HELPING HANDBOOK. For Small Businesses Affected by

Transcription

1 HELPING HANDBOOK For Small Businesses Affected by t h e Wo r l d Tr a d e C e n t e r D i s a s t e r

2 WTC HELPING HANDBOOK This handbook provides an overview of some of the legal issues that small business owners and nonprofit organizations may face if their business was displaced or disrupted as a result of the World Trade Center disaster. The handbook may not answer all of your questions; rather, it is designed to set out some of the legal issues you may need to consider, to help you understand the basics about each issue, and to point you in the right direction for help. This handbook is targeted to businesses located in New York State. It is also available online at When considering the legal issues that your business faces, it may be helpful or even necessary to have the assistance of a lawyer. If you do not have an attorney, free legal advice and referrals are available to those in need who are affected by the events of September 11, You may contact the Legal Referral Service of the New York City and County Bar Associations at (212) ( - click on "New York City"); or the New York State Bar Association help line at (877) or its lawyer referral service at (518) ( You may also visit one of the small business relief centers in Manhattan at the following locations: 110 Maiden Lane (at 80 Pine St.), Monday through Friday, 9am to 6pm, Saturday 9am to 3pm; 633 Third Avenue (at East 41st), 32nd Floor, Monday through Friday, 9am to 6pm; 21 South End Ave., Monday through Friday, 9am to 6pm, Saturday 9am to 3pm; 62 Mott St., Monday through Friday, 9am to 6pm, Saturday 9am to 3pm; and 141 Worth St. (at Centre St.), Monday through Friday, 9am to 6pm, Saturday 9am to 3pm.

3 The information in this handbook was compiled by Morrison & Foerster LLP from materials generated by the Association of the Bar of the City of New York through the efforts of Jerome Davidow, Esq.; Davis Polk & Wardell; Fried & Epstein LLP; Kaye, Scholer LLP; Brian Kishner, Esq.; Latham & Watkins; Lawyers Alliance for New York; Cyrus Mehta, Esq.; Morrison & Foerster LLP; Paul, Weiss, Rifkind, Wharton & Garrison; Stroock & Stroock & Lavan LLP; Weil, Gotshal & Manges LLP; and White & Case LLP. Morrison & Foerster makes available the information and materials in this handbook for informational purposes only. While we hope and believe the handbook will be helpful as a background matter, we cannot warrant that the handbook is accurate or complete. Moreover, the handbook is general in nature, and may not apply to particular factual or legal circumstances. In any event, the handbook does not constitute legal advice and should not be relied on as such. Morrison & Foerster (as well as the other firms and individuals listed above in this paragraph) render legal advice only after compliance with certain procedures for accepting clients and when it is legally permissible to do so. Readers seeking to act upon any of the information contained in this handbook are urged to seek their own legal advice. This handbook was last updated on November 6, 2001.

4 ISSUES COVERED IN THIS HANDBOOK: Page: 1. EMPLOYMENT AND BENEFITS 2 2. LOANS INSURANCE TAX DEATH OF A BUSINESS OWNER CONTRACTS BANKRUPTCY REAL ESTATE IMMIGRATION NONPROFIT ORGANIZATIONS OTHER RESOURCES 48

5 E M P L O Y M E N T A N D B E N E F I T S THE ANSWERS TO EACH OF THE FOLLOWING QUESTIONS ARE BASED ON THE ASSUMPTION THAT THE AFFECTED EMPLOYEES ARE NOT COVERED BY A COLLECTIVE BARGAINING AGREEMENT AND DO NOT HAVE AN EMPLOYMENT CONTRACT WITH THEIR EMPLOYER. IN THE EVENT THAT THE AFFECTED EMPLOYEES ARE COVERED BY A COLLECTIVE BARGAINING AGREEMENT OR AN EMPLOYMENT CON- TRACT, THE EMPLOYER SHOULD CONSULT THE TERMS AND CONDITIONS OF THOSE AGREEMENTS AND CONTRACTS. SIMILARLY, IF THE EMPLOYER HAS CERTAIN ESTABLISHED EMPLOYMENT POLICIES, THE EMPLOYER SHOULD CONSULT AND COMPLY WITH ITS POLICIES. PAYING EMPLOYEE SALARIES AND/OR BENEFITS Q: Some of my hourly employees died in the WTC disaster. How do I calculate what is owed to their estates, including salary on September 11? Such employees should be paid for all hours worked up to and including the hour they died. Does an employer have to pay its employees for the days that its business was closed as a result of the WTC disaster? The answer to this question depends on whether the employee is considered an "exempt" employee or a "non-exempt" employee for purposes of federal and state wage-and-hour laws. Every employee must be treated as either exempt (not entitled to premium pay for overtime hours worked) or non-exempt (entitled to premium pay for overtime hours worked) under federal and state wage-and-hour laws. The determination of whether an employee is "exempt" or "non-exempt" is a complicated, fact-specific determination. Generally speaking, an employee is considered a non-exempt employee if the employee is paid on an hourly basis and not on a salary basis. In contrast, to be considered an exempt employee, an employee must be paid on a salary basis and must have certain job duties and responsibilities that are either executive, administrative or professional (among others) as required under the applicable wage-and-hour laws. An employer is not required to pay its non-exempt employees for any days or hours that the employees did not work because the business was closed following the WTC disaster. On the other hand, an exempt employee should receive his or her full salary for any week in which he or she performs any work without regard to the number of days or hours worked. Thus, if an exempt employee worked on Monday, September 10, 2001, but worked no other days the week of September 10, 2001, the employer should pay the employee his or her full salary for the week of September 10, Does an employer have to pay its employees for the days on which a transportation problem or some other obstacle prevented them from reporting to work? This also depends on whether the employee is considered an exempt or non-exempt employee. For purposes of wage-and-hour laws, the employer is not required to pay a non-exempt employee for any days or hours that the employee was absent from work due to a transportation problem or some other obstacle that prevented him or her from reporting to work. An exempt employee should receive his or her full salary for any week in which he or she performed any work. 2

