On Friday afternoon, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The Act addresses the coronavirus pandemic by directing funds to address the strains on the health care system as well as alleviate the intense economic stress facing the country’s employers and workers. The President has stated that he will sign the bill immediately. This post focuses on those provisions that may impact employers. Below are answers to some questions that we expect employers will have about the CARES Act.
What is the purpose of the CARES Act?
This roughly $2 trillion stimulus measure includes payments to millions of Americans, support for the health care system, unemployment benefit expansions, and loans to struggling businesses.
What provisions of the CARES Act support small businesses?
This Paycheck Protection Program would provide $349 billion in relief to businesses who are Small Business Act-eligible and do not have more than 500 employees by loaning money to pay salaries, benefits, payroll costs, mortgage interest, utilities, and interest on certain debt obligations. This program also provides for forgiveness of the loan in an amount equal to the sum of the following costs incurred over an 8-week period after the loan is funded: payroll costs, mortgage interest, rent obligations, or any covered utility payment.
However, this Program does not cover payroll costs related to employees who make over $100,000. This will impact small businesses in higher cost of living localities like the Bay Area and New York City.
For what period does the Paycheck Protection Program run?
The program runs retroactively from February 15, 2020 to June 30, 2020.
Loan Guarantee Program
What is the loan guarantee program?
The bill provides $500 billion in loan and loan guarantees for eligible businesses, states, and municipalities—$25 billion to passenger air carriers, $4 billion to cargo air carriers, $17 billion to businesses critical to maintaining national security, and the other $454 billion allocated to aid eligible business, states, or municipalities.
What are the rules around receiving funding as part of the loan guarantee program?
The Act prohibits, as a condition of receiving the funds, stock buybacks or payments of dividends until 12 months after the loan is no longer outstanding. It also limits compensation and severance payments for highly compensated employees. Passenger air carriers, cargo air carriers, and businesses critical to maintaining national security must to the extent practicable, maintain March 24, 2020 employment levels through September 30, 2020; however, in no case may a business reduce employment levels by more than 10% from March 24 levels.
Will non-profits be eligible for aid under the loan guarantee program?
Yes. Non-profits having up to between 500 and 10,000 employees are eligible for the program. Smaller non-profits and businesses may take advantage of the business loan program mentioned above if they are eligible.
What if I’ve already laid off workers? Would my business still benefit from the loan guarantee program?
Yes, if you are a midsize business or a non-profit with between 500 and 10,000 employees. Such businesses will be eligible for funds if they intend to restore at least 90% of their workforce as of February 1, 2020, and to restore all compensation and benefits to workers no later than 4 months after the termination date of the public health emergency.
Unemployment and Leave Provisions
What unemployment provisions would be included in the Act?
The Act provides unemployment insurance assistance for workers impacted by COVID-19, including workers diagnosed with COVID-19, experiencing symptoms and seeking medical diagnosis, having a household member diagnosed with COVID-19, providing care for family member or member of household with COVID-19, having a child with school closed because of COVID-19, advised to self-quarantine, or affected by a workplace closure due to COVID-19 (not including individuals who can telework or receive paid leave). In a nod to nontraditional working arrangements affected by the crisis, this provision is intended to cover self-employed and gig economy workers.
How long could eligible workers collect unemployment insurance?
Eligible workers could receive unemployment benefits for up to 39 weeks (usually, unemployment benefits may only be collected for 26 weeks). There is no waiting period for these benefits, regardless of state requirements.
During which time period would this extended unemployment insurance be available?
Unemployment benefits would be payable between January 27, 2020 to December 31, 2020.
How much can workers collect in unemployment insurance benefits?
The amount collectable includes the amount that the worker would collect under state law, plus an extra $600 per week for up to four months.
What are the paid leave provisions in the Act?
In addition to the protections provided Families First Coronavirus Response Act (“FFCRA”), previous coverage here, the CARES Act clarifies that an employer can pay more than the $511 per day and $5,110 in the aggregate per employee to workers either advised to self-quarantine or experiencing COVID-19 symptoms. The Act makes the same clarification for workers using leave to care for a family member, provide child care, or experiencing any other substantially similar condition to coronavirus as specified by the Secretary of Health and Human Services,) who can receive $200 per day and $2,000 in aggregate under the FFCRA.
Miscellaneous Provisions Affecting Companies
Will the CARES Act include any tax relief to employers?
Yes. The CARES Act provides tax credits for 50% of employment taxes by eligible employers affected by the economic downturn. This tax credit is effective from March 13, 2020 to December 31, 2020. The Act further postpones payment of employer payroll taxes until December 31, 2021 for half of the amount due, with the other half due on December 31, 2022.
Does the CARES Act include any bankruptcy relief?
Yes. The Act includes a provision that increases the amount of debt a small business may have while reorganizing as part of a bankruptcy from $2,725,625 to $7.5 million. This change in the debt amount applies to cases filed after the CARES Act becomes effective and would be applicable for one year after the CARES Act becomes effective, absent an extension. The Act also amends the definition of current monthly income to exclude payments made to the debtor pursuant to the CARES Act from being treated as income.
What relief does the Act provide federal contractors?
The Act provides for reimbursement to federal contractors at contract rates for paid leave, including sick leave, where the federal contractors cannot perform their work remotely and cannot come into work due to federal property closure.
How would the Act help aviation companies?
In addition to the loan guarantee program, the Act provides financial assistance totaling over $30 billion for wages, salaries, and benefits to passenger air carriers, cargo air carriers, and contractors. The Act restricts aviation companies from conducting involuntary furloughs or reducing pay rates and benefits through September 30, 2020.
As explained above, the President is expected to sign the bill promptly. Please stay tuned for updates.