The coronavirus has triggered a free fall in our labor market. In the last week of March, 6.6 million unemployment claims were filed, and the Federal Reserve Bank predicts that a record-breaking 47 million jobs could be lost due to the pandemic.
On March 26, Congress passed the CARES (Coronavirus Aid, Relief and Economic Security) Act to arrest the free fall. This article provides an overview of how the new act relates to employment law.
CARES in Action
CARES provides economic relief to individuals, businesses, municipalities, states and healthcare providers affected by COVID-19. The act gives employers access to low-interest loans, grants and tax-cuts. It also provides relief to individuals by bolstering the unemployment benefits paid by states by an additional $600 per week for eight weeks. Furthermore, every tax filer under $90,000 will receive a one-time payment.
CARES was preceded by the Families First Coronavirus Recovery Act (FFCRA), which was enacted to benefit employees who either have contracted COVID-19 or lost time at work because of the coronavirus, and also to benefit children and college students who are suffering due to coronavirus. I summarized this statute in my blog Paid Leave under the New Coronavirus Statute.
Paycheck Protection Program
One of the provisions under CARES is the Paycheck Protection Program (PPP), which offers low-interest loans to help small businesses keep workers employed during the downturn. These loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward. Applications for PPP loans must be made by June 30, 2020.
To be eligible, companies must have fewer than 500 employees. PPP covers almost any type of small business, including sole proprietors, independent contractors and freelancers. Loans can be up to 2.5 times the company’s average monthly net payroll cost and must be used only for payroll, mortgage payments, rent, utilities and interest on prior loans. Employers are eligible for total forgiveness of PPP loans by providing documentation that the proceeds were used only for these purposes. However, the amount of forgiveness will be reduced if there is a reduction in staff or wages after the loan was made.
Economic Injury Disaster Loans/Emergency Economic Injury Grants
Economic Injury Disaster Loans (EIDL) are low-interest loans, with principal and interest deferment at the administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses. To be eligible for an EIDL, the company again must not exceed 500 employees. This includes sole proprietorships, with or without employees, independent contractors, cooperatives and employee-owned businesses.
Emergency Economic Injury Grants provide up to $10,000 to small businesses and private non-profits harmed by COVID-19. A business must first apply for an EIDL and then request the grant, which does not need to be repaid. The grant may be used for payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.
Tax-Cuts for Businesses
To encourage employee retention, there is a refundable 50% payroll tax credit for businesses affected by the coronavirus. This credit is for eligible employers that continue to pay employee wages while their operations remain fully or partially suspended as a result of specific COVID-19-related government orders. The statute also provides tax credits to employers and defers their obligations to pay payroll taxes until 2021 and 2022.
The statute contains loosened tax deductions for interest and operating losses, suspension of penalties for people who tap their retirement funds early, and tax write-offs to encourage charitable deductions and encourage employers to help pay off student loans.
Stay Tuned and In Touch
These are just some of the key provisions in the $2.2 trillion statute designed to save our faltering economy. We will continue to keep you apprised of new developments. If you think you have a legal issue related to CARES or any other facet of employment law, contact us for guidance.
You also can find a wealth of detailed information about CARES in the National Law Review and the CPA Practice Advisor.