6 E M P L O Y M E N T A N D B E N E F I T S May an employer require its employees to use their accrued vacation or sick leave to cover their absences from work due to the WTC disaster? If an employee is unable to report to work due to the WTC disaster, the employer may require an employee to use his or her accrued vacation or sick leave to cover his or her absences, provided that this is consistent with the employer s leave policies and provided that the employee s absence from work does not qualify as leave pursuant to the Family Medical Leave Act (FMLA). (See below for discussion of the FMLA.) Does an employer have to provide an employee with either paid or unpaid leave if the employee is unable to work as a result of an injury suffered in the WTC disaster? An employer may be required to provide an employee with unpaid leave (1) under the FMLA if the employee or a member of the employee s immediate family is suffering from a serious health condition or (2) under the Americans with Disabilities Act (ADA) and the New York Executive Law (Executive Law) if the employee is disabled within the meaning of those statutes and if the granting of leave would serve as a reasonable accommodation to the employee. An employee also may be able to recover New York State disability benefits for injuries that are not work-related and that occurred away from the workplace. Leave under the FMLA. The FMLA provides that a covered employee may take up to a total of 12 weeks unpaid leave during any 12-month period for certain qualifying reasons. During the leave period, the employer must maintain the employee s health benefits and must guarantee that the employee will be reinstated to the same or an equivalent position. The FMLA applies to only those employers that employ 50 or more employees for each working day in each of 20 or more calendar workweeks in the current or preceding calendar year. An employee is entitled to FMLA leave if the employee (1) has been with the employer for at least 12 months, (2) logged at least 1,250 hours of services during the 12-month period immediately preceding the start of the leave and (3) is employed at a work site where 50 or more employees are employed by the employer or within 75 miles of that work site. FMLA leave may be taken to care for the employee s spouse, child, or parent with a serious health condition or because of a serious health condition that makes the employee unable to perform the functions of the employee s position. The employer bears the responsibility of designating leave as FMLA leave and there are specific notice requirements the employer must follow. For more detailed compliance information, see Leave under the ADA and the Executive Law. Under certain circumstances, an employer may be required to provide an employee with leave under the ADA or the Executive Law. The ADA and the Executive Law require employers, in certain circumstances, to provide reasonable accommodations to employees who are suffering from a disability. Such a reasonable accommodation may include providing an employee with an unpaid or paid leave of absence. The ADA applies to only those employers that employ 15 or more employees for each working day in each of 20 or more calendar workweeks in the current or preced- 3

7 E M P L O Y M E N T A N D B E N E F I T S ing calendar year. An employee is "disabled" within the meaning of the ADA if the employee suffers from a physical or mental impairment that substantially limits a "major life activity" of an individual, including such activities as walking, seeing, hearing, speaking, breathing, learning, working, sitting, standing, lifting or reaching. Generally, temporary impairments are not protected disabilities under the ADA. The Executive Law applies only to those employers that have at least four employees. Under the Executive Law, the definition of a disability includes a physical, mental or medical impairment resulting from anatomical, physiological, genetic or neurological conditions that prevents the exercise of a normal bodily function or is demonstrated by medically accepted clinical or laboratory diagnostic techniques. The determination of whether an employee is disabled within the meaning of the ADA or the Executive Law is a complex determination that must be evaluated on a case-by-case basis. Please contact a lawyer. Is an employee entitled to either paid or unpaid leave so that he or she can care for children or family members injured in the WTC disaster? If the employee is entitled to FMLA leave as described above, the employer must allow the employee to take FMLA leave. This leave does not have to be paid leave. Also, if the employer has a specific policy providing for leave under such circumstances, the employer may be required to comply with its policy. If the employer provides paid leave, the employee may be able to use his or her accrued vacation or sick leave for the absence. Is an employee entitled to either paid or unpaid leave if the employee claims to be too afraid or emotionally traumatized to return to work? If the employee is suffering from posttraumatic stress or some other mental condition, the employer may be required to provide the employee with unpaid leave under the FMLA or as an accommodation under the ADA. However, the employee will have to meet the applicable requirements of the FMLA and ADA, as set forth above. If the employer provides paid leave, the employee may be able to use his or her accrued vacation or sick leave for the absence. Where can I get more information about complying with the FMLA and the ADA? The United States Department of Labor s website at contains detailed information about the FMLA, including a Fact Sheet, a Compliance Guide, the text of the statute and accompanying regulations, and relevant forms. The Department of Justice has online information about the ADA at RETIREMENT BENEFITS What are a plan sponsor s options and/or obligations to plan participants or beneficiaries who make requests for plan distributions as a result of the WTC disaster? Distributions under a tax-qualified retirement plan can generally be made only upon the occurrence of certain events, including an employee-participant s death, disability, termination of service or attainment of the age of 59+ years. Limited exceptions to the general rule in connection with a 401(k) plan are available for distributions on 4

