On March 25, 2020, the Senate unanimously passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provides stimulus to individuals, businesses, and hospitals in response to the COVID-19 pandemic. On March 27, 2020, the House of Representatives passed the CARES Act by voice vote, and President Trump signed the bill into law.
This blog post provides a high-level summary of certain provisions of the CARES Act that are particularly relevant to employers. Forthcoming blog posts will cover specific provisions of the CARES Act as they apply to the health care industry, small business owners, individual taxpayers, and employees. This blog post covers:
- Families First Coronavirus Response Act (FFCRA) Leave Requirements and Tax Credits
- Paycheck Protection Program
- Emergency Economic Injury Disaster Loan
- Employee Retention Credit
- Payroll Tax Deferral
- Increased Unemployment Benefits
FFCRA Leave Requirements and Tax Credits
Effective April 1, 2020, the FFCRA requires private employers with fewer than 500 employees to provide up to 10 weeks of paid family leave and 10 days of paid sick leave benefits for eligible employees affected by COVID-19. The CARES Act reiterates that the cap on such benefits for paid family leave are $200 per day and $10,000 in the aggregate for each employee. For paid sick leave, depending on the allowable reason for which it is used, the cap is either $511 per day per employee ($5,110 in the aggregate) or $200 per day per employee ($2,000 in the aggregate).
The CARES Act mandates that a rehired employee qualifies for paid family benefits if the worker was laid off by that employer on or after March 1, 2020, and had worked for the employer for at least 30 of the last 60 calendar days prior to his or her layoff.
The FFCRA provides a 100% refundable tax credit, capped at the same amounts as the leave benefits noted above, plus the cost of continuing to provide health insurance for employees on FFCRA leave. Employers may simply retain, as their FFCRA credit, otherwise-owed payroll taxes up to an amount equal to the costs they incurred in providing FFCRA leave (including continuing health insurance) up to the mandated caps. If that retention is insufficient, employers can seek an expedited advance from the IRS by submitting a claim form, which will be released shortly.
Paycheck Protection Program
Under the Paycheck Protection Program, the Small Business Administration (the “SBA”) is authorized to lend up to an aggregate $349 billion to qualifying small businesses (500 employees or fewer), ESOPs, not-for-profit organizations, veterans’ organizations, and tribal concerns to assist them during the COVID-19 emergency (a "Paycheck Protection Loan"). Paycheck Protection Loans may be used to cover payroll costs, mortgage interest, rent and utilities (with certain limitations). The loans carry up to 4% interest, have no fees; are fully non-recourse (no personal guarantees are required) and unsecured; and, under certain conditions, do need not be repaid.
An eligible borrower may borrow up to 2.5 times its average monthly payroll costs (excluding any compensation over $100,000 for each employee who makes more than that amount on an annualized basis) for the one-year period prior to the date of the SBA loan, up to a maximum of $10 million per business. Lenders are required to defer payments for between 6 months and a year.
The principal of these Paycheck Protection Loans may be partially or completely forgiven, based on a ratio comparing a company’s average number of employees between February 15, 2019 and June 30, 2019 or January 1, 2020 and February 29, 2020 and the 8-week period after taking the loan.
The loan forgiveness is reduced by any reduction in total salary or wages of any covered employee (any employee making less than $100,000 per year) during the covered period that exceeds 25% of that employee’s total salary or wages during their most recent full quarter of employment.
Businesses are required to submit payroll records and proof of mortgage, rent, and utility payments to qualify for forgiveness. Forgiven loans will not result in taxable income.
Emergency Economic Injury Disaster Loan
In addition to a Paycheck Protection Loan, qualifying small businesses/organizations may also apply to the SBA for an Emergency Economic Injury Disaster Loan (EIDL Loan). Unlike a Paycheck Protection Loan, an EIDL Loan requires personal guarantees from individuals owning 20% or more of the borrower if the loan amount is $200,000 or more and requires collateral to secure the loan.
Under an EIDL Loan, a qualifying borrower may apply for a loan of up to $2,000,000 without needing to prove inability to obtain credit elsewhere. Borrowers may request a $10,000 advance on an EIDL Loan upon application. Borrowers may obtain an EIDL Loan based solely on a credit score.
EIDL Loans have a minimum term of 15 years, a fixed interest rate, and prepayment penalties for the first three years of the loan.
Employee Retention Credit
Companies that do not receive Paycheck Protection Loans may be eligible for a refundable tax credit against their share of Social Security and Railroad Retirement taxes. The credit is equal to 50% of the first $10,000 in wages (including the value of health plan benefits) paid during the covered period per employee, for a maximum credit of $5,000 per employee.
To qualify, companies must either have business operations fully or partially suspended due to governmental limits on commerce, travel, or group meetings; or have at least a 50% year-over-year decrease in quarterly revenue in 2020.
Companies with fewer than 100 full-time employees may claim the credit for all qualifying employee wages. For companies with more than 100 full-time employees, only employees who are currently not providing services for the employer due to COVID-19 causes are eligible for the credit.
This credit is effective for wages paid after March 12, 2020, and before January 1, 2021.
Payroll Tax Deferral
Employers may defer paying their share of the 6.2% Social Security tax for the year ending December 31, 2020 until December 31, 2021 (as to 50% of the 2020 obligation) and December 31, 2022 (for the remaining 50%). This deferral applies to obligations beginning on March 27, 2020 and ending December 31, 2020. Self-employed taxpayers may defer 50% of their obligations, with 25% due on or before December 31, 2021 and 25% due on or before December 31, 2022.
Increased Unemployment Benefits
The CARES Act increases unemployment benefits and expands their availability to people not otherwise eligible for them.
Section 2104 of the CARES Act provides most individuals an increase of $600 per week in traditional unemployment insurance benefits in addition to those benefits provided under state unemployment insurance laws. (For reference, New York State's maximum weekly benefit rate is $504.) The increase in benefits is fully funded by the federal government. These benefits are available through July 31, 2020.
Section 2102 of the CARES Act provides up to 39 weeks of unemployment benefits to people who (i) have exhausted their unemployment insurance benefits; (ii) are not eligible for emergency unemployment insurance under Section 2107 of the CARES Act; and (iii) are not otherwise eligible to receive unemployment insurance benefits, such as self-employed individuals, independent contractors, and individuals who were scheduled to begin working at a job but are now unable to because of COVID-19.
Section 2107 of the CARES Act provides 13 weeks of emergency unemployment insurance benefits for people who remain unemployed after they have exhausted their state benefits or are not otherwise eligible for benefits. The individual must be able and available to work and actively seeking employment. As with Section 2104, the benefits include the extra $600 per week.
For further information on these provisions of the CARES Act, please contact CCB Law.