CORONAVIRUS AID, RELIEF AND ECONOMIC SECURITY ACT
DIRECT BENEFITS FOR YOUR BUSINESSES
Today, President Trump signed into law the most far reaching bi-partisan financial assistance package in American history. The law includes provisions that will provide much needed relief to small businesses, as defined by CARES, and could have a huge impact on your ability to retain employees until the COVID-19 crisis is under control. This Alert describes four important aspects of C.A.R.E.S.: (1) FORGIVABLE LOANS TO SMALL BUSINESSES; (
2) PAID SICK LEAVE; (3) EMPLOYEE RETENTION TAX CREDIT; and (4)
LIABILITY PROTECTION FOR HEALTH CARE WORKERS.
C.A.R.E.S. also provides a myriad of other benefits to businesses and individuals, such as the deferral of payroll tax and the rights of individuals to withdraw funds from 401(k) retirement plans for “coronavirus related” reasons. We are continually reviewing the law and its application to our clients, and are available to discuss its many applications to you or your company.
SMALL BUSINESS LOANS
C.A.R.E.S. authorizes new loans to small business under Section 7(a) of the Small Business Act that are referred to as “Payroll Protection Loans.” The loans are available to businesses (including self-employed individuals, insured credit unions, and non-profit organizations) with under 500 employees and in operation by February 15, 2020, during the “covered period” of February 15, 2020 through June 30, 2020. The loans are in maximum amounts equal to the business’ average monthly “payroll costs” during the 1-year period before the date on which the loan is made, multiplied by 2.5; or $10,000,000, whichever is less. No personal guaranties or collateral are required on these non-recourse loans. Loans will be made available through commercial banks that are authorized to issue SBA loans and notes; guidance on the application process is anticipated from the United States Treasury within a week.
Subject to some exclusions, the term “payroll costs” generally includes any compensation with respect to employees, that is, salary, wage, or similar compensation; vacation, parental, medical, family or sick leave; allowance for dismissal or separation; payments required for group health care benefits; including insurance premiums; retirement benefits, state and local taxes assessed on the compensation of employees. Payroll costs
do not include compensation of an individual in excess of an annual salary of $100,000, taxes imposed under certain chapters of the Internal Revenue Code; compensation of employees who live outside the U.S., and sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act. Calculations are slightly different for self-employed individuals.
The loans can be used to pay for a wide range of business expenses, including: payroll costs; costs of group health care benefits during periods of paid sick, medical, or family leave, and health insurance premiums; employee salaries, commissions, or similar compensations; payments of interest on any mortgage obligation (not principal payments); rent; utilities; and interest on any other debt obligations that were incurred before the covered period.
The loans have a maximum maturity of 10 years, and interest rates for any portion of the loan that is not forgiven (see below) cannot exceed 4%. Lenders are required to give borrowers a complete payment deferral on all principal, interest and fees of not less than 6 months and not more than 1 year on all loans under this Act.
The law includes
loan forgiveness, but it is extremely important to understand how much of your loan will be eligible. The
“covered period” under this section means the
8-week period beginning on the date of the origination of the loan. Loan recipients are eligible for forgiveness in an amount equal to the sum of the following costs incurred and payments made during the covered period: payroll costs; any payment of interest on any mortgage obligation; any payment on any obligation on, respectively, any mortgage or lease originating before February 15, 2020; and utility payment on service starting before February 15, 2020. The amount of forgiveness is reduced if the employer reduces its workforce during the 8-week covered period when compared to other periods in 2019 and 2020, or reduces employee salaries by more than 25% during the covered period. These reductions can be avoided when an employer rehires employees and increases pay during the given time period.
Note that small business that have received an Economic Injury Disaster Loan under Section 7(b) of the Small Business Act will not be eligible for the “payroll protection” loans that are prominent in C.A.R.E.S. The new law does, however, provide expanded benefits to these borrowers who close on economic injury disaster loans before December 31, 2020: the government will pay qualified pay principal and interest that is due on the loan during the first six months that payments are due, and loan applicants may qualify for an immediate $10,000 grant to maintain payroll. This grant need not be repaid even if a small business borrower’s loan request is denied.
EMPLOYEE RETENTION TAX CREDIT
In lieu of a Payroll Protection Loan described above, an employer may opt instead for a 1-year tax credit against the employer’s 6.2% share of Social Security Payroll Taxes paid on each employee’s “qualified wages” up to maximum of $10,000 per employee, for all quarters for which the credit is taken.
To qualify for the tax credit, a business must continue to have paid its employees while:
(a) its operations were fully or partially suspended during 2020, due to orders from a governmental authority on account of the COVID-19 crisis; or
(b) its operations remained open, but the business’ gross receipts for that quarter were less than 50% of what they were for the same quarter in 2019. In this case, the business will be entitled to a credit until it has a quarter in which its gross receipts exceed 80% of what they were for the same quarter in the prior year.
