Child Care Providers: Surviving the Summer with or without a PPP Loan
Providers of childcare services are undoubtedly still trying to navigate the current COVID-19 climate. While many childcare providers experienced some degree of shutdown from March through May of this year, others have remained open – in part – due to the need of parents and guardians who have continued working outside of the home. Now that states are reopening at varying speeds, childcare providers are making decisions about whether and at what level to operate this summer. This article seeks to provide guidance for childcare providers on two questions that may be keeping them up at night.
Question No. 1: I only employ my employees for 10 months (Aug – May). If I do not have employees and am not paying employees during June and July will that affect the amount of forgiveness I can receive for my PPP loan? The short answer is no.
Signed into law on June 5, 2020, the Paycheck Protection Program Flexibility Act (“Flexibility Act”) provides relief for childcare providers concerned about obtaining the maximum forgiveness of their PPP Loan. First, the Flexibility Act extends the “covered period” in which borrowers are eligible to use PPP funds and receive forgiveness for both permitted payroll and non-payroll costs paid for all PPP loans from 8-weeks to the earlier of 24-weeks from the date of funding or December 31, 2020. This extended “covered period” gives borrowers nearly six months to achieve a greater amount of forgiveness on PPP loan funds received. For childcare providers who may not have operated at full capacity or at all for the past three months, they now have nearly six months from the date of funding to use the PPP loan for forgivable purposes. This relieves the pressure to reopen prematurely or ramp back up to full operating capacity too soon. Similarly, for childcare providers who do not usually operate during June and July, they can save their PPP funds for August and September (or later depending on when they were approved) to supplement their payroll and other forgivable costs.
On the other hand, the Flexibility Act also allows borrowers to make an election to have the original 8-week period apply in lieu of the 24-week period if they chose. For childcare providers that have already spent PPP loan funds, the 8-week election allows them to apply for and confirm their loan forgiveness at an earlier time and before the rules may change again.
Along the same lines, the Flexibility Act also extends the safe harbor allowing borrowers to avoid a reduction in forgiveness of the PPP loan due to head count. For childcare providers who have to reduce their number of employees beyond the original June 30, 2020 deadline, they now have until December 31, 2020 to return their facility’s full-time employee (FTE) headcount to the average weekly FTE during either: (a) February 15, 2019 to June 30, 2019 or (b) January 1, 2020 to February 29, 2020. This extended safe harbor allows childcare providers to rehire employees as they are needed and not merely compensate employees to continue to stay home.
Question No. 2: My employees are asking that I file for unemployment for them even though 1) I am paying them in full while they are not working; or 2) they do not usually work during the months of June and July. Should I file for unemployment for them? Again, the short answer is no.
In light of the Flexibility Act discussed above, we would not advise childcare providers to pay their employees who are not working—especially if they are doing so using PPP funds. However, if a childcare facility is paying its employees in full for no work, it should not file for unemployment on behalf of those employees—even if the unemployment benefits with the additional $600 per week federal supplement (from the Federal Pandemic Unemployment Compensation) would allow the employees to collect more than they are being paid. That would be fraud. In the event the provider has legitimately laid off or furloughed employees due to lack of work, the childcare provider would in that case file for unemployment benefits on behalf of those employees. This will save the childcare provider payroll costs and allow the employees to receive unemployment benefits.
Whether a childcare provider should file for unemployment benefits for employees who usually do not work during the months of June and July is a trickier question. While a trickier question, the answer is again no because an employer should only file for employees who are out of work due to COVID-19 (or who are temporarily working reduced or no hours due to a legitimate business reason). If the childcare facility usually closes during the summer, then the employees’ lack of work is not COVID-19 related. Additionally, most employees who work in 10-month positions—such as are common in education and childcare—have an expectation of having jobs to return to in August and are not considered unemployed during the summer. In fact, Georgia law specifically excludes most educational workers from receiving unemployment benefits during customary vacation periods including summer break. In a circumstance where the childcare provider is uncertain of whether it will be able to reemploy its employees at the end of the usual closure period, then it may be appropriate for the childcare provider to apply for unemployment benefits on behalf of its employees. Childcare providers can also inform employees in this situation that they are able to submit their own claims for unemployment with the understanding that the childcare provider will provide truthful information in response to the request for information from the Department of Labor (“DOL”) as it attempts to verify the claim. Note that repeated failure to respond to requests for information from the DOL may result in a higher tax rate for the next year. Note also that providing fraudulent information to the DOL may result in civil penalties and/or criminal prosecution.