by master | Jun 28, 2020 | Uncategorized
Cash flow problems can lead to the end of over 80 percent of small businesses. But if you know your startup valuation, you can look for an investment to get over that issue.
Valuing a startup involves a lot of factors, but it doesn’t have to be complicated. Keep reading to learn how to evaluate your company and how a digital platform might increase your value.
Startup Valuation Methods
The valuation of a startup can depend on a lot of factors. It depends on your industry, whether you offer a product or service, and where you’re at within the startup phase.
If you came up with your business in the past week, your business isn’t going to be worth as much as a company that’s been operating for a year.
Your startup valuation is super important, especially if you need outside investors. People need to know that they are getting a good deal when they invest. Good investors also want to make sure they will make back their initial investment.
Consider a few startup valuation methods that you can use.
Valuation by Stage
One of the easiest ways to come up with the valuation of a startup is to consider the business stage. Newer businesses will have lower valuations than more mature ones, and that’s okay.
- $250,000 to $500,000 for business ideas or plans
- $500,000 to $1 million for a management team
- $1 million to $5 million for a final prototype or product
- $5 million to $10 million for strategic partnerships
- $10 million+ for signs of profitability
Your startup will probably fall into one of these categories, so you can use the amount to set a valuation. However, you should also consider other factors. Investors will probably compare your company to the competition.
Market Multiple Approach
The market multiple approach focuses on what the market will pay for similar startups. You will need to research company acquisitions within your industry.
While the valuation of a startup that sells might not equal yours, it can give you a fair price to start. As you work with investors, you may need to negotiate, but the market will tell you what investors are willing to pay.
The numbers might not be as big as you hope, but you won’t have to go into an investment meeting with unrealistic expectations.
Instead, you can use the market to predict the success, and therefore the value of your business.
Cost-to-Duplicate
Another startup valuation method to consider is the cost-to-duplicate method. It determines your startup valuation by calculating how much it cost to create.
If you use proprietary software or production methods, that will increase the cost to recreate your company. But if you don’t have anything special that you use, the duplication cost would be lower.
To use this method, you can consider how much you have had to invest in your company. Then, you can calculate how much time you’ve spent to get the labor costs.
Finally, you can arrive at the amount of money it would take to start your business.
Discounted Cash Flow
The discounted cash flow method focuses on your startup’s potential earnings rather than current revenue. If you use this process, you need to predict how much cash your company will have in the future.
You’ll also need to figure out the expected rate of return for your investors. Then, you can calculate the value of that future cash flow based on the rate of return.
Depending on the stage and type of startup you have, there may be more risk. In that case, you’ll have a higher discount rate.
How to Increase Valuation
When you need outside investments, you want to get the best valuation possible. But you also shouldn’t overvalue your company because that can turn away investors.
You can use one of the startup valuation methods to get an approximate value. However, you may need to negotiate with your investors.
Before you start negotiating with investors, consider if you can increase your valuation naturally. By adding more value to your startup, you can give your investors more peace of mind that their money will be going to good use.
Consider working with a small business lawyer in San Jose to determine which route is best for you.
Develop a Digital Platform
A startup with a digital platform will have a higher valuation compared to one without. In general, digital businesses have higher valuations for a few reasons.
First, they can grow quickly without having to hire as many people. You can start your business from your home, so you don’t need to pay for office space or other physical costs.
You can create a transaction platform, where customers can purchase from you or get information. Or you can develop an innovation platform that other developers can use.
Either way, creating a digital platform is an easy way to grow your startup. But it’s not the only method you can use.
Unique Selling Proposition (USP)
Your unique selling proposition (USP) is what makes you stand out from the competition. In some cases, it can be a digital platform that you create.
But it can also be a unique design that you apply to a household product. If you’re in the early stages of your business, you could be your startup’s USP.
Whatever it is, getting clear on your USP can help investors see the value in your company. Then, you may be able to negotiate a better deal.