8 E M P L O Y M E N T A N D B E N E F I T S account of certain "hardships" and/or plan loans. An additional exception is permissible in a non-401(k) plan for certain "in-service" distributions. However, any hardship or in-service distributions prior to age 59+ will be subject to a 10% "early" withdrawal penalty in addition to applicable income tax. "Hardship" distributions are generally limited to the need for funds to pay medical care expenses, purchase a primary residence, prevent eviction from a principal residence or pay dependents education expenses. If a plan participant experiences financial strain caused by the WTC disaster and does not otherwise fall into one of the foregoing "hardship" categories, such participant would be limited to taking a plan loan, to the extent such loans are permitted by the terms of the plan. Will a plan participant who either died or whose job was displaced as a result of the WTC disaster be entitled to an employer contribution or benefit accrual with respect to the 2001 plan year? The answer to this question depends on the terms of the plan. Many plans require a participant to complete a specific number of hours during the plan year (usually 1,000) in order to be entitled to receive employer contributions or benefit accruals for such year. Others require a participant to be employed on the last day of the plan. Some plans require both. To the extent an employer s plan requires a participant to be employed on the last day of the year, any participant who died in the disaster may not be entitled to a contribution or benefit accrual for What other administrative steps should a plan sponsor generally take with respect to benefit plans? Plan sponsors should ensure that plan administrators are in contact with the plans investment managers to confirm that investment programs are in order and to evaluate the plans liquidity needs. All benefit staff should be fully informed of all benefit plan procedures and who is responsible for which tasks so that claims are handled properly and quickly. With respect to any plans with participant-directed investments, plan sponsors should consider providing additional information on investment concepts to help participants deal with market volatility. What happens if I missed the deadline for filing Annual Return/Report of Employee Benefit Plan on Form 5500 (and 5500EZ) that would have been otherwise due between September 11 and November 30, 2001? The Labor Department, IRS and the Pension Benefit Guaranty Corporation (PBGC) have granted affected employers with filings originally due between September 11 and November 30, 2001, an additional six months plus 120 days to file. Those filers currently on an extension set to expire during this period will be allowed an additional 120 days to file. PROVIDING HEALTH AND WELFARE BENEFITS Are there sources beyond or in lieu of employers own insurance policies to alleviate some of the financial burden caused by the WTC disaster? Many of the individuals injured in the WTC disaster may be able to receive benefits from a number of sources, including government assistance, charitable donations, workers compensation and the buildings and the airlines insurance. Thus, employers should, without delaying treatment for any employees or their dependents, pay special attention to the rules of their policies regarding subrogation and the order of benefit determinations. 5

9 E M P L O Y M E N T A N D B E N E F I T S What can employers do to help their employees recover psychologically from the trauma of the WTC disaster? Plans may experience an increase in mental health claims, as well as more requests for assistance under employee assistance programs (EAPs). Furthermore, mental health professionals have warned that many of those who were directly affected by the WTC disaster are at high risk of developing serious mental health problems over the next nine months unless they receive crisis counseling as soon as possible. Employers should advise their employees of both the availability and the importance of such counseling, both for themselves and their families. If an employer does not have an EAP, counseling and other related services are available on a fee-paying basis. What should be done about Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage? Employers are required to offer COBRA coverage to qualified beneficiaries (employees and/or their dependents) who lose health coverage due to a "qualifying event" (such as the death of the covered employee, termination of his or her employment or reduction of his or her hours sufficient to cause the loss of medical coverage). Once an affected employee loses coverage as a result of one of these events, the employer must take action to notify the plan administrator within the prescribed time period. Qualified beneficiaries must be informed of their right to continued health insurance coverage under COBRA within 44 days (the employer must notify plan administrator within 30 days, which must then notify eligible dependents within 14 days) of a qualifying event. All required notices regarding COBRA should be carefully documented and timely. Generally, the qualified beneficiary has 60 days from the later of (a) the date of termination of coverage or (b) his or her receipt of a COBRA notice to elect to continue coverage. COBRA coverage can usually continue for up to 36 months for family members of a deceased worker. Employers, while not required to do so, have the option of extending certain non-mandated COBRA benefits in the wake of the WTC disaster (that is, employer paid premiums instead of requiring spouses of deceased employees to pay such premiums, extended lengths of coverage, etc.). PAYING EMPLOYMENT RELATED TAXES, GENERALLY I have to cease operations and go out of business. What do I have to do to close out my employment tax accounts? Federal: File Form 941 by the last day of the month following the quarter in which you ceased doing business. Also, file Forms W-2 with the Social Security Administration by the same date, and give employees their copies at the same time. New York: In order to close out your New York State withholding tax account, file a final Form NYS-45, Quarterly Combined Withholding, Wage Reporting and Unemployment Insurance Return. The time to file Form NYS-45 that would otherwise be due from September 11, 2001 through December 10, 2001 has been extended to December 10, 2001 for afflicted taxpayers who, as a result of the September 11 attacks, cannot meet tax filing and payment deadlines. Form NYS-45 may also be used to close out your New York State unemployment insurance account. 6

