Benefits and Compensation, Coronavirus (COVID-19)

An Employer’s Guide to CARES Act Relief

Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020, to assist employers coping with the COVID-19 pandemic. It is chock-full of provisions that impact employers, including the rollout of robust unemployment compensation benefits, payroll tax credits and deferral, and various forms of economic assistance to incentivize employers to bring back furloughed or laid-off employees and to refrain from further layoffs and terminations.CARES

Expanded Unemployment Benefits for Individuals

The CARES Act expands rights to unemployment compensation for individuals who are unemployed because of the pandemic. The Act incentivizes states to provide for payment of an additional $600 per week in unemployment compensation benefits above what an individual is otherwise entitled to under state law for up to 4 months.

Furthermore, the CARES Act extends an individual’s ability to receive unemployment benefits by an additional 13 weeks through December 31, 2020. Note, though, that individuals cannot receive unemployment compensation at the same time they are receiving paid sick leave from an employer. In addition, the federal government will fund the expanded unemployment benefits and not charge an employer’s account.

The federal government previously incentivized the states to waive any waiting period (generally, 1 week) and to waive requirements to sign up for a job search.

Favorable Tax Provisions for Employers

The CARES Act includes some favorable tax provisions for employers.

Employers may be eligible for a refundable payroll tax credit if they were fully or partially closed because of an order from a government authority or they faced a significant decline in receipts related to COVID-19.

Where applicable, the tax credits are equal to 50% of qualifying wages paid to each employee in a particular quarter, up to $10,000 per employee. These tax credits may not be allowed where an employer takes advantage of certain governmental loans.

Employers also generally may defer the employer share of Social Security taxes owed as payroll taxes. Deferred payroll taxes are required to be repaid over the next 2 calendar years, with half due by December 31, 2021, and the remainder by December 31, 2022.

The CARES Act makes certain employer payments of an employee’s student loans are excludable from the employee’s gross income for qualifying student loans up to $5,250 per employee per calendar year. This provision does not provide an additional exclusion to previously existing education assistance payments and applies only to payments made after March 27, 2020.

Small Business Loans

The CARES Act creates the Paycheck Protection Program (PPP) within the Small Business Administration, which provides emergency loans (PPP loans) through June 30, 2020, to most employers with fewer than 500 employees. Certain employers, including those in the lodging and restaurant industries with over 500 employees, also may access these loans.

The maximum amount of the PPP loans is the lesser of:

  • 2.5 times the average monthly payments the employer made for “payroll costs” during the year before the loan disbursement, plus certain outstanding loan amounts; or
  • $10,000,000.

PPP loans may be used to cover substantially the same payroll costs incurred between February 15, 2020, and June 30, 2020, as well as rent, mortgage, and utility payments related to an employer’s business. The loans may not be used to fund qualifying paid sick leave or paid family leave under the Families First Coronavirus Response Act.

In addition to meeting the maximum employee threshold referenced above, borrowers must certify that uncertain economic conditions make the loan request necessary to support continued operations and that the funds will be used to retain workers and maintain payroll.

Importantly, these loans are eligible for loan forgiveness of up to 100% of the principal for qualifying uses. However, the amount eligible for forgiveness will be reduced:

  • Proportionally by the number of full-time equivalents per month during the “covered period” divided by the average number of full-time equivalents per month employed between February 15, 2019, and June 30, 2019, or January 1, 2020, and February 29, 2020 (at the employer’s option);
  • For seasonal employers, proportionally by the number of full-time equivalents during the covered period divided by the average full-time equivalents employed between February 15, 2019, and June 30, 2019; or
  • In addition to the reductions above, by the amount of any reduction in total salary of any employee exceeding 25% of the employee’s total salary in the most recent full quarter (excluding employees who were paid over $100,000 on an annualized basis in any pay period in 2019).

However, these reductions in loan forgiveness will not apply to employers that reduced their workforces or laid off or cut employee salaries by more than 25% between February 15, 2020, and April 26, 2020, if the employers rehire employees to equivalent levels or restore employee pay by June 30, 2020.

Importantly, for purposes of loan forgiveness, the term “covered period” means the 8-week period beginning on the date of the origination of the loan. Accordingly, employers considering applying for loans under this provision should give careful consideration to the origination date.

CESA Loans for Midsize Businesses

For midsize businesses not eligible for PPP loans, Congress appropriated $454 billion. The U.S. Treasury is authorized to implement the CESA program to provide financing to businesses with between 500 and 10,000 employees (including nonprofits). Recipients of this assistance must certify, in good faith, that:

  • The uncertainty of economic conditions as of the date of the application makes necessary the loan request to support the ongoing operations of the recipient;
  • The funds will be used to retain at least 90% of the workforce, at full compensation and benefits, until September 30, 2020;
  • Not less than 90% of the workforce existing as of February 1, 2020, will be restored at full compensation and benefits no later than 4 months after the declaration of the public health emergency by the Secretary of Health and Human Services ends;
  • The recipient is domiciled in, has significant operations in, and has a majority of employees in the United States, and it is created and organized in the United States or under the laws of the United States;
  • The recipient is not a debtor in a bankruptcy proceeding;
  • Dividends will not be paid, nor will stock buybacks occur;
  • Jobs will not be outsourced or offshored for the loan term plus 2 years after repayment;
  • Existing collective bargaining agreements will not be “abrogated” for the term of the loan plus 2 years after repayment; and
  • The recipient will remain neutral in any union-organizing efforts for the term of the loan.

This article is merely a synopsis of the CARES Act. Federal agencies are pushing out additional guidance. This is so fast-moving that it is particularly important to verify the current guidance before utilizing CARES Act benefits.

Steven K. LudwigSteven K. Ludwig is a partner in Fox Rothschild LLP’s Labor and Employment Department. He practices in the firm’s Philadelphia office and can be reached at sludwig@foxrothschild.com or 215-299-2164. Connect with Steven and Fox Rothschild on Twitter.