Become Profitable
If you don’t need investors now, consider waiting to get money until you start to earn a profit. Profitable businesses are almost always worth more than those that haven’t turned a profit.
It can and will take time for your business to have more revenue than expenses. But by waiting until that stage, you can show investors that your business is viable.
In many cases, investors will be more willing to shell out cash once you prove your business can make money.
The Perfect Startup Valuation
If you need an outside investment for your company, you should know how to value a start up. You can use a variety of startup valuation methods to determine your business’s worth.
Do you need legal help to determine your startup valuation? Contact us to learn how we can help.
by master | May 20, 2020 | Uncategorized
An estimated 7.5 million small businesses in the U.S. could close permanently as the result of the Coronavirus. Social distancing measures and considerations of what is and is not essential have had a major impact. Many businesses have had to shut down their brick and mortar locations.
Converting to an entirely online business in a matter of weeks has put a lot of strain on many entrepreneurs. Some cities and states are beginning to reopen. However, staying compliant with Coronavirus regulations is presenting new challenges.
Fortunately, there are resources available to small business owners. Small business lawyers are doing what they can to help in this time of chaos and confusion.
The team at Grellas Shah LLP is here to serve small businesses in the Bay Area and the wider community. Read on to find out more about what economic impacts to expect and what you can do to keep your small business afloat.
How Could the Coronavirus Impact Your Small Business?
There are a number of ways that Coronavirus could have an economic impact on your small business. This impact could be especially significant if e-commerce was never your focus. Let’s break down some of the biggest ways that Coronavirus could change the way you run your business and lead to economic loss.
Transitioning to E-Commerce
Many small businesses, especially those that have opened within the last year, did not establish a strong online presence prior to the pandemic. That means that they relied almost entirely on their brick and mortar locations to maintain financial stability.
Transitioning to e-commerce is costly both in money and time. Without a web developer or designer on the team, you may have to work with contractors. Once your site is up and running, you will find yourself competing with e-commerce giants, like Amazon. These major retailers have enough money to offer major incentives, such as free shipping and low prices.
Losing Sales: No Foot Traffic and Less Disposable Income
In the time it takes to get your e-commerce site developed and come up with a plan for fulfilling orders, you are losing days’ worth of sales.
Even in states that are allowing nonessential businesses to reopen their brick and mortar locations, small business owners must find ways to meet CDC guidelines.
This process often entails limiting the number of patrons who can enter your shop or requiring patrons to don facemasks. This reality could lower the number of sales made in a day as people are required to wait or turned away.
External factors may also lead to the loss of sales. A recent survey found that 1 in 4 Americans have lost their jobs or taken a pay cut since the outbreak began in February.
In other words, a quarter of the country has lost its disposable income. Niche or nonessential businesses are going to feel the brunt of this economic downturn.
Cutting Back on Spending and Pay
Perhaps one of the most heartbreaking decisions small business owners have had to make is whether or not they can afford to keep their staff on the payroll. Many have less revenue coming in and profits going towards different expenditures, such as web development and monthly rent. There simply is not enough to maintain employee pay.
Losing employees during the pandemic can have long-lasting effects on the business. With a smaller workforce, it may become difficult to fulfill orders and reopen stores in a smooth, timely manner. Hiring new employees in the future comes with the cost and time consumption of scouting and training.
Many small business owners recognize that coming back from the Coronavirus is not going to be easy and for some, it may seem nearly impossible.
What Can You Do to Protect Your Small Business During the Pandemic?
As bleak as this sounds, all hope is not lost. You will need to have savvy and perseverance and make some upfront investments. In doing so, you can ensure that your small business will survive the pandemic.
Stay Compliant
Federal, state, and local regulations will all have an impact on when businesses can reopen and what they must do in order to stay open. Naturally, many small business owners are itching to open their doors, but patience and safety are key.