The credit is equal to 50% of the “qualified wages” paid to each employee for that quarter. A business’ “qualified wages” depends on its size.
- When a business is under 100 employees, qualified wages include wages paid to employees during the quarters in which the business is shutdown and wages paid during each quarter in which the business has suffered a sharp decline as described in (b) above.
- For businesses with more than 100 employees qualified wages means only those wages paid to employees during a shutdown.
Health care expenses allocable to wages like group health care plan costs, may count toward qualified wages.
PAID SICK LEAVE
C.A.R.E.S. contains Paid Sick Leave provisions that supplement the Families First Coronavirus Response Act (“FFCRA”) signed into law by President Trump on March 18, 2020. The FFCRA expands the Family and Medical Leave Act (FMLA) and enacts the Emergency Paid Sick Leave Act to address the COVID-19 Public Health Emergency. For more information regarding the FMLA expansion and the Emergency Paid Sick Leave Act, please review this summary drafted by our Labor & Employment team available
Here is a summary of important provisions from the C.A.R.E.S Act regarding an employers’ obligations with respect to paid sick leave of its employees:
- Employers are not required to pay more than $200 per day and $10,000 in the aggregate for each employee taking paid leave pursuant to the FCCRA’s FMLA expansion.
- Employees eligible for the FMLA expansion include employees laid off by the employer no earlier than March 1, 2020 that worked for the employer no less than 30 of the last 60 calendar days prior to being laid and were re-hired by the employer.
- Employers are not required to pay more than $511 per day and $5,110 in the aggregate for each employee, when the employee—as permitted by the Emergency Paid Sick Leave Act—takes leave as a result of: (1) a government mandated isolation/quarantine; (2) a healthcare provider’s advice to self-quarantine; or (3) the employee exhibiting COVID-19 symptoms and is seeking treatment.
- Employers are not required pay to more than $200 per day and $2,000 in the aggregate for each employee, when the employee—as permitted by the Emergency Paid Sick Leave Act—is taking the emergency paid leave to: (1) care for an individual subject to a government mandated isolation/quarantine; (2) care for a child at home as a result of the child’s school closing; or (3) address the employee’s symptoms of any other substantially similar condition as COVID-19 as certified by the Department of Health and Human Services.
- Employers may seek an advance on payroll tax credit refunds for the employer’s new obligations under the FFCRA’s FMLA expansion and the Emergency Paid Sick Leave Act. The Internal Revenue Service will provide instructions on the precise process to seek such advanced credits.
LIABILITY PROTECTION FOR HEALTH CARE WORKERS
Questions are bound to arise regarding whether the CARES Act preempts relief efforts that have been enacted by the individual states, either by legislation or executive order. C.A.R.E.S. does not directly address the point; there is only one mention of preemption of state law in the new federal law: the laws of any state, and political subdivision within that state, are preempted with respect to ensure that the liability of volunteer health care professionals during a COVID-19 emergency response is limited.
C.A.R.E.S. provides that no health care professional shall be liable for any act or omission in providing health care services during the COVID-19 public health emergency as declared by the Secretary of Health and Human Services if: (i) the professional is providing health care services in response to the COVID-19 public health emergency as a volunteer; (ii) the act or omission occurs while providing health care services within the scope of their professional license; and (iii) the health care professional has a good faith belief that the individual being treated needed health care. The only exceptions are if the harm was caused by an act or omission constituting willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious flagrant indifference to the rights or safety of the individual harmed by the health care professional; or the health care professional rendered the health care services under the influence (as determined pursuant to applicable State law) of alcohol or an intoxicating drug. This preemption will sunset upon the end of the COVID-19 public health emergency as declared by the Secretary of Health and Human Services.
In other words, a health care professional acting within the scope of their license in a volunteer capacity during the COVID-19 health emergency is immune from liability provided they meet the criteria and time-frame established within C.A.R.E.S. This preemption only applies to the individual providing health care services, not to any health care provider and/or organization. Health care providers would be wise to consider this provision in light of any health care professionals providing volunteer health care services during the COVID-19 health emergency.
Because C.A.R.E.S. does not directly address preemption issues, there could be various issues of preemption or conflicts of laws with regard to your agreements, insurance policies, and potential requests for relief and assistance under C.A.R.E.S. Small businesses must also look to state law to consider whether participation in C.A.R.E.S. programs or benefits will limit or disqualify a business from taking advantage of specific state programs. Please make sure to contact us with respect to any provision of C.A.R.E.S, as you will need to know whether your intention is permitted or altered in any way due to existing state laws.