The CARES Act, signed into law on March 27, 2020, impacts employers and employees through changes to unemployment insurance, on the one hand, and several others under the CARES Act financial assistance umbrella, on the other.
Unemployment Insurance
With respect to Unemployment Insurance (UI), provided your state enters into an agreement with the U.S. Dept. of Labor to take advantage of the CARES Act’s UI benefits, the following changes to the existing UI program will apply: (1) a temporary Pandemic Unemployment Assistance (PUA) program through 12/31/2020, to provide payment to workers who are not traditionally eligible for UI, such as self-employed or independent contractors (i.e. gig economy workers); (2) an additional emergency increase of $600/week (Federal Pandemic Unemployment Compensation) to each recipient of UI or PUA for up to 4 months; (3) funding to cover the costs of the first week of UI through 12/31/2020 for states which pay recipients when they become unemployed (rather than waiting until that individual becomes eligible to receive benefits); (4) an added 13 weeks of unemployment benefits through 12/31/2020; (5) 100% funding of “short-time compensation” programs through 12/31/2020, where employers reduce hours instead of laying off workers and the employees with reduced hours receive a prorated unemployment benefit, and; (5) grants and start-up costs for states to develop short time compensation programs.
Paycheck Protection Program Loans
The CARES Act Financial Assistance piece offers loans and tax credits to businesses in order to retain employees. For small businesses and nonprofits with less than 500 employees, hospitality businesses with less than 500 employees per location, sole-proprietors, independent contractors, and self-employed individuals, the SBA’s Paycheck Protection Program (PPP) provides a $349 billion lending program modeled after the existing SBA 7(a) program, but PPP loans are 100% guaranteed (as opposed to 75% guaranteed). PPP loans provide loan forgiveness equal to the amount spent on payroll (capped at $100,000 in wages), rent, mortgage interest, and utilities for 8 weeks beginning on the origination date of the loan. Note that these forgiveness provisions are reduced in proportion to any reduction in employees and to a reduction in employees’ pay of greater than 25%. The PPP’s provisions are retroactive to 2/15/2020, and cover loans from that date until 6/30/2020.
Economic Injury Disaster Loans
If your insurance and any available funding from the Federal Emergency Management Agency (FEMA) does not fully cover the disaster relief and assistance you need, an Economic Injury Disaster Loan (EIDL) through SBA may provide an advance of up to $10,000 to your small business. The EIDL program provides small businesses with working capital loans of up to $2 million in economic support to help bridge the gap of temporary downturns in revenue. The loan advance portion will be paid within 3 days of a successful application, and these advanced funds will not have to be repaid. To qualify for this type of loan advance, a small business must be presently experiencing losses in revenue. To see if you qualify for EIDL funding, you should first see if the SBA has issued a disaster declaration in your area by clicking here. To apply for a COVID-19 EIDL, click here. For a user-friendly, comparison chart summarizing the types of loans available under the CARES Act, click here.
Tax Credits
Tax benefits include a retention credit and a payroll tax delay. The retention credit provides for a payroll tax credit for 50% of wages paid by employers to employees, up to $10,000 per employee. Employers are also permitted to defer their share of Social Security tax, although half of the deferred share is owed by 12/31/2021 and the balance is owed by 12/31/2022. Note that employers utilizing the Paycheck Protection Program cannot also take advantage of the retention credit and payroll tax delay.
Retirement Plans
The CARES Act also contains a number of relief provisions relating to retirement plans, benefiting both plan sponsors and plan participants. To learn more about the changes that impact defined benefit pension plans, click here. For more information about the relief that plan sponsors can add to their defined contribution plans, such as 401(k) and profit sharing plans, please click here. Much of this relief is available immediately, but will require action on your part.
Action Items
- Employers considering any of the loan programs provided under the CARES Act should talk with their banks or other lender now about their options.
- Work with your tax advisor to explore whether your company can take advantage of any of the tax credits/delayed payments referenced above.
- Learn more about the relief options for your retirement plans and reach out to your plan’s third-party administrator to determine how to implement any that you choose to take advantage of.
For more information, please contact a Graydon attorney, who can assist in guiding you in the right direction.