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.
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 mustuse 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 completionof 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 Actnowmakes 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 forthe
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.
Contact info: Meredith S. Campbell Chair, Employment and Labor Group, Shulman Rogers [email protected] |T 301.255.0550 | F 301.230.2891