10 E M P L O Y M E N T A N D B E N E F I T S I missed last week s payroll tax deposit. What can I do to avoid a penalty? The IRS has not extended the deadline for payroll tax deposits as a result of the WTC disaster. However, the IRS will waive additions to tax for businesses unable to make payroll tax deposits otherwise due between September 11, 2001 and October 31, 2001 because of the WTC disaster if such payments are made by November 15, This relief is available only to businesses that are unable to meet their deposit obligations because their (or their service providers') records, computers or other essential services were damaged or essential personnel were injured by the WTC disaster. Who can I issue a new paycheck to if an employee died before cashing his paycheck and the deceased employee s will has not yet been probated or no administrator for the deceased employee s estate has yet been appointed? Are there any amount restrictions? In New York, you can pay up to $30,000 of wages owed, including bonus, pension, retirement or death benefit, or profit sharing payment, during the first 30 days after the employee dies. The wages can be paid to the employee's spouse, unless another beneficiary has been designated, once an affidavit is produced showing that the payments total no more than $30,000. From 31 days to six months, $15,000 of wages owed can be paid to the spouse, adult children, parent, sibling, or niece or nephew (in that order) once an affidavit is produced showing date of death, relationship to employee, no appointment of executor or administrator, names and addresses of payees and that the payments total no more than $15,000. After six months, $5,000 in wages can be paid with production of a similar affidavit. What can I do about the taxes on wages owed to an employee who died as a result of the WTC disaster? If an employee dies after receiving a paycheck but before cashing it, the employer should reissue the check to the employee s personal representative for the same net amount, since income and employment taxes were already properly withheld. The wages and amounts withheld must be reported on the deceased employee s Form W-2. Before reissuing the deceased employee s paycheck, the employer must check state law for any requirements regarding who can receive the check, how much can be paid, etc. Wages paid to a deceased employee s estate or legal representative after the employee dies but in the year of death are not subject to federal income tax withholding; however, they are subject to social security, Medicare, and FUTA taxes. Therefore, the employer must report the social security and Medicare wages and the amounts withheld on the deceased employee s Form W-2 in Boxes 3-6. The amount of taxable income should not be reported in Box 1 of the W-2, but it should be reported in Box 3 of a Form 1099-MISC issued in the name of the beneficiary of the payment. Wages paid to a deceased employee s estate or legal representative after the year of the employee s death are not subject to federal income tax withholding or social security, Medicare or FUTA taxes, and the deceased employee would not be issued a Form W-2 for that year. The amount of taxable income should be reported only in Box 3 of Form 1099-MISC. 7

11 E M P L O Y M E N T A N D B E N E F I T S STATE EMPLOYMENT TAXES Has there been any disaster relief granted with respect to employment taxes in the State of New York? The New York Department of Taxation and Finance announced that a 90-day extension of tax payment and filing deadlines to December 10, 2001 will be granted due to the WTC disaster. The extension covers taxpayers both within and outside New York State who, as a result of the attacks on the World Trade Center, the Pentagon and the airplane crash in western Pennsylvania, cannot meet tax filing and payment deadlines. "Afflicted" taxpayers eligible for relief include those whose tax practitioners were unable to complete work to meet tax filing payment dates and other deadlines on behalf of their clients. Afflicted taxpayers may file New York State tax returns on or before December 10, 2001 with no late filing, late payment or underpayment penalties or interest imposed. Any deadlines for performance of the above required acts from September 11, 2001 through December 10, 2001 have been extended to December 10, Interest at the appropriate underpayment rate must be paid on tax payments received after the extended due date of December 10, The Tax Department is providing an extension of time to afflicted taxpayers who cannot meet tax filing and payment deadlines due to the WTC disaster, as follows: Withholding taxes. Afflicted employers required to file and make payment(s) from September 11, 2001 through December 10, 2001 for tax withheld from their employees may file and make payment(s) of such personal income tax withheld with Form NYS-1, Return of Tax Withheld, on or before December 10, 2001, without incurring late filing and late payment penalties or interest. Quarterly combined withholding, wage reporting and unemployment insurance returns. Form NYS-45 (including any payment of withholding tax or unemployment insurance), Quarterly Combined Withholding, Wage Reporting and Unemployment Insurance Return, for the third quarter 2001 (due October 31, 2001) may be filed on or before December 10, 2001 without the imposition of late filing and late payment penalties or interest. There are also new procedures for issues such as new hire reporting and electronic filing. The disaster relief applies to these procedures if the filer cannot meet deadlines due to the attacks; check with a tax consultant or the NYS Department of Taxation and Finance at (800) Businesses affected by the WTC disaster should mark "WTC" on the top center of the front page of any late filed return, extension, declaration of estimated tax, estimated tax voucher, or other document, and should include a brief explanation of the circumstances that affected their ability to meet tax deadlines. Has there been any disaster relief granted by states surrounding New York with respect to employment taxes? The tax departments of New Jersey, Connecticut and Pennsylvania have all granted relief with respect to deadlines and other tax issues. Affected employers should con- 8

