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IRS Issues Clarification on Deductibility of Expenses Paid with Forgiven PPP Loans

The Paycheck Protection Program (“PPP”) was established by the recently enacted CARES Act. PPP allows approved lenders to make loans to small businesses operating the United States. The federal government guarantees the repayment of PPP loans while providing borrowers with favorable repayment terms. The loans may be forgiven if the proceeds are expended primarily on employee payroll costs and if certain other employment-related standards are satisfied (we will discuss these requirements in further detail in a future alert following receipt of additional guidance from the Treasury Department). A smaller portion of the loan proceeds may be used to pay interest on mortgage obligations, rent, utilities, and interest on certain other pre-existing debt obligations. Any loan amounts that are not forgiven can be repaid over two years plus one percent interest.

Income tax law normally requires borrowers to recognize income when they are relieved of an obligation to repay a loan. However, the terms of the CARES Act expressly provides that borrowers are not required to recognize income with respect to any PPP loans forgiven.

Unfortunately, the CARES Act was silent as to the deductibility of payments made with the loan proceeds. In Notice 2020-32, the Internal Revenue Service concluded that expenses paid with loan proceeds are not deductible to the extent the loan is forgiven. The IRS based this conclusion on section 265 of the Internal Revenue Code which provides that no deduction is allowable for any expense paid with tax-exempt income. Because the loan is tax-exempt, pursuant to section 265, the use of the funds does not produce a tax deduction.

Notice 2020-32 may not be the final word on this topic. Both Representative Richard Neal (the Democratic chairman of the House Ways and Means Committee) and Senator Chuck Grassley (the Republican chairman of the Senate Finance Committee) have indicated that they would like to pass additional legislation permitting tax deductions for these expenditures. We will update this alert if and when additional relevant legislation is enacted.

EEOC Updates its Guidance & FAQs Regarding COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws  

The EEOC has updated its COVID-19 Guidance by adding a number of new FAQs to address issues related to the anticipated re-entry into the workplace.  The new FAQs discuss things like: an employer’s right to screen employees before entering the workplace to avoid a “direct threat” to the health and safety of employees; documentation to support an employee’s request for an accommodation; and “undue hardship” considerations when denying an accommodation based on the impact of COVID-19 on the business.  Below is a list of the new FAQs.  The complete EEOC’s Guidance and FAQs can be found here.

D.5. During the pandemic, if an employee requests an accommodation for a medical condition either at home or in the workplace, may an employer still request information to determine if the condition is a disability? (4/17/20)

Yes, if it is not obvious or already known, an employer may ask questions or request medical documentation to determine whether the employee has a “disability” as defined by the ADA (a physical or mental impairment that substantially limits a major life activity, or a history of a substantially limiting impairment).

4th UPDATE: DOL Again Updates Question & Answers Page for FFCRA

We have previously written about the US Department of Labor issuing a Question & Answers webpage, and subsequently updated it, to address numerous issues arising out of the passage of the Families First Coronavirus Response Act (“FFCRA”). (Click here, here and here.) On April 6, 2020, the DOL again updated the “Questions and Answers” webpage, adding 9 new questions and answers (##80-88) that largely clarify prior guidance from the Department. Here is a summary of the issues addressed by the DOL’s fourth update to the Q&A page:

For Employers:

  • Clarifying the manner for calculating the number of hours of paid sick leave and expanded family and medical leave due an employee who works irregular hours. (##80-81)
  • Providing a detailed explanation as to how to compute an employee’s average rate of pay for purposes of FFCRA, including those employees on a fixed salary each workweek. (##82-83)
  • Allowing employers to use rounding when computing the number of hours of sick leave due provided that employers do so consistently among all employees and in accordance with typical time increments (i.e. if employer general uses quarter-hour increments, employer may use quarter-hour increments for purposes of rounding here). (#84).
  • Stating that an employer must only use one six-month period of time (calculated from when the employee first takes FFCRA leave) for determining the regular rate of pay rather than doing a six-month calculation each time an employee takes FFCRA leave if it is intermittent. (#85)
  • Explaining the interplay between paid sick leave under the FFCRA with employer-provided leave plans, specifically whether an employer can require an employee to take employer-provided leave before taking FFCRA leave. (#86)

For Employees:

  • Clarifies that a “shelter in place” or “stay home” order from a federal, state or local agencies qualifies as a quarantine or isolation order for purposes of FFCRA leave, provided the employer has work for the employee and the “shelter in place” or “stay home” order prevents the employee from performing the work, either in person or via telework. (#87)
  • Explains that an employee is entitled to the full amount of unpaid leave due to them under the FFCRA, instead of just the federal minimum wage of $7.25 per hour, if the Department is required to bring an enforcement action on their behalf against their employer for violating the FFCRA. (#88)

California employers should continue to monitor our blog for future updates concerning the FFCRA and other employment developments as a result of the COVID-19 pandemic. We also advise employers to seek legal advice to determine whether the FFCRA applies to their business, and if so, what steps to take to ensure compliance.

