Business and Operations//
April 26, 2020
Delicate issues such as tuition refunds and employee leave have become far more complicated as the COVID-19 pandemic impacts us all.
We recently hosted a webinar with three legal experts from Zarwin Baum DeVito Kaplan Schaer Toddy, P.C., to answer your questions about how to handle loans, layoffs, and landlords during the COVID-19 crisis.
While there are no simple answers for what we’re experiencing, we want to share insights from the webinar with you here. (We’ve compiled more information and guidance for private school leaders on our COVID-19 resource page.)
What should our school do right now?
Communication is key. Maintaining community and connection is vital to how your institution handles this crisis. Your faculty, staff, and parents need to know what to expect and they need to be contacted often. Make sure you relay frequent, regular updates via multiple channels, such as your website, email, and social media. And be sure that your responses are guided by your mission.
Your entire staff needs to be given detailed information about healthcare coverage, pay, and expectations for returning to work. Virtual meetings and “town halls” for employees and parents will bring the community together and demonstrate transparency.
Meet with your lawyers and accountants, have your documentation ready for meetings with lenders and landlords, and fully review all contracts and agreements.
How does the FFRCA affect our staff and leave policies?
Passed on March 18, the act took effect on April 1 and will expire on December 31, 2020. Many of the legislation’s details have not been fully explained by the government, and circumstances are changing. Refer to guidelines released by the Department of Labor for updates.
The Act applies to schools and other entities with fewer than 500 employees. It provides paid sick leave and expanded family medical leave in addition to existing PTO and sick leave policies for certain employees affected by COVID-19.
The new regulations include reinstatement rights equivalent to FMLA; that is, employees are allowed the right to return to the same or a similar position at the same rate of pay. Notice of these new policies is required, so it’s a good idea to email the information to each employee.
Employees are eligible for paid sick leave or expanded family medical care if the employee cannot work (including “telework”) under the following circumstances.
- They are under federal, state, or local quarantine or an isolation order related to COVID-19.
- The employee is advised by a healthcare provider to self-quarantine due to health concerns related to COVID-19.
- The employee is experiencing symptoms and seeking a medical diagnosis.
- The employee is caring for an individual subject to a COVID-19 quarantine order who is an immediate relative and cannot care for themselves.
- The employee is caring for his or her child whose school or place of care is closed (or child care provider is unavailable) due to COVID-19 related reasons.
- An employee is experiencing “any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretaries of Treasury and Labor.”
There isn’t much clarity around the last condition. It is important to research and continually check for updates. Note that these rules apply to employees who are unable to work, not employees for whom no work is currently available.
Employee sick leave covers full- and part-time workers up to 80 hours of full or partial pay. Full-time workers are eligible for their regular wages or the applicable minimum wage (whichever is greater) up to $511 per day and $5110 aggregate over a two-week period. For part-time workers, there is a formula to determine an average number of hours per week. You can easily access this on Zarwin Baum’s resource page.
Expanded family leave for employees caring for minor children or children over 18 with disabilities due to COVID-19 applies to those employed for a minimum of 30 days. This provision provides up to 12 weeks of job-protected leave. While the first two weeks are unpaid, this time can be covered by PTO or existing paid sick leave. They are eligible for 2/3 of their pay or the applicable minimum wage (whichever is greater) up to $200 per day and $2000 aggregate over two weeks. Be aware that for children born in 2020, only the standard FMLA applies at this time.
Like much else in the FFRCA, clarification and further guidelines on payroll tax credits to offset costs are coming out frequently. It is best to check with your CPA for how the tax credits affect your school.
Tune in to live webinars every week during the school year to get specific, research-backed insight you can immediately apply at your school.
What is the difference between layoffs and furloughs, and how do they work?
A furlough maintains the employee on the payroll while they are not working. In most cases, they are not paid, but they still get their health benefits. In some states, they are entitled to unemployment. A furlough can also take the form of reduced hours or salary.
To lay off employees is to permanently remove them from your payroll and, in most cases, your health benefits. Schools should check with their benefit plan provider to see if any laid off employees remain covered when it comes to benefits. Laid-off employees are entitled to unemployment.
