COVID-19 has affected most everyone on a global level. Many businesses have had to close – at least temporarily, and this includes childcare centers. While you need as much income as possible during this crisis, it may be difficult to know what to do about the tuition you normally collect. Do you continue to charge knowing you risk alienating good customers or do you lose money you really need right now? Or is there some kind of middle road you can take? In this article, we hope to answer some of your questions and give you more insight on the laws governing this situation. Here is more on how to handle tuition during closures.
Types of Closures
Your childcare center may have closed immediately after a state mandate. Sometimes, it may be because of a positive test of a student or employee. Depending on your area, some health departments deem it necessary to close for at least 14 days after a positive test. And this is whether it is a worker or a child in your care. Others only ask for a voluntary close for up to a few days to clean after a peripheral exposure. An example is that a parent or guardian of a child in your care tests positive for the novel coronavirus. Short-term typically means a closure of less than two weeks.
Do You Have to Waive Tuition?
Before we go over should you waive tuition, first – do you have to? While it may vary from state to state, the consensus is that you are bound by your contract. This means most times, you do not have to waive tuition at all. According to the Bangor Daily News:
People have been asking the attorney general’s office whether child care providers can legally continue to charge them while they are closed, Maine Attorney General Aaron Frey said in a statement Thursday afternoon. The answer depends on the agreements reached between the child care center and parents as well as the day cares’ normal course of operations.
Most attorneys agree that it is a contractual issue. For instance, at the Libby O’Brien Kingsley & Champion law firm, there are a couple of situations that apply in contracts.
One situation is the verbiage for emergency closures. While no one could have predicted COVID-19 and its effects on businesses, there are other closures. You may mention these in your contract. An example is that the contractual agreement specifically states that in case of the childcare center closing that tuition will not be reimbursed. Using the mandate examples from other emergency closures may showcase how this applies. If your childcare center has to close due to inclement weather and it specifies this in the contract, then this shows how COVID may apply. Let’s say that snow days dictate collecting tuition, for a day or two closure this applies for COVID-19 too. And while inclement weather is often temporary, there are more severe weather events that force a business to close for longer periods. For instance, a blizzard, tornado, or hurricane.
Another way to look at it depends on how tuition is paid. If parents pay for a specific term, and this is whether or not the child attends, then you do not have to waive tuition at all. Unless there is specific language about a set term to the contract, then this applies. An example is that your childcare center has a fall term that includes specific dates. As long as your center does not close for a long period, this works to your advantage.
A rule that works against you is common law doctrine of frustration of purpose. This may sound confusing but what it means is that unforeseen circumstances undermine the primary purpose. COVID-19 applies as unforeseen events. The parents may argue that since your childcare center cannot open in time safely, the purpose of it falls under common law doctrine of frustration purpose.
One law to be aware of is a “force majeure” clause found in some contracts. This one excuses the childcare center from performing when it is not doable because of circumstances beyond their control. If you have this in your contract, you have ground to continue to charge tuition.
Last, if there is no contract between you and the parents, oral agreements are the usual course of action. And in many cases, most of these situations are not in smaller childcare center contracts.
Should You Waive Tuition?
As you can see, there are many ways that you can legally still charge tuition. The important factor is what will happen in the long-term. While you must maintain your livelihood, alienating parents who are already suffering their own loss of income may hurt you in the long run.
There are a few ways you can approach the situation since most childcare centers cannot afford to charge nothing for an extended period.
It’s difficult to maintain that perfect balance between being able to pay the bills and alienating parents. Yet, a reduced tuition may be what works for both of you.
Childcare businesses run on a fixed-cost model. Usually your expenses range the same each month. If the childcare center closes for a length of time, this makes a minor difference in your costs on things like utilities, food, etc. Here, you may consider it fair to discount the tuition so that the parents are not paying as much for time spent away. This also allows transparency so parents and guardians see that you are doing all you can.
Sometimes you do not have to lose money and can still please the parents. If you cannot afford to charge nothing during time off, consider offering parents free days after you reopen. This is ideal for part-time students or if you close just for a few days at a time. One thing to keep in mind with this approach is that full-time parents won’t get that discount. You may consider in these cases to offer no-cost late pickups or some kind of special situation that benefits you and the parents.
Instead of tuition payments, you may determine to establish a set daily or weekly holding fee on days when you are closed because of COVID-19. As Paper Pinecone states:
Many providers charge half of their daily or weekly rate on those days because it’s a nice round number. However, 50 percent only works if your fixed costs are less than or equal to half of your tuition. You must work under the assumption that you will need to impose short-term closures multiple times for COVID-19. If your fixed costs are over 50 percent of your tuition, you will operate at a loss each time you close, which may not be sustainable.
A New Contract
While you can’t go back and change contracts already signed, consider a new contract with COVID-19-specific stipulations. Some parents may not want to sign a new contract and that is their choice. But this is a unique situation and a new contract helps protect you and the parents. In some situations, your childcare center may close for many periods. Hopefully, that doesn’t happen. But under those circumstances, it is crucial to cover yourself so you have an income.
No matter what you choose, have open communication with the parents. Keep them up to date on potential closures, what happens with their tuition (as we have covered), and what they should expect in this changing landscape. Parents and guardians will be more apt to adjust to changes if you are open and transparent with them.
Let Us Handle the Rest
Financial management can be a headache under normal circumstances. With the novel coronavirus to deal with, that headache is maximize. There are different management situations where a professional helps. If you are unsure where to turn with the accounting part of your childcare business, we help you navigate the fiscal waters of COVID-19 – and any other time you need help.
Just schedule a call with us today and let us make your business better equipped to handle the new normal.