On March 27, 2020, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). As the economic fallout of the COVID-19 pandemic worsens, this expansive legislation provides relief to businesses, employees, states, and municipalities through various mechanisms including loans and unemployment assistance.
While not meant as a comprehensive summary, the following highlights some of the key provisions of the CARES Act that apply to employers or their employees:
1. “Paycheck Protection” Loans
The CARES Act provides for forgivable loans to eligible recipients, including businesses and nonprofit organizations with no more than 500 employees, to cover operational expenses. In general, the loan amounts are limited to the lesser of $10 million or an average of 2.5 months of payroll costs. The law also allows for advances on these loans up to $10,000. Interest rates on the loans are capped at 4% and these loans do not require a personal guarantee or collateral.
Recipients may use the loans to cover various expenses such as payroll costs (including employee salaries and wages), group health care benefit continuation costs, mortgage interest, rent, utilities, and other debt obligations. The recipient must make good-faith certifications including that the loan is necessary to support ongoing operations and will be used to retain workers, maintain payroll, or make mortgage, lease, and utility payments.
These loans are forgivable up to certain amounts, not to exceed the principal, based upon specific costs and payments made by the recipient during the first eight weeks of the loan. The forgivable amount is subject to further limits if the recipient reduces its workforce or its employees’ salaries or wages.
2. Unemployment Assistance
The CARES Act also provides relief to individuals in the form of unemployment assistance beyond what is traditionally available under state unemployment insurance programs. In order to provide these expanded unemployment benefits, the CARES Act requires states to enter into agreements with the federal government to receive reimbursement. Some of the key benefits under the law are summarized below:
- Allows for up to 39 weeks of assistance (traditionally, unemployment compensation is available for 26 weeks);
- Extends eligibility to individuals who are self-employed, seeking part-time employment, do not have a sufficient work history, or otherwise would not traditionally qualify for benefits (e.g., independent contractors, gig workers, etc.);
- In addition to the amount available to eligible recipients under the applicable state’s unemployment program, the law provides for an additional $600 of assistance per week;
- Assistance is available without any waiting period;
- Provides funding for reimbursement of half of payments made by governmental entities and non-profits into the unemployment fund;
- Allows individuals who are actively seeking work and have already exhausted their pre-existing unemployment benefits to receive an additional 13 weeks of assistance (including the added $600 per week).
3. Emergency Relief Loans
The CARES Act also provides for non-forgivable loans and other relief to businesses, states, and municipalities. Some of the loans are designated specifically for air carriers and businesses that are “critical to maintaining national security.” Apart from these industry-specific loans, the CARES Act allocates $454 billion to support lending to eligible businesses, states, and municipalities by purchasing obligations and making loans.
The CARES Act specifically directs the Secretary of the Treasury to implement programs that provide financing to banks/lenders for loans to eligible “mid-size” businesses with between 500 and 10,000 employees. These loans must have annualized interest rates not higher than 2%. For the first six months, no interest or principal is due on the loans. These loans require the borrower to make certifications including, among other things, that: the funds will be used to retain at least 90% of the workforce until September 30, 2020; they intend to restore not less than 90% of the workforce as it existed on February 1, 2020 and restore all compensation and benefits within 4 months after the COVID-19 public health emergency ends; and they will not outsource or offshore jobs for the term of the loan plus 2 years after completing repayment. Furthermore, the borrower must certify that they ““will not abrogate existing collective bargaining agreements for the term of the loan and 2 years after completing repayment of the loan” and “will remain neutral in any union organizing effort for the term of the loan.” Finally, loan agreements for some of these Emergency Relief Loans place limits on compensation for highly compensated employees.
Conclusion
In addition to the above, the CARES Act contains other provisions applicable to employers, e.g., tax credits, delayed payment of employer payroll taxes, etc. The CARES Act also includes some amendments to the recently-passed Families First Coronavirus Response Act (“FFCRA”) (discussed here). Of note, the amendments clarify the eligibility of rehired employees for expanded family and medical leave under the FFCRA. Specifically, rehired employees who were laid off not earlier than March 1, 2020 are eligible for that leave if they worked for not less than 30 of the last 60 calendar days prior to their layoff.
Due to the expansive nature of this legislation, employers who have questions regarding the CARES Act should contact their counsel, tax advisers, and other consultants as needed for specific advice.
Z&R will continue to monitor the latest information governing employers and has created a resource center. Previous Z&R articles addressing employer requirements and considerations during the COVID-19 pandemic can be found here:
- Coronavirus Considerations for Employers
- Ohio Provides Some Cover for Employers and Employees in Wake of COVID-19
- Federal COVID-19 response mandates paid leave (for now)
- Application of the Worker Adjustment and Retraining Notification Act (“WARN”) to Closures Caused by the COVID-19 Pandemic
- Ohio BWC: Allows Deferment of Premium Payments and Addresses Compensability of Contracting COVID-19
- Ohio Department of Insurance Provides Coverage Flexibility for Ohio Employees in the Wake of COVID-19
- FLSA Implications for Employers Considering Reductions in Pay
- Ohio Legislature Passes Emergency COVID-19 Response Legislation
- U.S. Department of Labor Issues Families First Coronavirus Response Act Model Notice
*Patrick M. Watts, an OSBA Certified Specialist in Employment & Labor Law, regularly advises clients on all employment related matters. If you have questions about the CARES Act or any employment law questions, please contact Patrick at pmw@zrlaw.com or (216)696-4441.