12 E M P L O Y M E N T A N D B E N E F I T S tact their tax consultants or the relevant state tax agencies as follows: Write to State of New Jersey, Division of Taxation, ATTN: Emergency Management Project, P.O. Box 269, Trenton, NJ or call (609) Call Connecticut Department of Revenue Services at (860) or toll-free within Connecticut at (800) Call Pennsylvania Department of Revenue at (717) or visit them online at DISPLACEMENT OF EMPLOYEES/WORKPLACE DESTRUCTION Most of my records were destroyed. What basic payroll records do I need to try to recreate for New York? Every employer must establish, maintain and preserve weekly payroll records for not less than six years, including the following information for each employee: name and address; Social Security number; number of hours worked daily and weekly, including the time of arrival and departure for employees working a split shift or spread of hours exceeding 10; the amount of gross wages, job classification and wage rate; deductions from gross wages; any allowances claimed as part of the minimum wage rate; money paid in cash; student classification and school statement; and for individuals working in an executive, administrative or professional capacity, total wages and the value of any allowances for each payroll period. When must I pay my workers if my payroll records were destroyed? Generally, employees must be paid within seven or 14 days of when the work is performed, depending on their position. If records are not available, the employer should make a reasonable effort to determine the hours worked and make payment accordingly as promptly as possible. Because our offices were destroyed, some of my employees will be working at home. What do I need to know and how do I get the information I need? There are a number of things to consider when employees work from home. For employees who are considered non-exempt under the wage-and-hour laws, employers must still keep track and maintain records of the employees hours of work for payroll purposes and determining whether any overtime pay is due. Non-exempt employees are also entitled to their 1/2 hour for lunch. Do I have to reimburse my employees for the destruction or loss of any of their personal items, such as personal computers or cars that they may have used for business purposes? You should consult with your insurance providers to determine whether loss of an employee s personal property is covered by any applicable insurance policy. 9

13 E M P L O Y M E N T A N D B E N E F I T S FAILING BUSINESSES, CLOSING LOCATIONS OR LAYOFF OF EMPLOYEES Does an employer have to provide its employees with any prior notice of termination if the employer determines that it is necessary to lay off employees? No, if (1) the employer does not have an established policy requiring that prior notice be given or (2) the employer has fewer than 100 employees. Those employers with more than 100 employees may have an obligation to provide certain notice to its employees pursuant to the Worker Adjustment and Retraining Notification Act (WARN). However, those employers with established policies requiring that prior notice be given may be required to comply with their policies. Does an employer have to provide its employees with severance pay if the employer determines to lay off employees? No, so long as the employer does not have a policy or practice providing for the payment of severance benefits. Neither New York State nor federal law requires employers to provide severance pay to departing employees. Is a self-employed, small business owner eligible to receive unemployment insurance benefits? No. In New York, self-employed, small business owners (sole proprietorships and members of a partnership or limited liability company) as well as independent contractors are not eligible for unemployment insurance benefits. However, persons denied unemployment insurance benefits may be eligible for disaster unemployment assistance. For more information contact the NYS Department of Labor at (800) Am I personally liable for my employees wages if my failing corporation is unable to make payroll? Maybe. Under New York law, the ten largest shareholders of a New York corporation (other than a corporation with publicly traded shares or a registered investment company) are personally liable for all debts, wages and salaries, including benefits, due and owing to any of its employees (other than contractors). An employee who wishes to charge a shareholder for past debts, wages and salaries must first file a lawsuit against the corporation for the amounts owing and give written notice to the shareholder within 180 days of termination of that employee s services that he or she intends to hold the shareholder liable for the amounts owing. LIABILITY FOR INJURY OR DEATH OF EMPLOYEES Does an employee who was injured or killed in the WTC disaster while at work, or such an employee s family, have the right to receive workers compensation benefits? Generally, no. An employee who is injured or killed on the job is entitled to recover workers compensation benefits if: the employee was injured while performing a service growing out of and incidental to his or her employment; the employee is injured while acting within the course of his or her employment; and the injury is proximately caused by the employment. 10