3rd UPDATE: DOL Again Updates Questions & Answers Page for FFCRA

As previously advised, the US Department of Labor has issued a Question & Answers webpage, and subsequently updated it, to address numerous issues arising out of the passage of the Families First Coronavirus Response Act (“FFCRA”. (Click here and here.) The DOL updated the “Questions and Answers” webpage again today, adding 20 new questions and answers (##60-79). These updated Questions and Answers primarily address issues for employees regarding FFCRA leave but include some questions directed towards employers such as computing leave pay for seasonal workers with irregular schedules, employee counts for staffing agencies and the DOL 30-day stay of enforcement actions for FFCRA violations.

DOL’s Informational Webinar re FFCRA Compliance Goes Live

Earlier this week, the U.S. Department of Labor announced that it would be posting an informational webinar regarding compliance issues with the recently-enacted Families First Coronavirus Response Act (“FFCRA”). That webinar, which provides information regarding the FFCRA for both employers and employees went live today and can be accessed at:  https://dolwhd.cosocloud.com/pawkgwfawza0/?proto=true. The DOL’s Wage & Hour Division also distributed Power Point slides to accompany the webinar, which can be accessed here.

California employers should continue to monitor our blog for future updates concerning the FFCRA and other employment developments as a result of the COVID-19 pandemic. We also remind employers that they should seek legal advice to determine whether the FFCRA applies to their business, and if so, what steps to take to ensure compliance.

The IRS FAQs Provide Guidance on Employee Documentation/Information to Support FFCRA Leave

n March 31, 2020, the IRS issued 66 FAQs providing guidance to employers in connection with the payment of, and tax credits for, emergency paid sick leave (E-PSL) and emergency FMLA leave (E-FMLA) under the Families First Coronavirus Response Act (“FFCRA”).  Among other things, the FAQs answered a very important question that the DOL didn’t (instead, in its FAQ 15, the DOL essentially deferred to the IRS).  The important question is: what documentation or information can employers require employees to submit to support their request for E-PSL or E-FMLA?

IRS FAQ No. 44 states expressly:

  1. What information should an Eligible Employer receive from an employee and maintain to substantiate eligibility for the sick leave or family leave credits?

An Eligible Employer will substantiate eligibility for the sick leave or family leave credits if the employer receives a written request for such leave from the employee in which the employee provides:

  1. The employee’s name;
  2. The date or dates for which leave is requested;
  3. A statement of the COVID-19 related reason the employee is requesting leave and written support for such reason; and
  4. A statement that the employee is unable to work, including by means of telework, for such reason.

In the case of a leave request based on a quarantine order or self-quarantine advice, the statement from the employee should include the name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine, and, if the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the employee.

In the case of a leave request based on a school closing or child care provider unavailability, the statement from the employee should include the name and age of the child (or children) to be cared for, the name of the school that has closed or place of care that is unavailable, and a representation that no other person will be providing care for the child during the period for which the employee is receiving family medical leave and, with respect to the employee’s inability to work or telework because of a need to provide care for a child older than fourteen during daylight hours, a statement that special circumstances exist requiring the employee to provide care.

The IRS FAQs provide other useful information about determining the amount of the tax credit for qualified sick leave wages; determining the amount of allocable qualified health plan expenses; how to claim the credits; periods of time for which credits are available; and more.  You can read the full IRS FAQs here.

The Labor and Employment attorneys as Weintraub Tobin continue to wish you and your families good health during these difficult times.  Please reach out to any of us if we can assist you with your employment law needs.

DOL Announces Temporary Rules for FFCRA Implementation; Informational Webinar to be Released on April 3, 2020

We have been keeping you informed of recent actions by the US Department of Labor to advise employers of their obligations under the recently enacted Families First Coronavirus Response Act (“FFCRA”). This has included the DOL’s creation of a “Questions and Answers” webpage for both employers and employees. (Click here, here and here.) On April 1, 2020, the DOL announced the issuance of its Temporary Rules regarding implementation of the FFCRA and what employers who are subject to it must do to ensure compliance. (Click here for DOL Press Release.)

The 124-page Temporary Rule (available here is essentially the implementing regulations that were addressed in general terms by the DOL on its Q&A webpage concerning the FFCRA. The DOL also detailed its reasoning in adopting the limited “small business” exception to FFCRA compliance. It explained that it was trying to balance the competing interests in making sure that FFCRA leave was as widely-available as possible for small business employees while trying to prevent such leave from having little to no value if the company went under so that its employees had no leave entitlement and/or no jobs to which to return.

