On March 27, President Trump signed the Coronavirus Aid Relief and Economic Security (CARES) Act, a $2 trillion bill that contains provisions that will provide relief to businesses and individuals negatively impacted by the recent pandemic.
Paid Leave Clarification
The CARES Act amends the recently enacted Families First Coronavirus Response Act to clarify that employees who were laid off after March 1, 2020 and are rehired will qualify for COVID-19 related paid sick leave and expanded FMLA – discussed in a prior E-Lert – as long as they worked for the employer for 30 of the 60 days prior to the layoff. In other words, the requirement that an individual be employed for 30 days to qualify for these benefits shall not exclude such rehired employees.
Employee Retention Credits
As an incentive for employers to keep employees on the payroll, the CARES Act includes a refundable tax credit for wages, including group health insurance premiums, paid by certain employers to employees employed between March 12, 2020 and December 21, 2020.
For profit employers eligible for the credit are limited to those whose business is fully or partially suspended due to government orders limiting commerce, travel or meetings due to the virus, or those whose quarterly gross receipts are less than 50 percent of gross receipts in the same quarter last year. This eligibility ends when gross receipts recover to greater than 80 percent compared to the same quarter last year.
Nonprofit, tax-exempt 501(c)(3) employers are eligible for the credit if their operations are fully or partially suspended due to government orders limiting commerce, travel or meetings due to the virus.
“Qualified” wages has the following meaning:
- If the average number of employees is greater than 100, qualified wages are wages paid while the employee is not providing services due to a government order, or due to a 50 percent decline in gross receipts. In other words, it applies to employees who otherwise might be laid off or terminated.
- If the average number of employees is 100 or fewer, qualified wages are wages paid during the period when operations are fully or partially suspended OR during a period in which the employer had a 50 percent decline in gross receipts. This test does not include the “not providing services” language in the test applicable to employers with more than 100 employees.
Qualified wages for which the credit may be claimed does not include amounts paid while an employee is on paid leave pursuant to the Families First Coronavirus Response Act.
The amount of the credit is 50 percent of qualified wages subject to a ceiling of $10,000 per employee. The credit will be taken against the employer’s portion of payroll taxes, i.e., Social Security and Medicare tax. If the credit exceeds the amount of taxes, the excess is refundable to the employer by the IRS.
The CARES Act also allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax on employee wages. Half of the deferred employment tax must be paid by December 31, 2021, and the other half of the deferred employment tax must be paid by December 31, 2022.
These provisions are unavailable if the employer availed itself of the SBA loan forgiveness program in Section 1106 of the CARES Act.
Enhanced Unemployment Compensation Benefits
The CARES Act also offers federal assistance with unemployment compensation benefits. Benefits also will be made available to individuals who normally are ineligible, such as independent contractors and self-employed individuals.
In addition, eligibility for unemployment compensation insurance (“UI”) benefits will be extended to individuals who are not eligible for regular or extended UI benefits (including those who have exhausted benefits) who certify that they are otherwise available for work within the meaning of UI rules but are unemployed (or partially unemployed), or are unable or otherwise unavailable for work for any of the following reasons:
- The individual has been diagnosed with COVID-19 or has symptoms of COVID-19 and is seeking treatment;
- A member of the individual’s household has been diagnosed with COVID-19 or has symptoms of COVID-19 and is seeking treatment;
- The individual is providing care for a family or household member who has been diagnosed with COVID-19;
- A child or other person in the household for whom the individual has primary caregiving responsibility is unable to attend school or another facility that is closed as a result of the COVID-19 public health emergency and such care is required in order for the individual to be able to perform work;
- The individual is unable to reach the place of employment because of a quarantine imposed as a direct result of the COVID-19 public health emergency;
- The individual is unable to reach the place of employment because the individual has been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19;
- The individual is scheduled to start employment and does not have a job or is unable to reach the job as a direct result of the COVID-19 public health emergency;
- The individual has become the sole breadwinner or major support of the household because the head of the household has died as a direct result of COVID-19;
- The individual has had to quit his or her job as a direct result of COVID-19;
- The individual’s place of employment is closed as a direct result of the COVID-19 public health emergency; or
- The individual meets other criteria established by the DOL Secretary for unemployment assistance.
Individuals who meet the criteria for eligibility will be entitled to an additional $600 per week above the amount allowed for benefits under state law for up to four months. These additional payments are funded by the federal government.
Notably, individuals who are able to work or telework are not eligible for benefits, nor are those who are receiving paid leave under the Families First Coronavirus Response Act, regardless of whether they meet one of the above criteria.
Three Major Loan Provisions
Small Business and Non-Profit Loans
Non-profits and small businesses are eligible for forgivable loans, through the Small Business Administration, or approved financial institutions, of up to 2.5 times monthly payroll (including benefits and state and local taxes) or $10 million, whichever is less. The loans may be used for payroll (including employee benefits), rent, mortgages, utilities and interest on other debt, incurred between February 15 and June 30, 2020. The loans cannot be used to pay an individual at a rate exceeding $100,000 per year.
The portion of the loan used for payroll (including tips, benefits, COBRA, leave, and state and local payroll taxes), mortgage interest, rent and utilities, over an 8-week period prior to origination of the loan will be forgiven. If the employer reduces the number of full-time equivalent employees or reduces the pay of an individual employee more than 25 percent, the amount forgiven will be reduced.
These loans are available to small businesses, generally defined as manufacturing companies with 500 employees or fewer and non-manufacturing companies with average annual receipts under $7.5 million. Independent contractor and self-employed individuals are also eligible. Hotel and restaurants businesses, with not more than 500 per location, are also eligible.
Critically, employers who take a loan under this provision are not eligible for the payroll tax credit in the Act.
Assistance for Mid-Sized Businesses and Non-Profits (500-10,000 employees)
The CARES Act also creates a program for mid-sized businesses (and non-profits, where “practicable”), defined as having between 500 and 10,000 employees. The interest rates for these business loans shall be capped at 2%, and the borrower will not be required to pay principal and interest for at least the first 6 months. Eligible borrowers must make several good faith certifications to receive this loan, including that the funds received will be used to retain at least 90 percent of the recipient’s workforce, at full compensation and benefits, until September 30, 2020, not paying dividends, not abrogating collective bargaining agreements, and not outsourcing or offshoring jobs for the term of the loan and 2 years after completing repayment of the loan.
This program, however, may negatively impact employer labor relations strategies. Specifically, employers will be required to maintain neutrality regarding union organizing efforts during the term of the loan. During that time, employers will be unable to notify employees about the potential risks of unionizing. For example, the employer would be prohibited from discussing the costs of unionization (union dues), risks of strikes, or even the mere fact that the employer is not obligated to agree to union proposals during collective bargaining. Such statements are typically protected by the National Labor Relations Act. As a result, employees are likely to only hear one side of the argument – the union’s side, which often includes unrealistic promises – which increases the likelihood that employees will choose union representation.
Loans for State and Local Governments and Special Businesses
To cover losses due to COVID-19, the Act appropriates money for negotiated loans to state and local governments and businesses, such as air carriers, businesses critical to national security, and financial firms. Recipients are required not to reduce employment levels by more than 10 percent.