Employment Law Alert: Phase III Stimulus: How the CARES Act Most Impacts Employers
March 30, 2020
Last Friday, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) became law and the latest—and by far the biggest—legislative response to the novel coronavirus (“COVID-19”) outbreak. The CARES Act will infuse more than $2 trillion into the U.S. economy. Importantly, the CARES Act includes numerous measures directed toward employers of all sizes, such as business loans and guarantees, tax credits, and other economic assistance.
Here are some of the most impactful portions of the CARES Act for employers to review and seek guidance on as necessary, so they can be prepared to act promptly:
Paycheck Protection Program
The CARES Act establishes the Paycheck Protection Program (“PPP”) to provide much needed financial assistance for employers to retain their employees and continue operating their businesses. Under the PPP, the Small Business Administration (“SBA”) will guarantee 100% of the amounts loaned by participating lending institutions to eligible employers.
Eligible employers for the PPP include:
- Businesses with 500 or fewer employees;
- Non-Profits (501(c)(3) and 501(c)(19)) with 500 or fewer employees;
- Hospitality businesses (NAICS Code 72 businesses) with 500 or fewer employees “per physical location;”
- Tribal Business Concerns with 500 or fewer employees; and
- Sole-proprietors, independent contractors, and self-employed individuals.
The PPP provisions cover loans from February 15, 2020 (retroactively) through June 30, 2020. The maximum loan amount is the lesser of (i) $10,000,000; or (ii) 2.5 times the average monthly payroll costs for the 12 months prior to the date the loan is made, plus the amount of any pre-existing emergency loan to be refinanced.
For more information on the PPP, please see our detailed ALERT specifically on this program.
Coronavirus Economic Stabilization Act of 2020
The CARES Act also provides assistance to mid-sized employers with 500-10,000 employees, that do not qualify for the PPP, by establishing a $500 billion pool of funds for loans, loan guarantees, and other investments available through December 31, 2020. Potentially eligible employers include airlines, mid-sized businesses, large non-profit organizations, states and municipalities.
Up to $46 billion of the funds are allocated to support passenger air carriers, air cargo carriers, and businesses important to maintaining national security. Up to $454 billion of the funds are allocated to support lending to eligible mid-sized businesses, non-profits, states, and municipalities.
As for the mid-sized businesses and non-profits, the direct loans will be provided at rates of 2% or less per year, with no principal or interest due within at least the first six months. These loans will also require an eligible borrower to make a good faith certification of certain terms and conditions, including (but not limited to):
- The loan is needed to support the borrower’s ongoing operations due to the uncertainty of the economic conditions as of the date of the loan application;
- The borrower is a U.S.-domiciled business;
- The borrower has “significant operations and employees” in the U.S.;
- The borrower is not currently a debtor in bankruptcy proceedings;
- Until September 30, 2020, the borrower must retain at least 90 percent of its employment levels as of February 1, 2020;
- Until September 30, 2020, the borrower must use at least 90 percent of the funds to pay the borrower’s workforce its full compensation and benefits;
- The borrower is prohibited from paying dividends, and stock or equity buybacks while the loan remains outstanding and for 12 months after the loan is repaid;
- The borrower must adhere to compensation limitations for officers and high-earning employees while the loan remains outstanding and for 12 months after the loan is repaid;
- The borrower must not outsource or offshore any jobs or abrogate any existing collective bargaining for the term of the loan, as well as for two years after completion of repaying the loan. This requirement is not conditional on re-negotiating, or entering into a collective bargaining agreement; and
- Other conditions as the Secretary of the Treasury determines appropriate
Changes to Families First Coronavirus Response Act’s Paid Leave Provisions
As updated in our recent Employment ALERT on March 26, 2020, the Families First Coronavirus Response Act (“FFCRA”) becomes effective April 1, 2020 and runs through December 31, 2020. The FFCRA requires employers with fewer than 500 employees to provide emergency paid family and sick leave to their eligible employees. However, the CARES Act now makes important – last minute – changes to the FFCRA’s paid leave provisions, specifically:
An employee who (1) is laid off on or after March 1, 2020; (2) worked for the employer for at least 30 of the last 60 calendar days prior to the employee’s layoff; and (3) is subsequently rehired by the employer will be considered employed for at least 30 calendar days, and therefore eligible for the FFCRA’s emergency paid sick and family leave.
Federal contractors that provide paid family and sick leave to certain employees and subcontractors unable to work (or telework) due to the COVID-19 outbreak may be eligible to be reimbursed with funds provided to federal agencies by the CARES Act.
Employee Retention Tax Credit
Under Section 2301 of the CARES Act, employers impacted by the COVID-19 pandemic may be eligible for a refundable payroll tax credit of up to $5,000 for each employee on the payroll, under certain conditions.
Eligible employers include employers who have been operating in 2020. and whose gross receipts decreased by greater than 50 percent in comparison to the corresponding calendar quarter of the previous year, or whose operations were partially or fully suspended due to a COVID-19 government-mandated shut-down order.
Eligible employers are allowed a refundable tax credit against the employer component of employment tax (social security and railroad retirement) equivalent to a maximum of 50 percent of qualified wages paid for each employee after March 12, 2020, through December 31, 2020. The credit is calculated on a calendar-quarter basis and is equivalent to 50% of qualified wages up to $10,000 (including health benefits) paid to each employee. Essentially, this means the maximum credit amount for any employee is $5,000.
For eligible employers with 100 or fewer full-time employees, basically all wages qualify for the credit. For eligible employers with greater than 100 full-time employees, qualified wages are limited to wages paid to employees who are unable to provide services due to the COVID-19 pandemic.
Importantly, this tax credit is provided to eligible employers in addition to the payroll tax credit provided under the FFCRA. As noted previously in our FFCRA Employment ALERTS, eligible employers providing emergency paid and sick leave to their employees are already entitled to pursue payroll tax credits corresponding to FFCRA leave.
Impact on Unemployment Insurance
The CARES Act also imposes important new requirements on the Federal-State Unemployment Insurance Program. Under the Program, states are allowed to determine monetary and non-monetary qualifications for benefits, the weekly benefit amount, the duration of benefits, and the charging and non-charging of benefits amounts collected by separated employees. We will provide more information on these new requirements in an upcoming ALERT.
As always, please do not hesitate to contact the attorney you already work with at Shulman Rogers, or anyone in the Shulman Rogers Employment and Labor Law Group directly with questions about the CARES Act. We can work with you to identify your obligations under the FFCRA or opportunities under the PPP, or address other concerns you may have.
The contents of this Alert are for informational purposes only and do not constitute legal advice. If you have any questions about this Alert, please contact the Shulman Rogers attorney with whom you regularly work or a member of the Shulman Rogers Employment and Labor Law Group.