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Important Update on COVID-19—Taking Care of Staff and Cash Flow During Office Shutdowns
The April 1st issue of the C&A Doctors’ Newsletter will be devoted to ways we can fortify our practices during the economic shutdown. But, before that goes to print, we want to address the most immediate needs – helping our staff through this difficult period and having enough liquidity to manage the next several weeks of uncertainty.
Employee Sick Leave and Unemployment Insurance: The economic bailout bill now being negotiated in the Senate will address paid sick leave. The House version required employers with 500 or fewer employees to provide two weeks of paid sick leave for employees who contract Covid-19, who are taking care of family with Covid-19 or who are taking care of kids whose schools or day care centers have been closed. After that, there would be another 10 weeks of paid sick leave (at a reduced level) but only for employees taking care of kids off from school. Employers with 50 or fewer employees (most of you) are likely to be exempted from these requirements. We don’t yet know that for sure and will have to wait for the bill to become law, which may happen as early as the end of the week.
If you are closing your office and you are not required by law to provide paid sick leave, then you should direct your employees to your state’s unemployment benefits office. The states (with help from the federal government) are relaxing their requirements for claiming unemployment. Normally, employees have to be laid off and wait a certain period of time before benefits commence. These criteria are being waived, so that employees who have not been terminated, but whose business have been temporarily closed, can collect ASAP. (If paid sick leave is required for all businesses in the final legislation, then unemployment benefits likely won’t commence until the paid sick leave runs out.)
You can help your team by researching your state’s updated requirements. It shouldn’t be hard to find the website. Google “[Your State] Unemployment Covid.” The employees will have to provide some basic information about themselves and their employment situation and apply individually, and the unemployment should start quickly. Alternatively, you may choose to pay your employees any accrued vacation time prior to your team starting unemployment benefits.
Short-Term Loans to Keep the Practice Afloat – Personal Loans, Bank Lines of Credit and SBA: If you have sufficient cash sitting in your personal bank account, then you can make a loan to your practice to help cover ongoing operating expenses. This should be documented with a promissory note with a reasonable repayment term (perhaps two to five years) and a reasonable interest rate. This will distinguish it from a capital contribution. The loan can be paid back tax-free and with deductible interest. A capital contribution would add complexity, especially in a group practice, and the “repayment” could end up being taxable.
If you don’t have enough personal cash, and your savings are in stocks that have gotten pummeled, then don’t sell the stocks to free up the cash if you have a bank line of credit or you can obtain one. If you have a line of credit, then draw down on that now – even if you are on the fence about whether you will truly need it. In times of financial panic, there’s a big difference between having access to a line of credit and actually having the money. Banks are stressed with clients drawing their lines of credit. If you wait too long, the funds may not be available, though the Fed may step in and prop up the banks as needed.
If traditional bank lending dries up altogether, the federal emergency bailout will include at least $50 billion (and maybe a lot more) for the Small Business Administration (SBA) to loan to small businesses during the emergency. Your governor will first have to declare your county a disaster area, but the repayment terms will be quite favorable.
The areas currently eligible for disaster assistance loans can be found here:
https://www.sba.gov/disaster-assistance/coronavirus-covid-19
Best wishes as we all hunker down and work our way through this difficult time.
Brandon Collier
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