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    On March 27, 2020, the President signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act. Under the CARES Act (or “Act”), approximately $2 trillion will be provided to individuals, businesses, and states, among others, in response to the coronavirus pandemic.  Several provisions impact employers directly and provide relief through small business loans and increased unemployment benefits.

    Because the Act has just been signed into law and covers a wide range of areas, the information below is provided solely as a limited summary regarding the provisions of the Act most pertinent to employers and their work forces.  Keep in mind that there are also provisions within the Act that provide targeted aid to large employers, governments, and specific industries (such as aviation).  In light of this, we urge you to remain in contact with your legal counsel regarding the interpretation and application of the CARES Act, the Families First Coronavirus Response Act, recent Executive Orders, and other federal, state and local laws and emergency orders issued in response to COVID-19.


    CARES Act – Limited Employer Pertinent Summary

    Disaster Loans

    The CARES Act provides $10 billion to expand the SBA’s disaster loan program from January 31 through December 31, 2020 to cover businesses, cooperatives, employee stock ownership plans, and tribal businesses with 500 or fewer employees, as well as sole proprietors and independent contractors.

    It also authorizes the SBA to advance as much as $10,000 to existing and newly eligible disaster loan recipients within three days of receiving their applications. Recipients can use the advance funds to pay sick leave to employees affected by Covid-19, retain employees, address interrupted supply chains, make rent or mortgage payments, and repay debt. Recipients are not required to repay the advance funds.

    The measure also will permanently expand the SBA’s disaster loan program to cover small entities affected by emergencies for which the president determines the federal government has primary responsibility, as President Donald Trump has done for the coronavirus pandemic.

    The SBA  will issue regulations to implement the measure within 15 days of enactment.

    Small Business Loans

    The CARES Act establishes a new Paycheck Protection Program to let small businesses, nonprofits, and individuals seek loans through the Small Business Administration’s (“SBA”) 7(a) loan program.

    The Act authorizes $349 billion in total 7(a) lending from February 15, 2020 through June 30, 2020.  It also provides $349 billion for the SBA to fully guarantee loans under the new program.  Loans are available during the covered period for:

    • Any business, nonprofit, veterans group, or tribal business with not more than the greater of 500 employees, or a number set by the SBA for the relevant industry.
    • Sole proprietors, independent contractors, and eligible self-employed workers.
    • Hotel and food service chains with 500 or fewer employees per location.


    Eligible recipients can receive loans for as much as $10 million or 250% of their average monthly payroll costs. Interest rates during the covered period are to be capped at 4%.

    Recipients may use the loans to cover eligible payroll costs -- including salaries, commissions, regular paid leave, and health-care benefits -- as well as mortgage interest and utility payments. However, the funds may not be used to compensate individual employees at an annual rate above $100,000, or to pay for emergency sick or family leave under the second coronavirus response package (the Families First Coronavirus Response Act).

    Any business receiving funds will be required to make a “good faith certification” that it will use the funds to retain workers, maintain payroll, and pay for rent and similar expenses.

    SBA rules on company affiliates used to determine small business size will be waived for franchises, food or lodging companies with 500 or fewer employees, and businesses that get financial assistance from a small business investment company.

    Loan Forgiveness

    Recipients of SBA-guaranteed loans under the Paycheck Protection Program can apply for loan forgiveness over eight weeks for eligible payroll costs and for mortgage interest, rent, and utility payments. Businesses can also receive forgiveness for additional wages paid to tipped employees.

    The SBA will pay lenders for any canceled debt plus accrued interest. Lenders generally will not be subject to enforcement actions under the Small Business Act related to loan forgiveness.

    Loan forgiveness will be reduced for businesses that fire employees or significantly cut their pay during the covered period. The Act sets out the limits on forgiveness and provides for a reduction of the forgiveness based on a reduction in the number of full-time equivalent employees.  It allows the eligible recipient (employer) to choose one of two designated time periods for calculating its average number of full-time equivalent employees per month for the purposes of determining the reduction of forgiveness.  Additionally, the loan forgiveness is also reduced if employee salaries or total wages are significantly reduced during the covered period. 

    Employee Retention Credit

    This portion of the Act establishes, among other things, a refundable credit against employer payroll taxes for certain employers that are hurt by the coronavirus pandemic but retain their employees. The credit is for 50% of eligible employee wages paid after March 12, 2020, and before January 1, 2021. It provides for as much as $10,000 of compensation, including health benefits.

    Employers can receive the credit if a government order related to the coronavirus pandemic requires them to partially or fully suspend operations, or if their gross receipts declined by certain thresholds. Alternate rules apply for tax-exempt organizations.

    Employers with more than 100 full-time employees in 2019 will receive credits for wages paid to employees while they are not providing services. Employers with fewer employees will receive credit for wages paid while operations were suspended or during the quarter in which the company had a significant decline in gross receipts.

    Employers may not receive the credit if they receive a loan under the SBA Paycheck Protection Program for 7(a) loans established by the Act (see above).

    Employers may not use the credit for wages for which they also receive a credit under the work opportunity tax credit or a paid leave credit established by the 2017 tax overhaul (Public Law 115-97). Wages taken into account for the paid leave credits established under the second coronavirus response law (Public Law 116-127) may also not be used for the employee retention credit.

    The credit will not apply to federal, state, or local government employers.

    Unemployment and Paid Leave

    Under Section 2104 of the CARES Act, in states participating in an agreement with the Secretary of Labor, recipients of state unemployment benefits will also be paid an additional $600 per week. This additional compensation is called “Federal Pandemic Unemployment Compensation.” Federal Pandemic Unemployment Compensation will be paid at the same time and in the same manner as  other regular unemployment compensation payable for the week, or, at the state’s option, will be paid separately from, but on the same weekly basis as regular unemployment compensation is paid.

    The benefit provisions apply retroactively to January 27, 2020 and will remain in place through December 31, 2020, and compensation will be provided without any waiting period.

    This section includes a “nonreduction rule.”  This rule provides that states cannot compute regular unemployment compensation in such a manner that reduces the number of weeks (maximum benefit entitlement) or the average weekly benefit (determined without Federal Pandemic Unemployment Compensation) that would otherwise be payable. 

    Additionally, the monthly equivalent of any Federal Pandemic Unemployment Compensation paid to an individual shall not be included when determining income eligibility for programs such as Medicaid and CHIP.

    States that participate will be reimbursed 100 percent of the total amount of Federal Pandemic Unemployment Compensation paid to individuals, plus any administrative expenses incurred as a result of the agreement with the Secretary. But any agreements with the secretary are of limited duration, ending on or before July 31, 2020.

    Work-Sharing Programs

    States will have 100% of their costs covered for supporting “short-time compensation” programs through December 31, 2020. The voluntary programs provide workers with prorated unemployment benefits to offset work reductions made by their employer in lieu of a layoff. It does not apply to seasonal or temporary workers.


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