To give an example of what compliance may look like, let’s look to the state of California, which is entering Stage 2. Stage 2 involves curbside pickup for low-risk retail businesses who have completed the necessary risk assessment and site-specific protection plan.
Whether or not you have entered Stage 2 will depend on the county your business resides in and the rate at which the virus continues to spread. These regulations can change at any time and it is important that you stay on top of them or risk being asked to close your doors once again.
Apply for Stimulus Support
The recent CARES Act provides $2 trillion in federal aid for citizens, corporations, and small businesses. It is possible to receive a federal loan that will support your business through these on-going changes and losses. For many small businesses, loans are the only way that they can continue to run for the next few months under the current circumstances.
Find Legal Assistance
Staying compliant with constantly changing regulations and navigating the stimulus loan application process is not easy. Unfortunately, many small businesses have struggled with both.
Working with a small business lawyer versed in Coronavirus regulations and loans can alleviate these pressures, allowing you to focus on your services, customers, and employees.
Where to Find a Small Business Lawyer in the Bay Area
If you are searching for a small business lawyer to navigate your Bay Area business through the Coronavirus, you have come to the right place.
Contact Grellas Shah LLP and we will ensure that your small business is compliant with Coronavirus regulations and that you receive the stimulus support you deserve.
by master | Apr 17, 2020 | Uncategorized
Are you a small business owner or tech start-up trying to survive during the coronavirus pandemic? Do you wonder, “What is the stimulus package?”
Continue reading this article to learn more about the CARES ACT. You will learn how it can assist your California business.
What Is the CARES ACT?
The Coronavirus Aid, Relief, and Economic Security Act (CARES ACT) passed on March 31, 2020. The act provides emergency help to those affected by the pandemic. It includes individuals, families, and businesses.
Does the Stimulus Package Include Start-ups and Small Businesses?
The $2 trillion CARES ACT includes help for small business and tech startups. It includes employees, founders, and business owners.
The government is developing laws and regulations to implement this act. Tech startups and small businesses need to watch for changes.
CARES ACT Provisions to Help Small Businesses
This stimulus package aims to support America’s economy. It includes specific provisions for small businesses.
Businesses with fewer than 500 employees are eligible for loan programs. The CARES ACT’s goal is to decrease layoffs.
Small businesses must use specific private financial institutions. They must be in the Small Business Administration (SBA) lending network.
The Act also includes employer tax credits up to $10,000. You can receive a 50% refundable payroll tax credit for wages paid during the pandemic.
The credit applies to any business forced to close during the crisis. It also includes those with a decrease in gross receipts of 50% or more.
Businesses with over 100 workers, who retain employees when they cannot work, can claim the credit. This credit also applies to all wages for business with 100 or fewer employees.
What is the Stimulus Program Purpose?
The covered loan period is March 1, 2020, to December 31, 2020. Eligible entities include private nonprofit or public nonprofit organizations. They must have fewer than 500 employees.
Ineligible nonprofit businesses include those receiving payments from Title XIX of the Social Security Act. Exclusions also apply for those under a waiver of such plan.
What Can You Use the Loan For?
Those who qualify for a loan have restrictions on the money’s use. Approved expenditures include:
- Paid sick, medical, or family leave
- Payments for group health care benefits during these types of leave
- Employee salaries
- Mortgage payments
- Rent and lease payment
- Utilities
- Insurance payment
- Debt obligations incurred before the covered period
Approved lenders must defer all repayment of relief loans for not more than 1 year.
Special Considerations for VC Funds and Other Investors
Are you a venture capital (VC) fund, investor, accelerator, or incubator? Do you focus on ensuring portfolio companies comply with new laws and regulations? Are you tasked with making sure businesses receive available government support?
In these stressful days, it is vital to remain legally compliant. The California Consumer Privacy Act (CCPA) rules remain in place. Tech start-ups must ensure they meet CCPA regulations.
The pandemic has increased media attention on businesses. The public is less likely to forgiving privacy breaches. Thus, your business cannot afford any violations.
