COVID-19 Legal Update: Nonprofit Response ChecklistPDF
You likely have received dozens of emails over the last few weeks relating to recent legislation at the federal and state levels that may impact your business, including the CARES Act and the Families First Coronavirus Response Act (FFCRA). Given the rapid pace of developments, the following checklist outlines updates, programs, and resources as you consider your nonprofit's COVID-19 response.
1. Eligibility for Government Loan Programs.
- Paycheck Protection Loan Program: Businesses with fewer than 500 employees or those meeting the SBA definition for a small business may be generally eligible for PPL loans up to the lesser of (i) 2.5 times the average total monthly payroll costs from the prior year or (ii) $10 million. Loans of up to $1 million may be expedited. PPLP loans are quite favorable because they may be forgiven and turned into outright grants to the extent the proceeds are used to pay payroll costs. In addition, the loans are unsecured, have an interest rate of 1.0%, and there is no credit suitability check or personal guaranty required. Loans may be used to cover payroll costs, health care benefits, mortgage or rent payments, utilities, and interest on certain debt obligations. The SBA recently released regulations regarding the PPLP providing more information on eligibility and terms.
- Economic Injury Disaster Loan: Businesses may also take advantage of the SBA’s existing EIDL loan program. The CARES Act waives certain EIDL requirements that make EIDL loans more attractive. In addition, borrowers may receive a $10,000 emergency advance within three days after applying for an EIDL grant.
2. Tax Matters. Consider whether you may want to take advantage of any delayed income tax payments, extensions to remit payroll taxes, extensions to make contributions to retirement plans, and other similar opportunities provided for in recent legislation to potentially increase liquidity. For example:
- Consider deferring payment of payroll taxes: Employers may defer payment of the employer’s 6.2% share of payroll taxes through the end of 2020. Such amounts will instead be due in equal installments at the end of 2021 and 2022. Note, however, that taxpayers who have SBA loans forgiven under the CARES Act (including PPLP loans) are not eligible for this deferral.
- Employee Retention Credit: If your company experiences at least a 50% reduction in revenue in the first fiscal quarter of 2020, or has its operations for a quarter fully or partially suspended as a result of government orders relating to COVID-19, your company may quality for a refundable employee retention credit against the 6.2% employer portion of payroll taxes for 50% of eligible wages paid to employees. Each subsequent quarter is eligible for receiving such credits until the company earns revenue greater than 80% of the previous year’s corresponding quarter. Note, however, that taxpayers who have SBA loans forgiven under the CARES Act are not eligible for this deferral.
3. Employment Matters.
- Payroll Reductions: If payroll reductions are necessary, consider the impact of recent legislation, including the CARES Act and FFCRA, to determine whether salary reductions, furloughs or terminations are the appropriate course. The Employee Retention Credit precludes participation in certain SBA loans, and refundable tax credits for retention may be limited. Employers should carefully consider eligibility for, and limitations on, such tax credits as part of its overall business strategy and COVID-19 response plan.
- Policies: Update your sick leave and other employment policies to comply with recent legislation. Employers are also eligible for tax credits under the FFCRA for required sick leave and required family leave pay. Visit Robinson Bradshaw's FFCRA Legal Update for more information on the applicability of paid sick and family leave, and let us know if we can help revise your employment policies.
- Payroll Processes: Review your payroll processes and, if applicable, contact your external payroll service provider to ensure that payroll tax withholding calculations are updated to reflect changes in law and that the employer is equipped to accurately withhold taxes on various forms of paid leave.
4. Prioritize Cash Flow. If faced with the potential for insolvency, prepare a short-term cash flow forecast that prioritizes cash expenditures. Payment of accrued wages for employees for past periods should be the top priority because nonpayment may result in personal liability for directors and managers. Payment of other expenditures such as rent and utility bills may be impacted by new state and local legislation that comes out daily, which may in certain cases permit deferred payments and may prevent evictions and disconnections.
- Review your insurance policies for business interruption coverage and consider giving notice of claims where no express exclusions relating to the current pandemic exist.
- If your company begins or changes manufacturing or production to respond to emerging COVID-19 needs, check whether the change may impact your product liability insurance coverage. Many providers base insurance coverage on the nature and quantity of the insured’s products and you may need to notify your provider of any material changes.
6. Health Care. Many CARES Act provisions address the unique needs of the health care community. Robinson Bradshaw’s CARES Act Health Care Update highlights relevant policy and funding provisions that health care entities should consider as part of their COVID-19 response.
7. Contracts and Force Majeure. The COVID-19 pandemic has impacted the ability of many businesses to perform contractual obligations. Each situation is highly individualized. For specific questions regarding your contractual obligations in light of COVID-19, refer to Robinson Bradshaw’s Force Majeure Legal Update.
8. Environmental Considerations. The EPA released new guidance to assist businesses in responding to COVID-19. Robinson Bradshaw’s recent Environmental Update provides more information if your company is subject to environmental regulations, or has shifted its operations in light of the COVID-19 crisis in a manner that could trigger new air, water or waste management requirements.
9. The Board’s Role in a Crisis. The Board should work closely with executive management to govern and manage the situation. While executive management is responsible for operational planning and executing these plans, the Board should be reviewing and responding to the company’s strategy and providing feedback. The Board and executive management should remain flexible in their planning and consider all the ways the COVID-19 crisis can evolve. The Board should consider:
- How will the company be impacted by the COVID-19 crisis?
- What are the company’s greatest vulnerabilities, and how can we protect against those vulnerabilities?
- How do we effectively continue our business while keeping our employees safe?
- What resources or advice do we need from outside our company?
- What insurance policies and risk management practices are in place and what do they cover?
- Should the company develop a business continuity plan, risk management, or operational plan for the months ahead?
The above checklist provides only a brief summary of programs or ideas for companies during the COVID-19 crisis. Please reach out to your regular contact at the firm with any questions, for assistance in preparing or revising your company’s internal policies and procedures in response to COVID-19, or to discuss the specific applicability of any of the programs above to your business.