Nonprofits and COVID-19

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2021 UPDATE: For more updated summaries and lists of resources, we suggest you visit the sites below:

Families First Coronavirus Response Act

The Families First Coronavirus Response Act (FFCRA) requires certain employers (generally including nonprofit employers with under 500 employees) to provide their employees with paid sick leave and expanded family and medical leave for specified reasons related to COVID-19. These provisions apply from April 1, 2020 through December 31, 2020.

An employee is entitled to take leave related to COVID-19 if the employee is unable to work, including unable to telework, because (1) the employee is subject to a quarantine order related to COVID-19; (2) has been advised by a health care provider to self-quarantine related to COVID-19; (3) is experiencing COVID-19 symptoms and is seeking a medical diagnosis; (4) is caring for an individual subject to an order described in (1) or self-quarantine as described in (2); (5) 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; or (6) is experiencing any other substantially-similar condition specified by the U.S. Department of Health and Human Services.

Generally, employers covered under the Act must provide employees:

  • up to two weeks of paid sick leave based on (A) their regular rate of pay for qualifying reasons #1-3 above (capped at $511 daily); or (B) 2/3rds of the regular rate of pay for qualifying reasons #4 and #6 above (capped at $200 daily); and

  • up to 12 weeks of paid sick leave and expanded family and medical leave paid at 2/3rds for qualifying reason #5 above (capped at $200 daily).

The paid leave requirements may be seen as an expensive burden for many covered nonprofit employers, but the FFCRA covers the costs of this paid leave by providing them with refundable tax credits. It's possible to receive an advance on these tax credits by filing new Form 7200. Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage. Nevertheless, small employers with fewer than 50 employees may qualify for exemption from the paid leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern.

Each covered employer must post in a conspicuous place on its premises a notice of FFCRA requirements. Businesses (including nonprofits) that are closed or have furloughed employees because of lack of work are not required to provide paid leave under the FFCRA.

Coronavirus Aid, Relief, and Economic Security Act

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is the biggest economic stimulus package in the country’s history at $2 trillion, including $300 billion in cash payments to individuals, $260 billion in extra unemployment benefits, and $350 billion in new loans to small businesses.

Paycheck Protection Program

6/6/20 Update: On June 5, the President signed the Paycheck Protection Program Flexibility Act which, among other things, allows forgiveness for expenses beyond the 8-week covered period to the earlier of 24 weeks or December 31, 2020; loosens restrictions limiting non-payroll expenses from 25% to 40% of loan proceeds; eliminates restrictions that limit loan terms to 2 years (now 5 years); repeals the CARES Act provision that prohibited nonprofits with forgiven PPP loans from deferring their payroll tax payments; and extends the rehiring deadline from June 30, 2020 to December 31, 2020 to offset the effect of enhanced Unemployment Insurance. See National Law Review.

5/30/20 Update: On May 22, the Small Business Administration (SBA) released guidance on loan forgiveness under the Paycheck Protection Program (PPP). See Paycheck Protection Program Loan Forgiveness Interim Final Rule Analysis (National Council of Nonprofits).

4/25/20 Update: On April 24, President Trump signed into law a new bill providing a much needed additional $250 billion into the PPP. See Paycheck Protection Program, Round 2: Can Your Business Receive Any Of This Money? (Forbes). Also on April 24, the SBA and Treasury published Paycheck Protection Program: How to Calculate Maximum Loan Amounts-By Business Type.

4/16/20 Update: According to the SBA, the SBA is currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding (i.e., There is no more money available under the PPP forgivable loan program). It’s possible that Congress will fund the popular program with more money, but there are disagreements about how stimulus funds should be allocated. See White House says new small business loan program is out of money, leaving many firms grasping for lifelines (Washington Post).

The Paycheck Protection Program (PPP) is the forgivable loan program available for small businesses (including 501(c)(3) and 501(c)(19) nonprofits) with under 500 employees. The rationale for the PPP is to provide a direct incentive for small businesses to keep their workers on the payroll. Unlike a regular SBA loan, no collateral or personal guarantees are required and there are no lender fees.