14 E M P L O Y M E N T A N D B E N E F I T S For more information on New York State Workers Compensation Law, go to MILITARY RESERVIST ISSUES Are there any issues involving reservists called up to active duty? Under the Uniformed Services Employment and Reemployment Rights Act, the reservists and their families are entitled to health benefit coverage for an extended period of time after leaving their civilian jobs, as well as reinstatement of their benefits when they return to their civilian positions. Furthermore, returning service personnel must be offered positions that are similar in seniority, status and pay to those they were in before leaving for active service. As with retirement benefits, it is a good idea for employers to keep a record of employees who leave for active service to make it easier to provide the proper benefit levels upon their return. My employee is a reservist who is being called to active duty. Are there any issues involving his or her retirement benefits? Employees called up to active duty who later return to civilian life are entitled to benefit credit for their period of military service. If the employees were covered by defined contribution plans, they are entitled to make-up allocations and the opportunity to make up any elective deferrals to their 401(k) plans that they missed. Employers should keep careful records of their employees who leave for active service to make it easier to provide the proper contributions upon their return. Is an employer required to reinstate an employee who has been absent due to voluntary or involuntary duty in the Armed Services or the National Guard? With few exceptions, an employee will generally be entitled to reemployment after his or her military service if: the employee provides advance written or oral notice of the service; the employee s cumulative period of absence for military service does not exceed five years; and the employee makes a timely application for reemployment. Can I get a loan to cover my expenses while my employee is in active duty? If your small business loses a key employee due to a reservist call-up, it may be eligible for a Military Reservist Economic Injury Disaster Loan, to help it cover fixed debts, payroll, accounts payable and other bills. Loans are available under the same terms as an Economic Industry Disaster Loan (EIDL). See the Loans section of this handbook for more information about an EIDL. You can apply for a Military Reservist EIDL from the date your employee is notified until 90 days following the employee's discharge. For more information about Military Reservist EIDLs see 11

15 Q: L O A N S What assistance does the U.S. Small Business Administration offer? The U.S. Small Business Administration (SBA) assists businesses of all sizes, nonprofit organizations, homeowners and renters by providing low-interest, long-term disaster loans to repair or replace uninsured or underinsured disaster-damaged property. In addition, small businesses may be eligible for Economic Injury Disaster Loans (EIDLs). The SBA does not duplicate benefits of other agencies or insurance companies. All of the SBA's programs and services are provided to the public on a nondiscriminatory basis, and loans are made without regard to the applicant s age. SBA Economic Injury Disaster Loan (EIDL): These loans provide working capital to small businesses to assist them through the disaster recovery period. They cover operating expenses (as opposed to physical damage) that the small business could have paid, if the disaster had not occurred. EIDLs are generally capped at $1.5 million. EIDLs are available only for small businesses located in declared disaster areas. The deadline for applying for an EIDL is June 11, SBA Expanded Economic Injury Disaster Loan (Expanded EIDL): On October 22, 2001, the SBA announced that any small business across the country may file for an Expanded EIDL, as long as it can show how the destruction of the World Trade Center, the damage to the Pentagon, or a related federal action has resulted in its substantial economic injury. The deadline for applying for the Expanded EIDL is January 21, Otherwise, the Expanded EIDL is similar to the regular EIDL. SBA Business Physical Disaster Loan (BPDL): These are loans to businesses of all sizes and to nonprofit organizations to repair or replace disaster damages to or loss of property, including real estate, machinery and equipment, inventory and supplies. BPDLs are capped at $1.5 million. Further, while you may receive both a BPDL and an EIDL, the combined assistance is capped at $1.5 million. The deadline for applying for a BPDL is currently January 9, How do I apply for an SBA loan? Businesses are urged to register with the Federal Emergency Management Agency (FEMA) by phone (800) or (800) (TTY) or apply in person at any disaster recovery center in New York City located at: 110 Maiden Lane (at 80 Pine St.), Monday through Friday, 9am to 6pm, Saturday 9am to pm; 633 Third Avenue (at East 41st), 32nd Floor, Monday through Friday, 9am to 6pm; 21 South End Ave., Monday through Friday, 9am to 6pm, Saturday 9am to 3pm; 62 Mott St., Monday through Friday, 9am to 6pm, Saturday 9am to 3pm; and 141 Worth St. (at Centre St.), Monday through Friday, 9am to 6 pm, Saturday 9am to 3pm. Other SBA Disaster Area Offices are listed online at For the office nearest you, look under "U.S. Government" in your telephone directory, or call (800) U-ASK-SBA ( ), Monday through Friday, 9 am to 5 pm, or (704) (TTY). You may also send a fax to (202) or send an to answerdesk@sba.gov. 12

