The laws are changing rapidly in the current pandemic/crisis. Therefore, the legal issues discussed here are subject to constant change. It is best to consult with your counsel concerning any specific legal advice you may have.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The Act significantly expands small business lending, unemployment insurance, tax relief to individuals and businesses, among other things. Here are a few key takeaways for employers.
I. Loans and Related Relief for Small businesses with fewer than 500 employees:
- Paycheck Protection Program (“PPP”)
- Loan Amount Per Business – up to $10 Million
With a rate no higher than 4%, most businesses can borrow the lesser of $10,000,000 or 2.5 times their average total monthly payroll for the year prior to the date of the loan. For companies that were not in business from February 15, 2019 through June 30, 2019, the company’s monthly payroll costs is calculated over the period January 1, 2020 through February 29, 2020.
Loan payments, including principal, interest, and fees may be deferred for up to 1 year, and the SBA has no recourse against any borrower for non-payment of the loan, except where the borrower has used the loan proceeds for a non-allowable purpose.
- Use of Loan For Qualified Costs Only
Businesses can only use the PPP loan for various qualified costs related to employee compensation and benefits, including (i) payroll costs, which is defined to include, among other things, payment for vacation, parental, family, medical, or sick leave, continuation of health care benefits, and employee compensation, (ii) mortgage interest obligations, (iii) rent, (iv) utilities and (v) interest on debt incurred before February 15, 2020.
- Certain Qualifications Apply
To qualify for a PPP loan, a business must: (1) have been in operation since February 15, 2020; (2) have paid salaries, payroll taxes, or 1099 non-employee compensation; and (3) meet size limitations (e.g., 500 or less employees). Multi-location businesses in the accommodation and food services sector (falls under NAICS Sector 72) may be eligible if it employs not more than 500 employees per physical location.
- PPP Loan Forgiveness:
- Limited Forgiveness
Amounts borrowed under the PPP are eligible for forgiveness equal to payments made, during the 8-week period starting from the date of loan origination, for payroll costs and mortgage interest, rent and utility payments.
- Layoff Can Reduce Amount of Loan Forgiveness
To incentivize companies to retain employees, the amount of loan forgiveness may be reduced due to any employment reduction by the employer. For most employers, if their level of employment during this covered period (i.e. the average monthly employment from February 15, 2020 to June 30, 2020) is not at least equal to their pre-existing employment level the amount of the loan forgiveness will be reduced by a proportionate amount.
II. Coronavirus Economic Stabilization Act
Businesses that do not receive other adequate economic relief under the CARES Act can be eligible for direct loans under the Act at a rate not higher than 2% annualized, and with no principal or interest payable for the first 6 months of the life of the loan.
For a business to receive this type of loan under the Act, it must make a “good-faith certification” that it will comply with certain requirements listed in the Act (e.g. that it will retain 90% of its workforce) as well as abide by certain restrictions (e.g. limits on executive compensation).
III. Tax Relief For All Business:
- Employee Retention Tax Credit
- Who is Eligible:
The tax credit is available to employers who were doing business during the calendar year 2020, and with respect to any calendar quarter for which its operations were fully or partially suspended due to a COVID-19 related “shut-down order,” or whose gross receipts declined by more than 50% when compared to the same quarter in the previous year.
- How does It Work:
For each calendar quarter, eligible businesses can receive a tax credit, against applicable employment taxes, in an amount equal to 50% of qualified wages (including health plan expenses) per employee up to a cap. The credit can be obtained on wages paid or incurred from March 13, 2020, through December 31, 2020, until an employer’s gross receipts for a calendar quarter return to at least 80% of the total of the corresponding calendar quarter in 2019.
- PPP Loan Borrower Excluded: This retention tax credit is not available to eligible employers that receive the PPP loans discussed above.
- Delay of Employer Payroll Taxes Payment: The Act allows qualifying employers to defer paying their share of applicable employment taxes (the employer’s portion of social security taxes) from March 27, the time the CARES Act was signed into law, through December 31, 2020. Half of this deferred amount would be due on December 31, 2021 and the other half by December 31, 2022. Businesses who obtained PPP loan forgiveness are not eligible for this relief.
IV. Changes To The New Federal Families First Coronavirus Response Act (FFCRA) (see our prior post on FFCRA here - What does the Families First Coronavirus Response Act Mean for Employers?
- Emergency Paid Family and Medical Leave Immediately Available For Rehired Employees:
The FFCRA limits the 10 additional weeks of Paid Family and Medical Leave to employees who have been employed for at least 30 days. The Act makes this benefit immediately available for employees who were laid off after March 1, 2020, had worked for the employer for no less than 30 of the last 60 calendar days prior to their layoff and were rehired.
- Advance Refunding of Payroll Credits for Required Paid Sick Leave and Required Paid Family Leave
Businesses can keep money that they would have deposited for payroll taxes in anticipation of a credit in the amount for paid sick leave and paid FMLA leave outlined by the FFCRA, including amounts that would have been refunded later, without the fear of any penalty for failure to make a deposit.
V. Temporary Unemployment Insurance Expansion:
- Eligibility Expansion:
The Act expands the UI benefit eligibility to include self-employed individuals and independent contractors, as well as applicants who have already exhausted their unemployment benefits or who are still partially employed, provided they certify that they are unable or unavailable to work due to certain qualifying reasons related to COVID-19.
- Benefit Increase:
On top of the usual weekly unemployment checks, covered individuals could receive an additional $600 in weekly unemployment benefits for up to 4 months.
- Longer Period of Assistance
While unemployment benefits are typically only available to applicants for a maximum of 26 weeks, the Act allows applicants to receive up to 39 weeks of benefits, providing funding for an additional 13 weeks of assistance.
This is only a brief overview of some key provisions of this very comprehensive law. Please contact us for more information about the CARES Act, assistance with determining if your business qualifies for any relief under the CARES Act or recommended steps.