The PPP loan has a maturity of 2 years and an interest rate of 1%. Loan payments will also be deferred for six months. However, the SBA will forgive the loan if all of the borrower’s employees are kept on the payroll for eight weeks and the money is used for payroll costs (including benefits for vacation, parental leave, medical leave, and sick leave, up to total payroll costs based on $100,000 of annual income per employee), rent, mortgage interest, and/or utilities, but payroll must account for 75 percent of the forgivable amount.

Generally, the maximum amount of loan an eligible recipient may qualify for is equivalent to 2.5 times the average total monthly payroll costs from the one year period prior to the date of the application (capped at $10 million).

We encourage qualifying nonprofits to apply for the PPP loan very early in the process (applications were to be available on Friday, April 3, but not all lenders were prepared due to lack of integration with the SBA) because funds may run out quickly. A form of the application is available here. Note that there have been many stories of nonprofits having difficulties finding lenders. But if an application has been accepted, funding may come within a couple weeks. Nonprofits may find it advantageous to go to their banks to see if they can process the PPP loan, but they can also find an eligible lender here.

Economic Injury Disaster Loan

4/25/20 Update: On April 24, President Trump signed into law a new bill providing a much needed additional $60 billion into the Economic Injury Disaster Loan program. See Paycheck Protection Program, Round 2: Can Your Business Receive Any Of This Money? (Forbes).

4/16/20 Update: According to the SBA, the SBA “is unable to accept new applications at this time for the Economic Injury Disaster Loan (EIDL)-COVID-19 related assistance program (including EIDL Advances) based on available appropriations funding.”

The Economic Injury Disaster Loan (EIDL) is a targeted, low-interest loan available to small businesses and private nonprofit organizations (not limited to 501(c)(3) organizations) that have been severely impacted by the Coronavirus (COVID-19) outbreak. The loans may be used to pay fixed debts, payroll, accounts payable, or other bills that can’t be paid because of the COVID-19 outbreak. The interest rate is 3.75 percent for small businesses without credit available elsewhere (businesses with credit available elsewhere are not eligible to apply for assistance) and 2.75 percent for nonprofits. The first payment is due in 12 months. The EIDL application is available here.

For many nonprofits, the most important feature of the EIDL program is the $10,000 advance provided to applicants within 3 days of application (though it appears to be taking several days longer). The advance need not be repaid even if the applicant is subsequently denied a loan. However, it may be counted against any PPP loan forgiveness amount an employer might receive.

An qualifying employer may be eligible for a PPP loan and an EIDL, but not to cover the same costs. An EIDL may be refinanced into a PPP loan if it otherwise qualifies.

Charitable Contribution Deductions

A new above-the-line deduction for one year (2020) was created for cash contributions of up to $300 made to certain qualifying public charities. All taxpayers would be eligible to take the deduction unlike the standard charitable contribution deduction which provides a tax benefit only to the approximately 8% of taxpayers who itemize their deductions. The new deduction would not apply to noncash gifts or to gifts contributed to donor advised funds or supporting organizations.

For individual taxpayers who itemize their deductions, the limit on deductions for contributions to public charities, ordinarily 50% of adjusted gross income (AGI) or 60% for cash, is suspended for 2020 (subject to making an appropriate election). For corporations, the limit on deductions for such contributions, ordinarily 10% of AGI, is elevated to 20% for 2020.

See Giving More Than 60% Of Income To Charity? CARES Act Says Deduct It! (Forbes)

Employee Retention Payroll Tax Credit

The Employee Retention Payroll Tax Credit (ERC) is generally available to all private employers, including nonprofit employers, except for small businesses that take small business loans. However, to qualify, (1) the employer’s business must be fully or partially suspended by government order due to COVID-19 during the calendar quarter, or (2) the employer’s gross receipts must be below 50% of the comparable quarter in 2019 (once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter).

The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. For an employer that had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer provided health care.

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit. For more details, the IRS has an FAQ page regarding the ERC available here.

Deferred Payment of Payroll Taxes

The CARES Act allows taxpayers to defer paying the employer portion of certain payroll taxes (including the social security portion of FICA tax) through the end of 2020. The 2020 deferred amounts will be due on December 31, 2021 (for the first 50 percent of the liability), and December 31, 2022 (for the remaining 50 percent of the liability). See IRS Notice 2020-22.

