COVID-19 Issues

Note: Some of these laws are changing rapidly as the federal government responds to the crisis. For example, paid sick leave and paid family leave are required of small employers beginning April 1, 2020. That’s why some of the information below has been deleted. Be sure to call an employment lawyer for the latest information and advice.

As COVID-19 dominates the headlines, Texas employers still have businesses to run and employees to supervise. The novel coronavirus, which causes the disease “COVID-19”, is creating all kinds of questions for these businesses, and most of those are best answered by medical and governmental resources.

But there are also employment law issues arising that a Texas employer may wrestle with. I wouldn’t even think about giving medical advice, but 32 years of practicing law has given me some insight that you may find helpful about the legal issues you are facing with your employees.

While there are some companies that can and should practice social isolation and allow employees to work from home, many businesses require employees to show up to perform work—think grocery stores, pharmacies, restaurants, retail, medical offices, hospitals, construction, feedlots, landscapers, agriculture, trucking companies, banks, childcare facilities, etc.

In those businesses, employers must walk the tightrope between compassion for those who are sick and the reality of needing your employees to be present in the workplace. There may also be tension between wanting to pay your employees even while they are absent and a possible huge decrease in your revenue during this time.

So there are no easy answers, but here are the laws you need to consider and discuss with your human resources professionals and your employment attorney BEFORE you take any action involving your employees:

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Hiring Focused on Character

I often hear the general perception by business owners and managers that employees under the age of 30 have a lousy work ethic or other character deficiencies. They complain about entry-level employees who aren’t interested in paying their dues and are convinced they are entitled to move into the corner office on the day they are hired. I also hear about inappropriate dress, lack of loyalty and attendance woes among young people. But I know many “kids” under 30 (my 26-year-old son among them) who are incredibly motivated, hard-working, smart and willing to pay their dues.

Throughout my 32 years of practicing employment law full-time, I’ve also heard lots of similar stereotypical complaints about women in the workplace (“they can’t get along with other women—it’s always a cat fight” or “they just quit when they have children”). And sometimes, I have unfortunately been privy to pure misogyny, racism, ageism, and other bigotry when discussing problem employees.

I have a radical observation from more than 30 years of practicing employment law: Character is not generational, racial or gender-specific. I’ve worked with some terrific young employees and some terrible older ones, some unbelievably hard-working women and some slacker men, some brilliant minorities and some completely ignorant WASPs. The real debate is not about an employee’s age, race, gender or any other data point over which the employee has no control, but the employee’s individual character. So I encourage employers to focus on character more and stereotypes less (actually, not at all).

As an employer, I know you want to fill any open position with an employee who will exhibit responsibility, honesty, loyalty, enthusiasm, flexibility, initiative, dependability, civility, judgment and a distinct sense of right and wrong, regardless of their gender, ethnicity, age, or other protected characteristic.

You won’t find nearly as many business books that focus on character instead of generational conflict or the “downfalls” of diversity. The subject of character often sounds old-fashioned and faintly religious.

But all of us have reluctantly dealt with people with poorly-developed values: gossips, drama queens, whiners, liars, cheats, etc. There is no reason to have those kinds of people working for you and it is not illegal to refuse to hire them. But you have to be able to spot poor character in your hiring process to avoid bringing this poison into your workplace.

To hire better employees, first identify the character traits that are most important to you. Think back about what really disappointed or angered you about the personalities of unsuccessful employees in the past. Were they always tardy? Then dependability is very important to you. Did they steal company time by shopping on the internet on the company computer for hours a day? Then honesty and productivity are probably high on your list. Did your former employee pot-stir, pitting employees against one another? Then you are looking for someone who treats everyone with respect and doesn’t enjoy gossip.

Design an employment process that doesn’t just focus on job skills, but also zeroes in on the character traits that matter most to you. Ask open-ended questions about values in the interview, but don’t rely solely on your ability to judge character. No hour-long interview is going to tell you everything about an applicant’s character.