Regarding exempt employees, keep in mind the rules concerning salaried workers and overtime. Any work at all during a payroll week and entitles them to their full salary. If they do not work at all, they can be laid off or furloughed. Make sure you review any applicable contract regarding teachers and administrators. If your school is requiring teachers to continue with distance learning, pay them as they were with in-class learning.
How do PPP loans work?
The Paycheck Protection Program (PPP) provides forgivable loans to small businesses to pay their employees during the COVID-19 crisis. Again, guidance is changing as details of the program are worked out. While your school can apply through any participating lender, it is best to start with the bank you already have a relationship with.
For these loans to be forgiven, your school must maintain its workforce. Any pay reduction cannot exceed 25%. If there are layoffs or furloughs during the period between February 15 and April 26, as long as those employees are returned to work by June 30, the loan can still be forgiven. In addition, there are specific regulations regarding how the money can be spent for the loan to be forgiven. Seventy-five percent of these funds must be applied to payroll costs, and the remaining 25% can be put toward utilities, mortgage, or rent.
At the time of writing, the first round of loans was exhausted and a second round is expected to be released. Collect application materials and contact your lender now to prepare, if you haven’t done so already.
How do I deal with lenders?
Communication is key. Contact your lenders immediately if you are experiencing issues paying your bills. Make sure you have reviewed your loan documents thoroughly. If you are not current, there may be a requirement to give the lender and bondholders formal material event notice.
Be prepared to discuss what has been accomplished in the last year in context with the long-term relationship between your school and the lender. Then, outline your plans for the coming 3 months.
You should have a list of changes you have made to reallocate resources. Was the dining staff furloughed? Did you have to invest in distance learning tools, like mobile hotspots or iPads? Make note of unbudgeted expenditures related to the virus in the current fiscal year. What are the additional costs that require relief?
You should also have projected enrollment for the fall and average tuition to demonstrate what will drive revenue in the next fiscal year.
The good news is that lenders want to work this situation out in a way that works for both of you. They do not want your loan to go into default.
Be as realistic as possible, given the current circumstances. None of us knows what is in store in the next 120 days—it's literally impossible to say you won't have to return once again in the future. Things could change and change quickly, so make the best decisions you can make today, and don’t be afraid to revisit your options.
What about dealing with landlords?
Like your lenders, landlords want to come to an agreement that benefits both parties. They do not want to throw you out! For those schools renting property, facilities, or buildings, being a good tenant means you are coming from a position of strength.
Your first step is to review your lease thoroughly. You may have heard of a force majeure clause. This excuses parties from contractual obligations in the event of unforeseen circumstances or an event out of anyone’s control that makes fulfilling those obligations impossible. In the absence of this clause, some states maintain a common law that if a governor’s order creates an inability to fulfill the agreement, then the obligation to pay is paused. Check the laws in your state.
Be reasonable in what you request, remembering that the landlord also has a mortgage to pay. You might suggest a 90 stay in rent collection or reduced rent that covers the owner’s operating costs. In the event you cannot pay rent, offer to extend the lease for 90 days past the end date to offset the landlord’s loss.
How do we respond to parents seeking tuition refunds?
Even with the most well-structured distance learning program, many parents may feel that they are acting as assistant teachers while still paying full tuition. Before making any decisions, review your tuition contract for any clause that addresses school closure. There may be guidance in the school handbook that addresses relief under these circumstances. We have compiled our recommendations for how to move forward in a recent "Source" article, COVID-19: Tuition Refunds and Discounts.
What can we take away from this?
This is a prime opportunity to review financial security, academic operations, and emergency planning. There should be flexibility in your budget and cash on hand to handle distance learning logistics, provide lunches, and transition to virtual admission. Be aware of State Department of Education waivers for state testing and the number of school days required in the academic year. Your school should have in place an annual threat and safety training program, and an infectious disease response plan.
Winston Churchill once said, “Never let a good crisis go to waste.” How well you were prepared for this disruption should inform what measures you need to take to prepare for the next one. Being prepared not only ensures continuity but protects you from litigation from upset parents and other stakeholders.
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