Is Your Small Business Struggling During the Pandemic?
Help is available for small business or tech start-ups affected by the pandemic. This article has provided answers to the question, “What is the stimulus?” The good news is that you do not have to navigate this changing climate alone.
Grellas Shah LLP is a full-service boutique law firm. We specialize in tech startups, VCs, angel funding, intellectual property protection, licensing and more. Our experts can guide your business to optimize your relief benefits related to the pandemic.
Contact us today to ask questions and learn more about our services.
by master | Mar 31, 2020 | Recent News
If you are a startup or small business, the new Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) may provide you access to thousands of dollars (or more) in stimulus funds (i.e. free money) and favorable loans. As part of our Coronavirus Compliance and Stimulus Support Practice, we are analyzing the CARES Act and how our clients can take advantage of it. Please do not hesitate to reach out to us for further support and guidance as you navigate these programs.
Introduction
Now that Congress has enacted the first COVID-19 related stimulus bill – the CARES Act– the question we are being asked is what benefits are available to startup companies and small businesses. There are many and they are substantial. Even if you believe that your organization is well positioned to weather these tumultuous times, these programs offer significant financial offerings that would be of benefit to every business.
Not to be too blunt, but the government is offering free money to small businesses. If you don’t pay attention, you will lose out.
There are three central programs targeting startups and small businesses under the CARES Act:
- Paycheck Protection Program
- Economic Injury Disaster Loan Program
- Employee Retention Credits
This Client Update provides you an overview of these programs so that you can begin to understand how your startup or small business can maximize benefits under the CARES Act.
Paycheck Protection Program (PPP)
What is it?
The Paycheck Protection Program is a loan program operating under the Small Business Administration’s pre-existing Section 7(a) loan program. The concept is that the loan would be available to provide assistance in maintaining payroll and meeting certain other enumerated critical business expenses.
How much can we get?
The maximum size of the PPP loan is directly tied to payroll. More specifically, the loan is generally limited to the lesser of: (i) 2.5 times the average monthly payroll for the one-year period prior to the date the loan is made; and (ii) $10,000,000. This amount is somewhat misleading, as “payroll” includes certain payments made on behalf of employees (like benefits), but there are also caps on the amount of payroll per person that is counted in these calculations (i.e., payroll amounts in excess of $100,000 will be excluded). Certain outstanding balances from Economic Injury Disaster Loans (described below) can also be included, if refinanced as part of a 7(a) loan.
Are we eligible?
Generally, business with 500 or fewer employees will be eligible for PPP loans. This includes sole proprietors, independent contractors, and self-employed individuals.
Note for VC-Backed Startups: In determining what is a “small business concern” for eligibility for Section 7(a) loans, the SBA has “affiliation” rules that look beyond whether the company itself has 500 or fewer employees, by adding to that the number of employees of its “affiliates.” The CARES Act does not expressly exempt PPP loans from the affiliation rules. And we will know more when the SBA puts out the applicable regulations. But for now, VC-backed startups should keep in mind that they may have difficulty proving eligibility for this program.
What can the money be used for?
There are restrictions on how PPP loans can be used. Specifically, the loans can be used for, subject to applicable caps:
- Payroll costs
- costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- employee salaries, commissions, and similar compensation
- payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
- rent (including rent under a lease agreement)
- utilities
- interest on any other debt obligations that were incurred before the covered period
Do we have to pay it back?
Here’s the critical part – the CARES Act has a loan forgiveness provision for PPP loans.
Generally, PPP loans can be forgiven (i.e. you will not need to pay it back) up to a maximum of 8 weeks’ worth of the following expenses, measuring from the loan origination date:
- Payroll costs;
- payments of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation);
- payments on any covered rent obligation; and
- utility payments
None of the costs above can be forgiven unless they relate to an obligation that existed before February 15, 2020. In other words, if you enter into a lease in March 2020, those rent payments would not be forgiven. To the extent your PPP loan amount exceeds the amount that is forgiven, there are favorable interest and repayment terms available. The interest rate on the loan cannot exceed 4%. There is no personal guaranty required nor is there a collateral requirement. In addition, there is a complete deferral of any repayment obligations for at least six months.
