The below Q&A has been edited for clarity and length.
Q: If your club is closed, and only a few employees are working to care for the building, is the paid sick leave paid to furloughed employees? There is no sick leave requirements in Arkansas.
ADAM: If I'm understanding you correctly, I think the question has to do with those who are off work and whether or not we have to pay them under the FFCRA [Families First Coronavirus Response Act]. We're not paying them for work performed, because they're not able to work remotely, but beginning on April 1, the FFCRA is effective. One of the qualifying reasons to receive those 10 days of federal paid sick leave is the employee can't work from home and is subject to a federal state or local quarantine or isolation order related to COVID-19.
So, as of April 1, a lot of Americans who [are] stuck at home not able to work are going to be able to get the federal sick leave. And so yes, we would have to pay that starting April 1. I know there's other questions on the Q&A about, “What if we can't afford to do that?” I have a lot of clients in that situation and, unfortunately, have had to permanently layoff massive amounts of their workforce to avoid being subject to the law.
Q: What are your biggest insights on how you feel this will change club operations and ancillary services?
AARON: I think it's going to be a rebuilding phase. One of our biggest non-dues revenue categories is one-on-one personal training. It's about 30% of our total revenue. So we're actually seeing to probably lose about half of that.
So, how will we lose that? I think one is—as an engagement standpoint—people are going to be out of the habit of coming to the gym and out of the habit of meeting with their personal trainer. Some people figure out that they really like virtual fitness and the flexibility that it adds to their schedule, and they're probably going to stick with that a little bit longer.
The reality of the situation is almost all of us are going to be negatively financially impacted by the situation. Those non-dues revenue categories are really going to be at risk. Even if somebody wants to train, wants to go to the spa, and wants to go to a restaurant, they might be on a tight budget and pinching pennies and [they won’t] be able to do that. We're planning to see at least a 50% drop in some of those non-dues categories.
Depending on how you structure, how you pay personal trainers and things like that, you could be looking at staff reductions. We're trying to turn back the clock a little bit because, for us everything is based on the numbers that we have. So if [we] look at [the numbers] and say, “We're going to lose 2,000 members during this process,” I've got to turn that clock back on my financials and say, “OK, when I had 12,000 members, how was I operating? How were non-dues revenue categories [performing]?” I've got to go back two or three years ago, whatever it may be, and operate in that fashion in everything I do: revenue expectations, payroll spend, marketing spend, things like that. Then our plan is to work out of that [as if] I have been recessed back to 2016 … my first goal is to get back up to my 2017 numbers, and then my 2018 numbers, and so on and so forth.
We’re very much a revenue growth company, as I think [most] multi-club operators are out there. If you're sort of a single location, larger facility where you look at the past 10 years and your revenue is fairly flat, other than adjusted cost to inflation and things like that, you're probably going to come out of this thing a little bit better than those of us in growth models.
Q: Is there any relief for 1099 or contracted staff?
ADAM: ... The answer is no. At least for purposes of the FFCRA, you have to be an employee. So, if you're classified as an independent contractor, you're not going to be entitled to the benefits of this law.
Now, I will say independent contractor laws around the country is a really hot topic right now. So this raises another legal question and a conversation for another day … are we properly classifying our independent contractors as 1099s or should they be employees?
You can already see plaintiffs attorneys trying to make arguments that this person should have been subject to the FFCRA and wasn't because you, the employer, misclassified them. It's a great question, but if assuming we classify them correctly as a 1099, unfortunately for those folks, they don't reap the benefits of the new federal sick leave law.
Q: If you're paying your staff, are you asking them to come in and work? And if so, how are you distancing yourself and what are they doing to keep themselves busy?
AARON: There are really two parts to that answer. For the bulk of our employees, they're working from home. So I've seen social distancing, to every extent possible, and very much transitioning from a brick-and-mortar business to a virtual company or even a media company. For 90% of our employees, they're not coming to physical facilities. They're all online, remote and working from home.
Now the matter is, we still have to maintain our facilities. We are leveraging some facilities staff, and some housekeeping staff [to deep clean]. We even have a brand new club that's under construction right now. Our general contractor in that regard is maintaining the CDC guidelines—at least six feet of separation.
To give you a visualization of what that looks like, we're laying tile right now. And we typically lay tile in two-man teams where one person's cutting, and the other person is doing the actual installing. We obviously can't do that anymore. We have the same two tile professionals on-site. They're each in completely different areas, doing start-to-finish tile installations. It's not as efficient, but we work with what we have. With our housekeepers that are coming to the clubs, we're having them on separate floors, [and] somebody might be deep cleaning the free weights while somebody else is in the cardio area.
Most of our building systems we can maintain remotely. We do have to go in at least weekly, just to make sure everything is what it needs to be. A lot of times, that's one or two people at a time that can be doing that. I would encourage you to stay out of your clubs as much as possible, and only have people going in there that are performing very specific facility maintenance tasks.
Q: Does the employee have to submit a written request to be paid sick leave, and, if their employees are not working, can they still request sick pay on top of being paid?
ADAM: OK, great question. If I'm understanding this correctly, the club is closed and there are employees who are furloughed, so we haven't laid them off permanently right now ...
Are we required to pay them California paid sick leave while they are furloughed? The answer to that is no. You're not required to pay them sick leave while they're furloughed.
Again, on April 1 … there's different banks or categories of sick leave … on April 1, those employees will be entitled to sick leave, but it's going to be the federal sick leave pay that we just talked about relating to the FFCRA. I hope that answers the question.
Under the FFCRA, the same rule applies as with the FMLA for purposes of getting that job-protected leave. “As soon as reasonably practicable” is the standard for employees. So as soon as reasonably practicable, they are to give us notice that they need this time off.
For the FMLA portion of the statute … for the emergency paid sick leave portion … after the first workday, or portion thereof, an employee receives paid sick leave, the employer may require the employee to follow reasonable notice procedures in order to continue receiving such paid sick leave. I’m reading that out of the statute itself.
Disclaimer: While the information in this webinar is believed to be current, employment laws and regulations are constantly changing. It is intended for the general education of industry personnel, not as legal advice. Individuals needing legal advice should consult an attorney who is competent in this area of law.