On March 27, 2020, the President signed into law a massive two trillion dollar stimulus bill addressing a wide range of challenges to our economy caused by the coronavirus (COVID-19) pandemic. The legislation, entitled the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), supplements and modifies prior bills, including the Families First Coronavirus Response Act (FFCRA), which we previously blogged about here, here, here, and here. While the CARES Act is lengthy (800+ pages) and complex, this post highlights in digestible portions a few of the significant provisions that are likely of the most interest to employers.
Modifications to the FFCRA/immediate tax credits for leave
- The CARES Act modifies the family and emergency sick leave provisions in the FFCRA, which allow businesses with 500 or fewer employees to claim a tax credit when they provide certain leave to employees impacted by COVID-19. Under the FFCRA, employers are required to bear the costs of paid family and sick leave and await reimbursement in the form of a tax credit from the IRS. To alleviate cash flow concerns, the CARES Act provides employers an advance tax credit immediately, rather than recovering the money later.
- Employees who were laid off on March 1, 2020 or later, and subsequently rehired by the same employer, are eligible for emergency paid FMLA leave, so long as the employee was employed for at least 30 of the last 60 calendar days prior to the layoff.
Paycheck Protection Program
- Businesses with 500 or less employees (or the level set by the Small Business Association for the employer’s industry) may qualify for the Paycheck Protection Program (PPP), which provides for forgivable loans of up to 250 percent of an employer’s average monthly payroll costs (excluding prorated amounts for individuals with compensation greater than US$100,000), with a cap of US$10 million. The loans may be used to cover payroll costs, group health benefits, salaries, rent, mortgage interest, utilities and other qualifying expenses. Standard fees and personal-guarantee requirements are waived and replaced by a certification requirement. The maximum term of the loan is 10 years with an interest rate of four percent or less. Self-employed, sole proprietors, and freelance workers are eligible to apply.
- Covered loans under the Paycheck Protection Program are eligible for debt forgiveness during the covered period (the eight week period after the origination of the covered loan) if the employer maintains their workforce and salaries/wages between the date of the loan origination and June 30, 2020, as compared to one of two previous reference periods, though the Treasury Department has advised that at least 75 percent of the forgiven amount must be used for payroll expenses. If the business reduces its workforce or worker salaries, the loan amount forgiven will be reduced. Companies that re-hire previously laid-off employees and/or restore previously reduced wages will not be penalized in loan forgiveness calculations so long as they bring these levels back to February 14, 2020 levels by June 30, 2020. Lender applications for the program are expected to be available starting April 3, 2020.
Employee retention tax credit/payroll taxes
- The CARES Act provides a tax credit, the Employee Retention Credit, for employers who have had their businesses closed or partially-closed because a government order related to the virus or a 50 percent decline in revenue as compared to the same period in 2019. The credits reach as high as 50 percent of qualified wages paid to an employee between March 13, 2020 and December 31, 2020 (capped at US$5,000 per employee). The credits apply to employment taxes (FICA, federal unemployment taxes, and Social Security taxes). They can be taken with other CARES Act benefits, like PPP and the FFCRA credits, but the qualified wages claimed for the retention credit cannot be FFCRA payments or be counted as “payroll costs” for purposes of PPP forgiveness. Companies with 100 employees or fewer may be eligible for a credit for all qualifying wages, where larger companies can receive credit only for wages paid to employees not working because of a government order or the revenue decline referenced above.
- Employers may also defer or postpone the employer share of Social Security payroll taxes owed from the date of enactment of the CARES Act through the end of 2020. These deferred payroll taxes must be paid in two installments: 50 percent due by December 31, 2021, and the remaining 50 percent due by December 31, 2022. The deferral can be exercised by any employer, except those that obtain a PPP loan, without any requirement to show impact from COVID-19 or government shutdown.
- The CARES Act expands unemployment benefits, adding a maximum of US$600 per week to a State’s unemployment benefits for those who qualify (essentially those who are unemployed—even partially—due to COVID-19 and its effects). Unemployment benefits are extended an additional 13 weeks, from 26 to 39 weeks (ending December 31, 2020) and expanded to encompass independent contractors, self-employed individuals, and individuals with limited work histories. It permits states to waive the typical seven-day waiting period for benefits, which many states have already done.
- Unemployment benefits are also available to those who have not been laid off, but could not start a new job, or continue their work, because of COVID-19 (g. their business is closed, they were diagnosed, awaiting diagnosis, caring for a family member who was diagnosed, or they cannot travel to their workplace). Furloughed workers are eligible, as well as individuals whose head of household died from COVID-19. Individuals with the ability to telework or who are receiving other COVID-19-related benefits (such as paid leave) are ineligible.
- It also includes funding of “short-time compensation” (i.e. Work Share) programs through December 31, 2020. Such programs, which already existed in many states, allow employers to reduce employee hours by 10 to 60 percent instead of laying off workers. Employees with reduced hours can receive prorated unemployment benefits. Employers pay half the prorated benefits to the state unemployment insurance fund and allow employees to maintain their benefits.
The provisions described above are intended to incentivize employers to avoid furloughs and mass lay-offs where possible, and to assist the unemployed or underemployed during this crisis. Note that many of these provisions have exceptions, caveats, and additional requirements, and further guidance and regulations will certainly be forthcoming. The Hogan Lovells Employment Team is staying up-to-date on the latest changes and information regarding the CARES Act (and all employment-related aspects of the COVID-19 response) and we stand ready to assist and advise you as we navigate these uncharted waters together. Please contact one of the authors of this Alert or other Hogan Lovells employment attorneys with whom you regularly work for additional information related to the CARES Act.