COVID-19 Workplace Benefits for Employers

On March 27, 2020, Congress passed the initial round of the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act,  to address the economic fallout caused by the coronavirus (COVID-19) pandemic and to provide financial relief to those persons and small businesses impacted by the health crisis. A primary goal of the CARES Act is to help businesses, especially small businesses, stay alive.

Some of the provisions of the first round of CARES are detailed further in this blog, below.

Tax Relief

One major aspect of the relief available to employers under CARES is tax relief, which helps businesses that are struggling to survive the pandemic stay afloat temporarily, improving their cash flow.

Tax Credits to Enable Employee Retention

• Eligible employers will be allowed a refundable payroll tax credit equal to 50% of qualified wages paid or incurred between March 13, 2020, and December 31, 2020, if:
• the employer’s operations were fully or partially suspended because of a shut-down order due to COVID-19; or
• the employer’s gross receipts declined by more than 50% when compared to the same quarter in the prior year
• The credit is limited to $10,000 of qualified wages (including benefits) per employee
• Note that this credit is not available to employers who receive a paycheck protection loan

The design is that the government is subsidizing the short-term continued employment of workers by providing significant tax relief to incentivize and facilitate employee retention.

Deferral of Social Security Taxes:

• Both employers and self-employed individuals are able to defer their payment of the employer’s share of social security taxes.
• Taxes that would have been paid between March 27, 2020 and December 31, 2020 are eligible
• Repayment is due over the next two years – half by the end of 2021 and half by the end of 2022
• Expanded Loan Availability through the Small Business Association (SBA)

A second major aspect of the relief available to employers under CARES is a financing program to allow businesses almost immediate access to money to keep them afloat.

Under CARES, private employers (including businesses, cooperatives, employee stock ownership plans, and tribal small business concerns with 500 or more employees as well as sole proprietors and independent contractors—with or without employees), are entitled to an Economic Injury Disaster Loan Emergency Advance.

This program covers January 31, 2020 through December 31, 2020.

The money can be used to pay for a range of expenses / financial obligations:

• Paid sick leave obligations
• Payroll (for employees still working)
• Rent / mortgage payments
• Obligations that could not otherwise be met due to revenue losses

The usage of money under this program is less restrictive than under the parallel Paycheck Protection Program

• Each eligible entity is entitled to up to $10,000 immediately, but the amount is dependent on the number of employees
• The application is based on self-certification under penalty of perjury
• May need to be able to verify the number of employees on payroll.
• Although titled an advance / loan, because repayment is not required in many cases, it can operate as a grant (for up to the first $10,000; maximum of $1,000 per employee)
• A greater amount of borrowed money is available, but would need to be repaid
• Loans are made through private lenders, which need to be SBA approved

 

Paycheck Protection Program (PPP)

A third major aspect of the relief available to employers under CARES is a more significant, longer term loan to enable businesses to cover forthcoming costs, particularly to avoid layoffs and keep people employed. As with the Economic Injury Disaster Loan Emergency Advance, the eligibility is very broad for businesses employing fewer than 500 workers, including non-profits and independent contractors.

• Benefits of this program that make loans easier to obtain:
  • Credit score and revenue levels are not considered
  • No collateral or personal guarantees are required
• This program covers February 15, 2020 through June 30, 2020
• Note that currently these funds have all been claimed, but Congress is working on allocating additional funds to this program so that more money could become available. Stay tuned!
• The money can be used to pay for:
  • Payroll costs
  • Costs related to continuation of group health care benefits
  • Costs to keep the physical business plant open, such as: mortgage interest, rent, utilities
  • Interest on any other debt obligations that were incurred before February 15, 2020

• The amount each business can borrow is substantially higher – up to $10 million
  • The maximum loan size depends on its payroll costs; the PPP caps loan size at 2.5 times the employer’s monthly payroll costs, which include:
    • Paid vacation time
    • Paid parental / family leave
    • Paid medical / sick leave
    • But NOT paid family and sick leave under the Families First Coronavirus Response Act
    • A limit of $100,000 for any individual employee’s compensation
    • State and local taxes
    • Insurance premiums
    • Retirement benefits

• A portion of the loan becomes forgivable, on the condition that workers remain employed through June 2020 (specifically, maintaining worker headcount and salary/wage levels for eight weeks)
  • Only 25% of the forgiven amount can be used for non-payroll costs
  • Salary maintenance does not apply to salaries that had exceeded $100,000 annually

• The remaining portion of the loan, which must be repaid, has beneficial characteristics:
  • Repayment is deferred for 6 months (but interest accrues during this initial period)
  • A two-year repayment terms
  • No origination or packaging fees
  • A low 1% interest rate

Businesses that take advantage of this Small Business Association loan program should keep careful records of their spending to meet documentation requirements and make sure that at least 75% of the usage is for payroll purposes. The design is to enable businesses to survive the immediate impact of the COVID-19 pandemic and ultimately to keep people employed. It can be a valuable complement to the already existing SBA loan programs under these trying circumstances because of the business-friendly terms.

By Angela Reddock-Wright, Esq., Employment Mediator, Arbitrator & Workplace Investigator

DISCLAIMER:

Nothing in this blog, written materials or otherwise is intended as legal advice by the Reddock Law Group, Managing Partner Angela Reddock-Wright, or any person associated with the firm. This blog is intended for educational purposes only. The Reddock Law Group does not represent clients in legal matters. We are a full-service mediation, neutral, investigations and alternative dispute resolution firm. For legal advice, please contact a licensed attorney with experience in employment law.