In response to the widespread, devastating impact of COVID-19 and resulting shuttering of or significant reduction in business, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020, which became effective as of President Trump’s immediate signing into law.  The unprecedented legislation, which experts estimate will inject over $2 Trillion into the U.S. economy, has received significant media attention.  The 880-page bill has many pertinent changes to existing law with significant impact for employers, employees and other workers.  While the Davis Malm Employment Law Practice Group continues to analyze the CARES Act, this Alert provides a summary of relevant changes.

 

EXPANSION OF UNEMPLOYMENT INSURANCE ELIGIBILITY AND BENEFITS

The CARES Act significantly increases unemployment insurance (UI) benefits for those already receiving it and expands eligibility to include individuals not ordinarily eligible for UI benefits under existing state law.

Individuals receiving UI benefits directly from a state will receive an additional $600 per week for up to four months, provided that their state agrees to participate in this program. This weekly payment is called the “Federal Pandemic Unemployment Compensation.”

The increase in weekly benefits for UI recipients is not the only wide-ranging expansion of UI laws.  Under existing state unemployment insurance laws, self-employed individuals, workers in the “gig economy” and underemployed individuals are likely ineligible for UI benefits.  The CARES Act expands eligibility for UI to cover these individuals where they cannot work due to COVID-19 (whether it is due to a COVID-19 diagnosis, quarantine obligation, caring for a family member or the closure of business), through federal disaster unemployment assistance.  These individuals must apply for UI benefits through their state’s system, but their benefits are calculated based on federal disaster assistance regulations.  On top of the federal benefits these individuals are now eligible to receive, they will also receive a weekly Federal Pandemic Unemployment Compensation benefit of $600, as long as they are partially or totally without work for up to four months.

The CARES Act also extends the length of the period during which claimants can receive UI benefits by 13 weeks, for up to 39 weeks total.

Any individuals unable to work or who experience a reduction in hours due to COVID-19 are encouraged to apply immediately for UI to the Massachusetts Department of Unemployment Assistance or other state agency in other states.  Employers who need to furlough or reduce the hours of their workers, including independent contractors, should likewise encourage these individuals to apply.

 

CREDITS FOR EMPLOYERS RETAINING EMPLOYEES

The CARES Act also allows tax credits to employers with respect to applicable employment taxes paid to incentivize certain businesses to maintain their employees on the payroll.  The tax credit will be equal to 50% of the qualified wages to each employee (up to $10,000 total) for the remaining entire 2020 tax year.  A qualified wage for an employer with over 100 employees is any wage paid to employees when they are not performing services due to COVID-19, subject to certain required statutory tests.  All wages paid by employers with less than 100 employees is considered a qualified wage.

Employers  who qualify  are eligible to claim these tax credits if their trade or business is fully or partially suspended due to COVID-19, or their business has suffered a significant decline in gross receipts of over 50% when compared  quarter to quarter to 2019, up until their business activity exceeds 80% of the prior quarter’s income.  Nonprofit entities are also eligible for these tax credits.  Duplicate wage-related federal tax credits for the same COVID-19 related wages paid by the employer are not allowed.  Guidance from the IRS will be needed in the near future, and we will issue further alerts.

 

SMALL BUSINESS PAYCHECK PROTECTION PROGRAM

The Paycheck Protection Program provides short-term cash flow assistance to small businesses and nonprofits through June 29, 2020.  Loans will be available through SBA certified financial institutions.  The funds must be used for:

  • payroll (including salaries, wages, most paid leave, severance, retirement benefits, and state and local taxes assessed on compensation), provided that the funds cannot be used for any salaries that exceed $100,000 annually;
  • costs related to group healthcare benefits (including insurance premiums)
  • employee commissions and tips;
  • interest on mortgage obligations;
  • rent;
  • utilities; or
  • interest on prior debt.

For employers that meet certain requirements, all or a portion of loan principal will be forgiven.  Payment deferrals will also available. For any amounts not forgiven, the maximum term will be 10 years and the maximum interest rate is 4%.  No collateral is required for these loans and the usual personal guarantee requirement is waived.  Available loan size will be based on calculations related to payroll costs. Further details on this loan program will be provided in a separate alert.

 

UPDATED DOL GUIDANCE ON PAID SICK AND LEAVE UNDER THE FAMILIES FIRST CORONAVIRUS RESPONSE ACT

As we previously reported in a recent Employment Alert, the Families First Coronavirus Response Act (the Act), which goes into effect on April 1, addresses strategies to help business  owners keep their businesses afloat, and includes provisions relevant to emergency paid sick time and emergency partially paid family and medical leave. The U.S. Department of Labor provides a Q&A page on their website to assist employers and employees with compliance and rights under the Act.  The DOL also recently updated its poster on this subject, which employers should download, provide to employees and/or post in the workplace accordingly.

 

CONTACT

Please contact a member of our Employment Law Practice to discuss the CARES Act and how it might affect your business or employment.

 

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