16 L O A N S SBA ECONOMIC INJURY DISASTER LOANS Is my business eligible for an EIDL? EIDLs are available only to a "small business" that has suffered "substantial economic injury," regardless of physical damage, and is located in a "declared disaster area," if neither the business nor its principals have credit available elsewhere. Nonprofits, religious organizations and individuals are not eligible for an EIDL. A "small business" is one that is independently owned and operated and that is not dominant in its field of operation. The numerical definition of a small business varies from industry to industry, but is almost always stated in terms of either number of employees or average annual receipts. For industry size guidelines, see "Substantial economic injury" is the inability of a business to meet its obligations as they come due and to pay its ordinary and necessary operating expenses. Lack of profit or loss of anticipated sales alone are insufficient to establish substantial economic injury. Small businesses located outside of a "declared disaster area" may be eligible for an Expanded EIDL. If I can borrow from a bank, am I still eligible for an EIDL? No. Private credit sources must be used as much as possible to overcome the economic injury. The SBA can provide EIDL assistance only to the extent the business (and its principals) cannot recover by using its own resources and normal lending channels. Must I sell assets that are not used in my regular business operations before I am eligible for an EIDL? The SBA will review the availability of such assets to determine if part or all of the economic injury might be remedied by using such assets. The business and its principal owners must use their own resources to overcome the economic injury to the greatest extent possible without causing undue hardship. Are there any limitations on the use of an EIDL? You may use an EIDL to make payments on short-term notes, accounts payable and installment payments on long-term notes, to the extent that you could have made these payments had the disaster not occurred. You may not use EIDL funds to pay cash dividends or bonuses, or for disbursements to owners, partners, officers or shareholders not directly related to the performance of services for the business. The SBA will not refinance long-term debts or provide working capital that was needed by the business prior to the disaster. Must I pledge collateral or sign any personal guarantee to obtain an EIDL? Loans of $5,000 or less do not require collateral. Loans in excess of $5,000 require you to pledge collateral to the extent that it is available. Normally, the collateral would consist of a first or second mortgage on the damaged business property. In addition, personal guarantees by the principals of a business are required. The SBA will not decline a loan for lack of collateral, but you must pledge available collateral. 13

17 L O A N S Must I submit a personal financial statement with my loan application? Yes. The SBA must review your financial statement and one for each partner, officer, director and stockholder with 20% or more ownership in your business. What documents should I use to show my losses when applying for an EIDL? In order for the SBA to compare your financial condition and operating results preceding the disaster with those during and since the disaster period, you must furnish balance sheets and operating statements for both pre-disaster and post-disaster periods of time. The specific requirements are contained in the EIDL application form. If your business is located outside of the declared disaster area and you are applying for an Expanded EIDL, you should also include a written explanation of how the destruction of the World Trade Center, the damage to the Pentagon, or a related federal action has resulted in your business experiencing substantial economic injury. For more information about Expanded EIDLs see the recent SBA Expanded EIDL declaration online at What are the interest rates and maturity terms of an EIDL? The maximum annual interest rate for EIDLs is 4% with terms of up to 30 years. The actual rate and maturity of an EIDL is determined by the SBA, based on your business needs and your ability to repay the loan. For more information see SBA Publication DA-3 online at BUSINESS PHYSICAL DISASTER LOANS What is the deadline for applying for a BPDL? The filing deadline for applications for a BPDL is currently January 9, Are there any limitations on the use of a BPDL? Yes. The physical disaster loans are intended to help you return your property to its pre-disaster condition and, under certain circumstances, for mitigating devices. Normally, SBA funds cannot be used to expand or upgrade a business. If, however, city or county building codes require such upgrading, then you can use the SBA loan for that purpose. A BPDL will be made for specific and designated purposes. The SBA requires that you obtain receipts and maintain good records of all loan expenditures as you restore your damaged property, and that you keep these receipts and records for three years. The penalty for misusing disaster funds is immediate repayment of one-and-a-half times the original amount of the loan. I already have a mortgage on my business and I can't afford a disaster loan plus my current mortgage payment. Can the SBA refinance my mortgage? In certain cases, yes. The SBA can refinance all or part of prior mortgages, evidenced by a recorded lien, if you: do not have credit available elsewhere; have suffered substantial uncompensated disaster damage (40% or more of the value of the property); and intend to repair the damage. Must I pledge collateral or sign any personal guarantee for a BPDL? BPDLs of $10,000 or less do not require collateral. BPDLs in excess of $10,000 require that you pledge collateral to the extent it is available. Normally the collateral 14

18 L O A N S would consist of a first or second mortgage on the damaged business property. In addition, personal guarantees by the principals of a business are required for all BPDLs. The SBA will not decline a loan for lack of collateral, but you must pledge available collateral. What information should I include with my BPDL application? The BPDL application form asks for the same information about your business and its principal owners and managers as is generally required for a bank loan. Necessary information is specified in the loan application and includes: an itemized list of losses with your estimate of the repair or replacement cost of each item; a copy of certain federal income tax information; a brief history of the business; and personal and business financial statements. Must I submit a personal financial statement with my BPDL application? Yes. The SBA must review your financial statement and one for each partner, officer, director and stockholder with 20 percent or more ownership. The SBA requires the principals of the business to personally guarantee repayment of the loan and, in some instances, to secure the loan by pledging additional collateral. I had to remove debris from my property after the disaster. Can this expense be included in my BPDL application? Yes, but your own labor and that of your family members cannot be included. Amounts paid to others and any equipment rental can be listed as part of repairs to real estate. Should I hold up my BPDL application until I get a contractor's estimate for the cost of repairing damage to my business? No. You might miss the January 9, 2002 deadline for filing your application by waiting for a contractor's estimate. If you have a contractor's estimate, include it; otherwise, include your own. The SBA will verify the damage estimate in your application. The sooner you file a complete application, the faster the SBA can process it. Should I wait for my insurance settlement before I file my BPDL application? No. Don't miss the filing deadline by waiting for an insurance settlement. The application should be returned to the SBA right away. Final insurance information can be added when a settlement is made. The SBA can approve a loan for the total replacement cost; however, you must assign the insurance proceeds to the SBA settlement. If my business is completely destroyed, can the SBA lend me money for relocation? Yes. In certain circumstances, limited relocation costs can be included in the loan amount. Whenever relocation is involved, you should contact the SBA disaster office before making any commitments. For more information BPDLs see SBA Publication DA-2 online at 15