Importantly for employers, the DOL’s Wage & Hour Division will be posting a pre-recorded webinar on Friday, April 3, 2020, to provide further details concerning the FFCRA, including informing employers how to comply their FFCRA obligations for those subject to it. The webinar should be accessible at the following page on Friday:  www.dol.gov/agencies/whd/pandemic

California employers should continue to monitor our blog for future updates concerning the FFCRA and other employment developments as a result of the COVID-19 pandemic. We also remind employers that they should seek legal advice to determine whether the FFCRA applies to their business, and if so, what steps to take to ensure compliance.

2nd UPDATE: DOL Again Updates Question & Answers Page for Families First Coronavirus Response Act

Last week, we alerted you to the fact that the US Department of Labor had issued a Question & Answers webpage, and subsequently updated it, to address numerous issues arising out of the passage of the FFCRA. (Click here and here.) Late Saturday night, the DOL again updated the “Questions and Answers” webpage and added more than 20 new questions and answers (## 38-59) regarding various issues under the FFCRA for both employers and employees. The DOL also revised its guidance regarding the types of documentation required to document FFCRA leave to simply the types of documents required and essentially punt the question to the IRS to provide forms/instructions for claiming the FFCRA tax credit. (## 15 & 16)

Here is a summary of the other various issues addressed by the DOL’s second update to the Q&A page:

  • Explains that the term “employee” for purposes of determining who is eligible for FFCRA leave shall have the same meaning as the term “employee” used in the FLSA. (#38):
    • “Employee” includes full-time employees (work 40 or more hours per week); part-time employees (less than 40 hours per week) and “joint employees”, provided that the employee has been employed for the required 30 days preceding the FFCRA’s effective date. (## 48 & 49)
  • Clarifies which employers are subject to the FFCRA as having less than 500 employees, although some small businesses (less than 50 employees) may be exempted from the FFCRA (#39):
    • Unlike regular FMLA, employers must count employees as of the date the employee is to take leave. (#50)
    • Small businesses (less than 50 employees) can be exempted from providing paid FFCRA leave if “authorized officer” determines one of the following:
    • Expense of compliance with FFCRA exceeds the company’s revenues and will cause business to cease even minimal operations;
    • Employee’s absence will cause substantial risk to company’s financial health and/or operational capabilities; or
    • Insufficient employees remaining to all company to meet minimal business operations. (## 58-59)
  • Defines “son or daughter” to mean any biological, adopted and/or foster child and can include children over the age of 18 if that child has a physical or mental disability and is unable to “self-care” because of the disability. (# 40)
  • Establishes a “hot line” for employees to call when they believe employer is not complying with FFCRA leave requirements. (## 41-42)
  • Describes an employee’s general right to return to work after taking FFCRA leave except in limited circumstance where employer can show hardship conditions to justify failure to return. (# 43)
  • Clarifies that employee can take FFCRA leave, and timing for such leave, even if employee has already exhausted FMLA leave. (## 44-45)
  • Allows time that employee is on FFCRA leave to count towards eligibility for employer-provided health coverage. (# 51)
  • Discusses FFCRA’s applicability to certain public-sector employees. (## 52-54)
  • Defines “health care provider” who can certify FFCRA leave as including “a licensed doctor of medicine, nurse practitioner or other health care provider” who is also allowed to issue FMLA certifications. (# 55)
  • Discusses which “health care providers” and “emergency responders” who an employer may exclude from paid leave but urges employers to be “judicious” in making these determinations so as to minimize the spread of COVID-19. (## 56-57)

California employers should continue to monitor our blog for future updates concerning the FFCRA and other employment developments as a result of the COVID-19 pandemic. We also advise employers to seek legal advice to determine whether the FFCRA applies to their business, and if so, what steps to take to ensure compliance.

Coronavirus Aid, Relief, and Economic Security (CARES) Act: Expansion of Unemployment Benefits Through the Pandemic Unemployment Assistance Program

On March 27, 2020, the $2 trillion Coronavirus Aid, Relief, and Economic Safety (CARES) Act was passed by the House of Representatives and signed into law by President Trump as the largest emergency aid bill in history. The CARES Act significantly expands unemployment benefits and comes on the heels of 3.3 million Americans having applied for unemployment benefits last week. In California specifically, there were 186,809 claims for unemployment benefits to the Employment Development Department last week.

The CARES Act includes a temporary Pandemic Unemployment Assistance program that is fully funded by the federal government. The assistance applies retroactively to January 27th and extends through December 31st, with a maximum of 39 weeks of assistance (inclusive of weeks when the employee received extended benefits or regular compensation). Individuals who are receiving paid sick leave or other paid leave benefits and those that can work remotely with pay are excluded from the program.