Will we get the loan?
There is a big hitch, however. The amount of loan forgiveness is reduced in the event of an unremediated layoff or significant reduction in employee salaries. So, it is important that you understand these rules when determining whether to lay off workers or reduce their salaries, as you may be giving up free money by doing so.
There is another major hitch, as well. You cannot both get a PPP loan and participate in the Employee Retention Credit Program. Keep that in mind as you continue reading.
When can we apply for this?
The SBA has been tasked with putting out regulations and implementing the PPP Section 7(a) loan program, which we are expecting to learn more about in the upcoming weeks. So, you cannot apply to the program just yet.
But keep reading, as there is other money available right now.
Economic Injury Disaster Loan Program
What is it?
The Economic Injury Disaster Loan (“EIDL”) program is another pre-existing SBA grant program which has been expanded under the CARES Act. It is an amendment to the pre-existing Section 7(b) loan program.
How much can we get?
What is critical here, as explained further below, is that the EIDL program offers eligible applicants the opportunity to obtain a $10,000 loan advance, within 3 days, which does not need to be repaid.
The maximum amount of an EIDL loan under the CARES Act is $2,000,000, but it is further limited to the actual amount of economic injury suffered by the business due to COVID-19, as determined by the SBA.
Are we eligible?
Generally, business with 500 or fewer employees will be eligible for EIDL loans. This includes sole proprietors, independent contractors, and self-employed individuals.
Note for VC-Backed Startups: As with the PPP loans, in determining what is a “small business concern” for EIDL eligibility, the SBA has “affiliation” rules that look beyond whether the company itself has 500 or fewer employees, by adding to that the number of employees of its “affiliates.” The CARES Act does not expressly exempt EIDL from the affiliation rules. And we will know more when the SBA puts out the applicable regulations. But for now, VC-backed startups should keep in mind that they may have difficulty proving eligibility for this program.
What can the money be used for?
There are restrictions on how EIDL funds can be used. Specifically, the loans can be used for:
- providing paid sick leave to employees unable to work due to the direct effect of the COVID–19;
- maintaining payroll to retain employees during business disruptions or substantial slowdowns;
- meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;
- making rent or mortgage payments; and
- repaying obligations that cannot be met due to revenue losses.
Do we have to pay it back?
Unlike the PPP loans, loans under the EIDL program generally have to be paid back. But under the CARES Act, you can request a $10,000 advance on your loan through EIDL, which does not need to be repaid. It does not even matter if you are denied the loan – the $10,000 is yours to keep, as long as you use for it for qualified expenses.
And if you submit your application for an EIDL loan, you should receive the $10,000 non-refundable advance within 3 days.
What are the benefits to applying for this loan?
There’s an additional potential benefit of applying for an EIDL loan, though the eventual SBA regulations will have to flesh this out in more detail. An EIDL loan can be refinanced through the PPP loan program.
Why would you want to do this? Well, remember, the maximum PPP loan is based, in part, on a calculation determined by your average monthly payroll for the prior 12 months. That puts a hard cap on the loan amount. But your loan forgiveness amount is based on 8 weeks of payroll, rent, and certain other expenses.
Depending on your business, the maximum PPP loan amount might be less than the aggregate total of 8 weeks of payroll, rent, and other forgivable loan expenses under the CARES Act PPP loan forgiveness provisions.
In that case, the only way to maximize your potential loan forgiveness is to increase the size of your PPP loan. But remember that in determining your maximum PPP loan, the SBA includes both the calculation based on your average monthly payroll and any outstanding balance on an EIDL loan that can be refinanced as a PPP loan.