But you can find out some aspects of an applicant’s character if you ask about:

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Docking A Salaried Employee’s Pay is Tricky

Paying an exempt employee on salary means that employee receives the same amount of money each week regardless whether the employee works 35 hours or 45 hours. There are benefits for both you and the employee because you don’t have to calculate overtime and the employee doesn’t have to religiously track work hours.

Interestingly, employers ask me all the time about docking that weekly salary of an exempt employee. For some reason, if a salaried worker misses a half-day for a child’s school field trip or a distant relative’s funeral, suddenly employers want to dock the employee’s salary, possibly because the reason for missing work seems trivial. But that’s legally not how salaries work within the context of the federal Fair Labor Standards Act (“FLSA”).

The FLSA requires that a salaried, exempt employee be paid a “fixed” weekly salary of at least $684 that cannot be docked regardless of the quantity or quality of work. One way to think about it is to tell yourself that a salaried, exempt employee earns her whole salary for the week by Monday morning at 8:05 a.m.

So if your marketing director is paid $1000 per week, she has to be paid $1000 even for the weeks when she goes home on two separate workdays after lunch because she is sick or when she recklessly spends $20,000 of the company’s funds on an unsuccessful marketing campaign. You cannot deduct from her pay just because she did not work the quantity of hours you expected or perform her job with the quality that you expected.

There are legal deductions you have to take from a salary when required by law (for example, income tax withholding, payroll taxes, child support) and legal deductions you can make for items that are authorized in writing by the employee (for example, health insurance premiums, retirement contributions, salary advance repayments).

But the FLSA is extremely strict when it comes to the employer deducting from an exempt employee’s salary for missed days or poor work.

Here are the absences and acts for which a Texas employer cannot dock a salaried, exempt employee:

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Can I Drug Test My Texas Employees for Marijuana?

As 2020 begins, many Texas employers are wondering if they can still drug test their employees for marijuana use. Several states have legalized recreational marijuana and most states allow medical marijuana. So what is a Texas employer to do?

After all, Texas sort of, kinda, decriminalized weed in the 2019 legislative session. When they legalized hemp because it is a drought-resistant agricultural crop, the Texas Legislature effectively said that cannabis with less than 0.3 percent concentration of THC, the psychoactive ingredient that gets you high, is “legal hemp”, while anything above that threshold is illegal marijuana.

However, making the determination of THC concentrations takes sophisticated equipment that the police departments and private testing labs don’t have yet. Many Texas police departments and district attorneys have announced they are not even bothering to prosecute possession of use of small amounts of marijuana. Therefore, it is, for all practical purposes, very difficult to determine if your employees are engaged in legal or illegal activities when it comes to weed.

In addition, the Texas Legislature expanded “compassionate use” (medical marijuana) in Texas, so that specialty doctors can prescribe medical marijuana to treat multiple sclerosis, Parkinson’s disease, ALS, terminal cancer, autism, and many kinds of seizure disorders. Past state law only allowed those very few patients diagnosed with intractable epilepsy to be prescribed medical cannabis products, which in Texas may only contain low levels of THC. Now, many more of your employees may be legally prescribed medical marijuana and you have to worry about violating the Americans with Disabilities Act when testing for marijuana.

Finally, CBD oil, which is a hemp-derived product, is legal in Texas and is being sold on every street corner. Unfortunately, there is little regulation of CBD products, so they may contain surprise ingredients like THC. The Fort Worth Star Telegram recently reported on lawsuit filed by a CBD consumer against a CBD oil manufacturer because he lost his truck-driving job after testing positive for marijuana when he used CBD oil for his aching back.

So do you as a Texas employer still test for marijuana? Yes, legally you still can. Think of weed like alcohol. It is may be more legal than it was before, but it can still impair your employees’ job performance and judgment, so you are entitled to know if your employee is stoned.

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