The program expands unemployment insurance to those who do not typically qualify, including gig economy workers who are classified as independent contractors and self-employed individuals. Specifically, benefits will be provided to any person who is unemployed or partially unemployed due to any of the following:

  • The individual has received a COVID-19 diagnosis, or is experiencing symptoms and seeking a medical diagnosis;
  • A member of the individual’s household has been diagnosed with COVID-19;
  • The individual is providing care for a family member or household member who has been diagnosed with COVID-19;
  • The individual is the primary caregiver for a another person in the household who is unable to attend school or another facility due to COVID-19;
  • The individual is unable to reach the workplace because of a quarantine imposed due to COVID-19;
  • The individual was scheduled to begin work, but could not do so because the place they were scheduled to begin work at has been shut down due to COVID-19;
  • The individual lives in a household where the head of household died directly due to COVID-19;
  • The individual’s workplace has been closed because of COVID-19.

Individuals who are furloughed, but have not fully been laid off, are also eligible for unemployment benefits.

Every individual receiving unemployment benefits will be provided $600 per week, in addition to the weekly benefit amount authorized under state unemployment compensation law, for up to four months. Additionally, the program provides an extra thirteen weeks of federally funded unemployment benefits through the end of the year to assist individuals who remain unemployed after state unemployment benefits are no longer available.

For the standard unemployment benefits that the state remains responsible for, the federal government will provide payments to the state to reimburse government agencies, nonprofits, and Indian tribes for fifty percent of the costs they incur through the end of the year to pay unemployment benefits. For those states that decide to pay recipients of unemployment benefits as soon as they become unemployed, rather than waiting a week, the federal government will provide funding to pay the first week of unemployment benefits. This is applicable in California, as Governor Newsom has waived the first week waiting period, meaning that people will receive a full two weeks of benefits on their first unemployment benefits check, as opposed to one week. Further, for those states that offer “short-term compensation” programs for employees who have their hours reduced, California being one of them, the federal government will pay one hundred percent of the costs incurred by the state through the end of the year.

The attorneys at Weintraub Tobin continue to wish you and your families good health during these difficult times. Please feel free to reach out to one of us if you have any questions regarding this expansion of unemployment benefits and how that may relate to your workforce.

DOL Updates Questions & Answers Page for Families First Coronavirus Response Act

Earlier this week, we advised you that the US Department of Labor had issued a Question & Answers webpage that addressed some issues arising out of the passage of the FFCRA, most importantly clarifying that it would become effective on April 1, 2020. (Click here.) Yesterday, the DOL updated that “Questions and Answers” webpage and added more than 25 new questions and answers regarding various issues under the FFCRA for both employers and employees. Here is a summary of the various issues addressed by the updated Q&A page:

  • Clarifies that the FFCRA creates a new paid leave as of April 1st and does not apply retroactively:
    • Employees are not entitled to FFCRA leave if:
      • Employer has closed work site and/or furloughed employee prior to April 1; 2020; or
      • Employer closes work site and/or furloughs employee after April 1, 2020 but before employee has started FFCRA leave.
  • Makes clear that FFCRA leave can be taken intermittently in certain circumstances related to having to take care of children who are subject to school/child care closures.
  • Only employees who have been on the employer’s payroll for at least 30 calendar days prior to the FFCRA’s effective date (i.e. as of March 2, 2020) are eligible for FFCRA leave.
  • Explains the types of documentation that an employer can require from an employee (and must maintain) in relation to FFCRA leave as well as the employee’s obligations to provide such documentation.
  • Employees are only eligible for FFCRA leave if they are unable to work (even remotely) as a result of COVID-19, which includes those employees required to stay-home by local authorities and are unable to work remotely. If an employer has work for the employee, and the employee can perform that work remotely, the employee is not eligible for the leave (absent having symptoms of, or caring for a family member with symptoms of COVID-19) just because they cannot report to their normal worksite.
  • Employees cannot receive both unemployment pay and FFCRA paid leave.
  • Although employers can consider paying employees on FFCRA leave an amount in excess to that required by the law, the employer will not be able to claim, or be entitled to receive, a tax credit for that excess amount.
  • Employers who are subject to multi-employer collective bargaining agreements may be able to satisfy their FFCRA obligations by making contributions to the multi-employer fund or plan under certain conditions.

California employers should continue to monitor our blog for future updates concerning the FFCRA and other employment developments as a result of the COVID-19 pandemic. We also advise employers to seek legal advice to determine whether the FFCRA applies to their business, and if so, what steps to take to ensure compliance.