What Employers with 500 Employees or Less Need to Know about the CARES Act
On Friday, March 27th, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) officially became the largest financial assistance bill enacted by Congress. The Act includes provisions to help small businesses as they work to survive through the economic crisis caused by COVID-19. However, the Act is hundreds of pages long and filled with detail that, while important, is likely to cause confusion. We’ve broken down what decision-makers at businesses with 500 employees or less need to know:
Payroll Protection Program
The Paycheck Protection Program is likely to be the most important section of the Act for businesses and nonprofit organizations with 500 employees or less. This program sets aside $349 Billion in government-backed loans that, based on certain conditions, may be forgiven. This section of the Act provides for loans for payroll costs (salaries, commissions and other compensation), healthcare costs, payments of interest on mortgage obligations, rent, utilities, and interest on any other debts. The Act also may allow a company to refinance an SBA economic disaster recovery loan made after January 31, 2020. These loans are available until June 30, 2020 and, significantly, may be forgiven in whole or in part. The specifics of this program will require employers to dive deeper and perform a company-specific analysis. You can find more information on the details of the Paycheck Protection Program on our one-page summary, here. In addition, here is a link to a sample application form published by the SBA, a similar form of which would need to be submitted to your lender.
Enhanced Unemployment Benefits
Recognizing the fact that providing benefits to employers to maintain current employment levels likely will not do enough to stem the rising tide of unemployment, Congress also acted to enhance unemployment benefits for up to 39 weeks. One step taken by Congress was to expand unemployment benefits to workers not typically covered, like the self-employed and independent contractors. In addition to broadening eligibility for unemployment benefits, the CARES Act also provides for enhanced unemployment benefits of $600/week for a limited period. Additionally, the Act eliminates one week waiting periods for employees to be eligible for benefits.
Direct Payments to Eligible Americans
The Act also provides for the direct payment of stimulus checks. Under the Act, adults that have earned up to $75,000 will receive $1,200 and married couples earning up to $150,000 will receive checks for $2,400. These credits are phased out for individuals and married couples earning greater than the specified amounts of income.
Payroll Tax Credits Are Available for Employers that Do Not Participate in the Paycheck Protection Plan
Businesses that do not participate in the Paycheck Protection Program may qualify for payroll tax credits. However, this benefit is available only if the business was operational in 2020 and has either suffered a full or partial shutdown resulting from a COVID-19-related government order or a “significant decline” in revenue as measured by quarterly gross receipts compared to the corresponding quarter of the prior year. For these purposes, a significant decline begins with a quarter where there is a 50% reduction in gross receipts from the same quarter in the prior year and ends with the quarter following the first quarter where gross receipts are greater than 80% of the same quarter in the prior year. If a business qualifies, it will receive a credit against employment taxes equal to 50% of the “qualified wages” with respect to each employee for each applicable quarter. However, the definition of qualified wages depends on the number of full-time employees. For businesses that averaged greater than 100 full-time employees in 2019, qualified wages are those wages paid to an employee who is not providing services because of a COVID-19-related full or partial shutdown or significant decline in gross receipts. For businesses that averaged 100 full-time employees or less in 2019, qualified wages are all wages paid, whether to someone out of work or not, during any full or partial shutdown or any quarter in which there was a significant decline. Qualified wages “for all calendar quarters shall not exceed $10,000” for any employee that may be considered.
Delay of Employer’s Payroll Taxes
Both employers and the self-employed may defer the payment of payroll taxes. With respect to payments that would otherwise be due before January 1, 2021, 50% of such payments are now due December 31, 2021, with the remainder due December 31, 2022. The payroll tax deferral is not available to employers that have a loan forgiven pursuant to the Paycheck Protection Program.
If you have any comments or questions regarding the updates and changes to the CARES Act, please reach out to Russell Berger at [email protected] or Glenn Solomon at [email protected].