In other words, depending on your business, you may be able to maximize the benefit of loan forgiveness under the PPP loan program only by applying for an EIDL loan and refinancing as a PPP loan.
When can we apply for this?
Unlike the PPP loan program, you can apply for an EIDL loan right now. In addition, unlike the PPP loan program, you can both get an EIDL loan and participate in the Employee Retention Credit Program. This would include getting the $10,000 advance. You could not, however, have that EIDL loan refinance as a PPP loan and still participate in the Employee Retention Credit Program.
Like the PPP loan program, there are some favorable terms available. The interest rate on the loan cannot exceed 4%. There is no personal guaranty required for loans of up to $200,000. And the SBA can approve the loan based simply on your credit score without the need for submitting tax returns.
Employee Retention Credit Program
What is it?
Another program that is worth considering is the Employee Retention Credit Program (“ERCP”), which provides a refundable tax credit towards a portion of employee wages paid between March 13, 2020, and December 31, 2020.
How much can we get?
Under the ERCP, eligible employers can get a refundable tax credit of up to 50% of an employee’s wages, maxing out a total benefit per employee of $5,000 (i.e. 50% of an employee’s wages up to $10,000 over the applicable period). “Wages” not only include amounts paid via payroll, but also deductible health plan subsidies.
Are we eligible?
Eligibility for the ERCP requires employers to show that for each calendar quarter for which the credit is sought either:
- their business was fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
- their gross receipts for the present calendar quarter are less than 50% of the corresponding calendar quarter from last year, provided that in that case the credit shall remain available in each calendar quarter until such calendar quarter as gross receipts for the calendar quarter reach 80% of the corresponding calendar quarter from last year (or December 31, 2020, whichever is sooner).
Importantly, if you are an “essential business” under applicable shelter-in-place or other social distancing orders, then you likely do not qualify under the first eligibility test and, instead, will have to rely on the second test.
Now, if you are an eligible employer, that does not mean every employee’s wages are counted for the purpose of receiving the tax credit. That depends on how many FTE employees you had, on average, in 2019.
If you are an employer who had more than 100 FTE employees, on average, in 2019, the only employees whose wages are eligible for the ERCP credit are employees who are still being paid, but are not providing services due to business impacts of COVID-19.
If you are an employer who had 100 or less FTE employees, on average, in 2019, all employee wages (up to the cap described above) are eligible for the credit, even employees who are still providing services.
Note for VC-Backed Startups: If affiliation rules or other criteria make you ineligible for the PPP loan or the EIDL loan, the ERCP credit may be a better option for you.
Please note that if you have employees who take paid sick or family leave under the FFCRA and you receive tax credits for the wages paid while such employees are on leave, such wages are not eligible for the ERCP credit.
What can the money be used for?
To avail yourself of the ERCP credit, you can deduct, dollar for dollar, the amount you, as an employer, owe for applicable employment taxes (generally, employer side social security taxes) for the applicable quarter, up to the amount of the available ERCP credit for that quarter. If the total amount of applicable employer side taxes is insufficient to provide the full benefit of the ERCP credit, you are eligible for a tax refund for the deficit.
Importantly, as noted above, an employer with a PPP loan cannot avail themselves of the ERCP credit. So, it is important to balance which program is more valuable. That being said, there is no explicit analogy for the EIDL program – i.e. one can get an EIDL program loan and the ERCP credit, provided they do not refinance the EIDL loan as a PPP loan.
Conclusion
With all of the focus on how the CARES Act bolsters large companies and politically-favored industries, it is heartening that there is stimulus available for startups and small businesses, as well. While the rules are somewhat byzantine – to an extent the result of fitting these stimulus benefits into already existing programs with their own complex regulations – there is money out there available for many small businesses, some of which can be accessed within days.
We are continuously reviewing the panoply of new laws, regulations, and administrative guidance with a focus on tech startups and small businesses. Please visit our Coronavirus Compliance and Stimulus Support Practice website regularly for our distillation of the latest news on the legal landscape and for practical advice you can use.
