COVID-19 PPP, FFCRA GUIDANCE: As many of you prepare for taking PPP (Paycheck Protection Program) funding and have to deal with the FFCRA (Families First Coronavirus Response Act) sick leave requirement, many are asking how to account for this in your accounting system. These are still moving in terms of what the requirements are going to be for getting PPP loan forgiveness to you rather than having to pay back the loan. But here is what we are advising at this time.
The FFRCA requires that you allow an employee time off if they show symptoms of the COVID-19 virus. It is our understanding at this time that it will not apply to employees who can work from home. We don’t fully know yet how it is determined who qualifies and how to request the leave, but for now, it would be wise to have employees record their time to a new labor code specific to COVID-19. Since this is a sick leave item, naturally it should go in your fringe pool. Go ahead and create a Sick Leave – COVID general ledger account and give an account number within the fringe pool numbers. Employees will need a timecard code to charge against that should map their labor dollars to this account. The FFRCA will go into effect retro actively to April 1st through December 31, 2020.
PPP is the small business funding the government is providing as a low interest loan to help employers retain employees by paying for their salaries when they are forced to be idle due to work reduction and business closings. The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll).
The accounting for this initially is to show money coming in with a debit to the cash account and a credit to a loan liability account. While you are paying employees during their idle period, they will need to fill out a timecard to a labor code identified specifically as a COVID account. There is very little guidance out there about whether the Government contracts you are working on will pay for this idle time or not. My guess is no as the PPP loan is paying for it since it should ultimately be forgiven if you paid for the items you should have as required by the loan. If the furloughed employees were working a specific job (not multiple jobs), you could book that cost to a new Direct Labor – COVID account and assign it to that job. If not specifically identifiable, it would make sense to put it to Overhead or G&A, depending on your specific indirect rate structure. Again, make a separate labor account with a COVID designation like OH Labor – COVID and G&A Labor – COVID. You don’t have to use the word COVID, just as long as you can specifically identify it. The idea would be that later, when the loan debt is forgiven, we would do a debit to the Loan liability account to clear out the liability on the balance sheet, and credit the labor accounts the money was used for. This we effectively zero out those accounts as if nothing ever happened. This makes sense given it was an expense you incurred that was ultimately paid for by another source, so it shouldn’t be a recoverable cost to any other customer or contract.
We are still learning daily about these items, so more guidance could be disseminated later. But for now, we believe these steps above should at least make it easier for you to identify the associated costs until we know who qualifies and how it gets paid.
CARES Act Section 3610
Section 3610 of the CARES Act allows contractors to continue to invoice on the contract for hours/days in which the Government has forced a contractor employee out of there approved worksite, and for whom cannot perform their duties via telework. If this situation arises, contractors are to continue billing the Government as if the contractor employee was still on-site performing work. However, this seems to be dealt with on a case by case basis and up to the agency you are dealing with. Before billing, seek guidance from your CO or COR. As stated below, you may need to be prepared to present this Section 3610 authority statement as education of your possible ability to continue billing.
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) Section 3610 — Billing and Contractual Relief for Government Contractors When Employees Cannot Work due to the COVID-19 Pandemic
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), passed by Congress today, offers relief specifically targeted to federal contractors whose employees (1) cannot perform work on a “site that has been approved by the Federal Government ” during the COVID-19 public health emergency due to facility closures or other restrictions and (2) cannot telework because their job duties cannot be performed remotely. Section 3610 of the CARES Act authorizes agencies to use any available funds to modify affected contracts – without consideration – to reimburse paid leave, including sick leave, that a contractor provides to keep its employees or subcontractors in a ready state. The authorized reimbursements may cover an average of 40 hours per week, “at the minimum applicable contract billing rates.” The maximum reimbursement must be reduced, however, by the amount of any credit the contractor is allowed pursuant to Division G (“Tax Credits for Paid Sick and Paid Family and Medical Leave”) of the recently enacted Families First Coronavirus Response Act, and by any other applicable credits that the contractor is allowed under the CARES Act.
The authorization of this relief is congressional acknowledgement of the critical role that contractors play in supporting the federal government and the need to ensure the availability of that support going forward. However, the CARES Act grants authority rather than mandating relief, which could lead to inconsistent application among various agencies. Affected contractors should watch for any forthcoming agency guidance and be prepared to educate government customers about this Congressional authorization.