Governance

Nonprofits must recognize and manage the impact of the coronavirus and associated disease known as COVID-19 that has created great concern and fear for an ill-prepared and under-educated country and world. Quarantines, canceled conferences and events, staggering drops in economic markets, deserted public spaces, self-isolation, and social distancing are all eye-opening impacts we’ve increasingly seen in the past couple of weeks. This should prompt nonprofit directors to start asking questions about how all of this will affect their organizations, beneficiaries, employees and volunteers, work cultures, programs, fundraising, events, meetings, businesses, investments, governance, management, and operations. And more importantly how will their organizations adapt consistent with their missions, values, and sustainability.

Fiduciary Duties

The board of directors of a nonprofit is ultimately responsible for the activities and affairs of the nonprofit and the exercise of all corporate powers. A board may delegate management of the day-to-day operations to officers, committees, employees, or a management company, but it may not delegate its oversight responsibility or its function to govern. And when it delegates authority and power, the board must do so with reasonable care.

For nonprofits with employees, the roles of the board are to direct, oversee, and protect. Direction is provided through mission, vision, and values statements; plans; policies; budgets; specific directives; and responsible leadership. Oversight involves reviews of executive performance, financials, audits, programmatic impact, and compliance. And protection of charitable assets is accomplished by appropriate risk management, including internal controls and insurance, and strategic decision-making.

Directors are subject to two fiduciary duties in carrying out their governance responsibilities:  the duty of care and the duty of loyalty.

Meeting a director’s duty of care generally requires acting in a reasonable and informed manner under the given circumstances.  The standard of care is typically expressed as that which “an ordinarily prudent person in a like position would use under similar circumstances.” The circumstances now are substantially different from just a few weeks ago, and each director must consider how that changes the care and attention an ordinarily prudent director would provide to their organization. While director liability for gross negligence may be rare, the risk may be significant if, for example, the disease spreads within the nonprofit’s facilities or event site due to inattention and inaction of the board, particularly if the nonprofit seems to be an outlier in its management of the crisis.

Meeting a director’s duty of loyalty generally requires acting in good faith and in the best interests of the corporation. The key to meeting this duty is to place the interests of the corporation before the director’s own interests or the interests of another person or entity. This does not, however, mean that furthering the mission in the short-term is more important than protecting employees, acting consistent with the organization’s values, and helping to assure the sustainability of the organization. Balancing these sometimes competing interests is one of the difficult challenges of a director.

Tips

Consider the guidance provided by the Department of Labor (OSHA) and the Department of Health and Human Services: Guidance on Preparing Workplaces for COVID-19.

Continue providing for flexible work arrangements that allow workers to work from home where possible (but remember not every employee may have resources necessary to work from home and equity issues should be considered). TechSoup provides some suggestions: Nonprofit Resources for Remote Work During the COVID-19 Outbreak. And if you’re not offering sick leave, or encouraging workers who are sick to stay home, make this an immediate priority and check your compliance with the mandatory leave laws described above.

Determine the impact of events and meetings that have been and will continue to be canceled or made virtual. Check your contractual obligations, any defenses you may have for not performing or making payments under an existing contract, how you may negotiate with other parties to a contract, and whether you have applicable cancellation insurance. The Nonprofit Times recently published a helpful article: Legal Strategies For Nonprofit Meetings During COVID-19.

Ask for greater support from your funders. Consider asking them for additional funding to address the crisis, a modification changing restricted funds to unrestricted funds, and/or relaxed reporting requirements. Be aware of the pledge made by over 500 foundations to address the critical need to act with fierce urgency to support our nonprofit partners as well as the people and communities hit hardest by the impacts of COVID-19.

Advocate for changes in the law (including appropriations) that would help prevent adverse impacts to your organization, your beneficiaries, and your employees and volunteers. Of course, recognize what is permissible for your organization (lobbying limits for public charities may be much greater than you think, especially if you’ve made the super simple 501(h) election, and much of advocacy isn’t even lobbying). Support national, regional, state, and local associations nonprofits advocating for issues that are critical to your organization and its mission.