19 L O A N S GENERAL SBA INFORMATION When will I know if I get the loan? The SBA's goal is to decide on each application within 21 days from the date it has a complete application (missing information is the biggest cause of delay). The SBA processes applications in the order received, so be sure to submit a complete application as soon as you can. To make a loan, the SBA must estimate the cost of repairing the damage, be satisfied that the business can repay the loan from its operations and take reasonable safeguards to help ensure that the loan is repaid. Is there a minimum monthly payment, and when would the first payment be due? The SBA does not have a minimum monthly payment. Payments vary depending upon income and expenses, size of family and other circumstances that may affect your repayment ability. Generally, the first payment is not due until five months after the date of the loan. What other SBA loans are available? Disaster Assistance Loans for Homes and Personal Property: These are loans for homeowners or renters to repair damages to real estate or personal property owned by the victim. Homeowners may apply for a loan of up to $200,000 to restore their primary home to its pre-disaster condition. Renters are eligible for a loan of up to $40,000 for personal property losses only. The deadline for applying for these loans is currently January 9, See SBA Publication DA-1 online at Military Reservist Economic Injury Disaster Loans: If your small business loses a key employee due to a reservist call-up, it may eligible for a Military Reservist Economic Injury Disaster Loan, to help it cover fixed debts, payroll, accounts payable, and other bills. Loans are available under the same terms as an EIDL. You can apply for a Military Reservist Economic Injury Disaster Loan from the date your employee is notified until 90 days following the employee's discharge. See SBA Publication DA-5 online at Where can I get more information about SBA loans? For more information call the SBA at (800) , visit the SBA website at or see the New York Disaster Area Fact Sheets in English ( or Spanish ( (Spanish).txt). NON-SBA LOANS What non-governmental loans are available until I get an SBA loan? The WTC Disaster Recovery Loan Program will fund loans to small businesses and nonprofit corporations that have suffered economic injury or physical damage as a result of the WTC disaster. These loans will be available while your application for SBA Disaster Loan is pending. Under this program, participating banks will seek to fund WTC Disaster Recovery Loans within a few days of application. The WTC Disaster Recovery Loan Program is made possible by a guaranteed fund of $50 million, funded equally by the City of New York and New York State. 16

20 L O A N S How much money may I borrow and are there any limitations on the use of a WTC Disaster Recovery Loan? WTC Disaster Recovery Loans may be used for business-related purposes including working capital, real estate, machinery and equipment and physical rehabilitation. Businesses may qualify for up to $100,000. Banks are permitted to determine actual loan amounts using their own application forms and more relaxed lending criteria. Should a borrower not qualify for SBA assistance, banks may restructure these loans as term loans. Who is eligible for WTC Disaster Recovery Loans? New York City-based commercial, industrial, retail enterprises and nonprofit corporations that have been affected by the WTC disaster and are applying for disaster loans from the SBA. Where can I apply for a WTC Disaster Recovery Loan? Contact one of the participating banks below (for updates and additional banks see Banco Popular (212) ; Bank of New York (800) ; Chase Bank (888) ; Citibank, N.A. (800) 328-CITI (2484); Community Capital Bank (718) ; Fleet (212) ; or HSBC Bank USA (800) 975-HSBC (4722) You may also contact the Regional Economic Development Assistance Corporation (REDAC) Disaster Relief Business Loans, micro-lending for business and nonprofits at (718) ext.18 or ext.19. For more information, see What other non-sba loans are available? The Brooklyn Economic Development Corporation has established two short-term loan programs to assist small businesses impacted by the disaster. For more information see call (718) or to info@bedc.org. The Renaissance Economic Development Corporation has established a working capital loan program to assist small businesses impacted by the disaster. They establish a walk-in center at 1 Pike Street New York, NY No appointments are necessary for the Emergency Loan Fund. For more information see call (212) or to Info@renaissance-ny.org. ACCION New York has established the "New York s American Dream Fund" to provide loans of up to $15,000 at 5% interest to businesses who (i) do not meet SBA requirements; (ii) are located south of 14th Street; or (iii) can demonstrate that at least 50% of the business clients (or contracts) were located in the disaster area. For more information see call (917) /86, or (917) , or info@accion-ny.org. Loan officers are located at 110 Maiden Lane (at 80 Pine St.). 17