What the CARES Act Means for Small Businesses and Their Employees

Congress has passed the $2 trillion relief package known as the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was subsequently signed into law.

The purpose of the Act is to provide some much-needed relief for many Americans, including aid to hospitals, individuals, and a variety of covered employers, including small businesses.  The implementation of this new law will undoubtedly impact many of you, and while the Bill is nearly 900 pages long, below is our attempt to summarize some of the highlights, with a focus on small businesses and their employees.

The Paycheck Protection Program (PPP) Loans

This will provide employers access to loans that are low interest and 100% federally guaranteed, provided that they maintain their staffing and payroll throughout this national emergency.  The underlying purpose is to keep Americans employed as we all navigate this new reality.

In short, eligible borrowers can obtain the equivalent of up to 2.5 months’ payroll costs, which is capped at $10 million.  “Payroll costs” include, but are not limited to items ancillary to wages, such as some taxes, retirement and healthcare benefits.  While there are limitations and exclusions, including a limitation on employee salary exceeding $100,000 and ineligibility for qualified sick and family leave for which a credit is allowed under section 7001 and 7003 of the Families First Coronavirus Response Act.  For the most part, IF PAYROLL IS MAINTAINED, AND OTHER CRITERIA ARE SATISFIED, THE LOANS WILL BE FORGIVEN.

The business/borrower had to be in operation as of February 15, 2020.  “Small businesses” must have less than 500 employees, (or an applicable size standard defined by the North American Industry Classification System (NAICS).  Sole proprietors, independent contractors and self-employed individuals can be eligible.

Permitted uses for the loan include payroll, costs for group healthcare benefits, rent, utilities, interest on mortgages, and interest on debt incurred prior to the covered period.

Forgiveness is equal to the sum of payroll costs (as provided for in a formula) incurred during an eight week period compared to the prior year, (or other time period) proportionate to maintaining employees and wages.  In order to have the loan forgiven, you must apply through your lender, and include requisite documentation.  If any portion of the loan is not forgiven, it will be subject to a maximum interest rate of 4% for a 10 year term, and will still be guaranteed by the SBA.

The effective period is retroactive to February 15, 2020, so those who have already laid off employees may be able to bring employees back on to payroll.  These loans are available until June 30, 2020.

The Employee Retention Credit for Those Subject to Closure or Experiencing Economic Hardship

This is a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees.  In order to be eligible, an employer must have had operations either fully or partially suspended as a result of a government order.  The requirement is a limitation, not a total work stoppage, and includes limitations on, among other things, group meetings.  Additionally, employers that have seen more than 50% reduction from the same quarter of the prior year are eligible.  Eligible employees are those that have had hours reduced, faced economic hardship or who have been furloughed.  For employers with less than 100 employees, any employee wages are eligible, regardless of furloughs.

However, the two benefits listed above are mutually exclusive, meaning that if an employer receives assistance through the Paycheck Protection Program, they are ineligible for this program.

Other Types of Assistance

The act also allows taxpayers to defer payment of the employer portion of some payroll taxes through the end of the year, however any amounts that are deferred are payable in two installments at the end of the following two years.

Similarly, employers who have had operations at least partially suspended as a result of a government order, or those who have seen a 50% reduction in business can defer payment of their portion of the Social Security tax through December 31, 2020.

Unemployment Insurance

Many of the normal rules regarding unemployment have been stripped away.  Including, in New York, the requirements related to the initial waiting periods before eligibility.  Additionally, more people will be eligible to receive unemployment, including those who are self-employed, those in the “gig economy”, part-time and per-diem workers.  This is a temporary and limited benefit that ends on December 31, 2020.

You can access more information from the “Small Business Owners Guide to the CARE Act” provided by the U.S. Senate Committee on Small Business & Entrepreneurship.

If you have questions about what these programs mean for you or your business, or you need any other assistance in navigating this hopefully brief abnormal new reality, please do not hesitate to contact Drucker & Mattia, PLLC.

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