Of course, do not hesitate to contact us for support on any of these issues.
by master | Mar 23, 2020 | Recent News
Buried in the onslaught of public health news, you might not be aware that the federal government just passed an enormous piece of legislation that directly impacts employment law compliance for small to medium size businesses, including startups.
THE FAMILIES FIRST CORONAVIRUS RESPONSE ACT
The Families First Coronavirus Response Act (FFCRA) dramatically expands paid sick leave requirements and family leave requirements, including applying the Family and Medical Leave (FMLA) to businesses that were never before subject to its regulations.
The paid sick and family leave requirements outlined below apply to all business with fewer than 500 employees. Yes, that’s right. It applies only to small and medium size business, not large companies. Please note, however, that the federal government will be putting forth regulations exempting some small businesses with fewer than 50 employees from some parts of the FFCRA, At this point, we don’t know which small businesses will qualify for the exemption nor do we know which provisions they will be exempt from.
The FFCRA goes into effect on April 2, 2020, and sunsets on December 31, 2020, unless extended.
This Client Update outlines some major provisions of the FFCRA.
KEY COMPONENTS
A) New Paid Sick Leave Requirements
The FFCRA requires covered employers (i.e. those with fewer than 500 employees) to provide up to 80 hours (i.e. 10 full-time days) of paid sick leave if an employee is unable to work (either onsite or remotely) because the employee:
- Is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
- has been advised by a health care provider to self-quarantine related to COVID-19;
- is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
- is caring for an individual subject to an order described in (1) or self-quarantine as described in (2);
- is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19; or
- is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
The benefit is capped, depending on which of the reasons stated above is the motivation for the employee’s leave. Part-time employees receive a pro-rated benefit eligibility.
Please note that this requirement exists no matter how long the employee has been working for you.
You cannot require employees to use other accrued leave (sick, vacation, etc…) before they are eligible for these FFCRA benefits. And, of course, you cannot retaliate against a worker who exercises rights under FFCRA.
B) Expansion of FMLA
The FFCRA requires employers with less than 500 employees to offer up to 12 weeks of paid family leave if an employee is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.
Certain businesses with less than 50 employees may be exempt from this requirement.
Like the paid sick leave requirement, the statute sets caps on the amount an employee is required to be paid as part of this family leave.
For the first two weeks of leave, the leave may be unpaid. An employee can, however, use any other accrued paid leave benefit (including the paid sick time under the FFCRA) for those two weeks. Thereafter, the following 10 weeks the employees are entitled to be paid by the employer, subject to the caps under the FFCRA.
To be eligible, an employee must have been continuously employed for the prior 30 days before requesting leave.
Like any other FMLA leave, an employee is entitled to job-protection during leave – i.e. they can be returned to their job after the conclusion of leave. For employers with less than 25 employees, there is a limited exemption to this requirement.
C) Requirement to Give Employees Notice
The FFCRA requires all covered employers to post notice of the rights under the FFCRA. The Department of Labor will be providing the exact language for such notices in the upcoming days. It is currently unclear how this requirement will apply to remote workers, as the FFCRA only states that the notices must be posted “in conspicuous places on the premises of the employer where notices to employees are customarily posted.”
SUMMARY
With everything else your startup may be juggling right now, it is important to keep in mind the new wave of compliance obligations. Given the attention around Coronavirus and the importance being placed on protecting our communities and workforces, you can reasonably expect heightened scrutiny around making sure businesses follow these new requirements.
And while startups often make risk management decisions around compliance based on the idea that the government usually focuses on big players, the FFCRA is unique. It doesn’t apply to the big players. The only regulatory focus will be on small to medium sized businesses because they are the only ones to which the law applies.
Please do not hesitate to contact us with any questions about this or anything else facing your startup in the midst of the COVID-19 crisis.
