Alerts

FAQs: The Coronavirus Aid, Relief and Economic Security (CARES) Act: What It Means for Employers

Alerts / April 16, 2020

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a roughly $2 trillion bill intended to provide emergency assistance and healthcare response for individuals, families, and businesses affected by the COVID-19 pandemic. The Senate passed the CARES Act on March 25, 2020, and the House of Representatives passed and President Trump signed it on March 27, 2020. The CARES Act will supplement, and in some cases amend, the Families First Coronavirus Response Act that takes effect April 1, 2020.

The CARES Act includes significant measures for individuals, employers, and businesses to handle and overcome the COVID-19 pandemic. In addition to a multitude of tax benefits for businesses of all sizes, it includes various elements to help keep people healthy, supported, and engaged in the economy, such as direct cash for families, extra unemployment benefits, tax-free student loan repayment benefits, temporary student loan relief, insurance coverage for COVID-19 testing and treatment, emergency funds for small businesses, forgivable loans for small businesses, and public health funding. For employers, these important topics include:

The set of FAQs below is intended to answer in brief some questions employers may have regarding the CARES Act. These FAQs and this page will be updated as necessary.

Unemployment Compensation Benefits Issues

Q: What types of unemployment benefits are available under the CARES Act for employees who are terminated or furloughed?

A: There are three types of unemployment benefits in the Act: (1) Federal Pandemic Unemployment Compensation; (2) Pandemic Emergency Unemployment Compensation; and (3) Pandemic Unemployment Assistance. Each has different eligibility requirements. All three are 100% federally funded and cannot be charged to employers or impact the employer’s experience rating.

Federal Pandemic Unemployment Compensation (“FPUC”)

The FPUC provides that individuals eligible for and receiving state unemployment benefits or unemployment benefits under various federal programs (including those in the CARES Act set out below) will get an additional $600 under the CARES Act until July 31, 2020. This amount is paid in addition to the other unemployment compensation amounts being received by the eligible individuals. The FPUC does not require a showing that the individual’s unemployment is related to COVID-19.

Pandemic Unemployment Assistance (“PUA”)

Generally under the PUA, employees are entitled to up to 39 weeks of unemployment benefits through December 31, 2020, if they are unable to work due to COVID-19 reasons. The amount of this assistance depends on several factors, and must be related to a COVID-19 reason. The COVID-19 reasons that trigger eligibility include:

  • Being diagnosed with COVID-19 or is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
  • A member of the individual’s household has been diagnosed with COVID-19;
  • The individual is providing care for a family or household member with COVID-19;
  • The individual is providing care to a child who is unable attend school as a direct result of COVID-19 and providing that care prohibits the individual’s ability to work;
  • The individual is unable to reach the place of employment because of a COVID-19 quarantine or because a health care provider advised the individual to self-quarantine;
  • The individual was scheduled to commence employment, but does not have a job or cannot reach the job as a result of COVID-19;
  • The individual had become the breadwinner of a household because the head of household died because of COVID-19;
  • The individual has quit or the individual’s place of employment has closed as a direct result of COVID-19.

In addition to the above, to be eligible for PUA the employee will need to have exhausted all other state and federal unemployment benefits or be ineligible for regular compensation or extended benefits under state or federal law. Generally, they also cannot receive any type of paid leave or be able to telework. But, an employee receiving paid sick leave or other paid leave benefits for less than his or her customary work week may still be eligible for a reduced amount of PUA. Similarly, if an employee has been offered the option of teleworking with pay and does telework with pay, but is working less than the employee customarily worked prior to the COVID–19 pandemic, the employee may still be eligible for a reduced amount of PUA.

Importantly, any weeks during which the employee received other unemployment benefits (including state benefits, extended benefits, FPUC, and other federal benefits) are counted toward the PUA’s 39-week limit. Receipt of PEUC (set out below), however, will not count towards this 39-week limit.

Pandemic Emergency Unemployment Compensation (“PEUC”)

The PEUC provides an additional 13 weeks of unemployment benefits through December 31, 2020 to employees who have exhausted all rights to regular unemployment compensation under state law and who are able to work, available to work, and actively seeking work (although many states are starting to waive this requirement). They must also be “totally unemployed,” which is not a requirement for PUA or FPUC. This means that employees who are working reduced hours will not qualify for PEUC benefits.

Q: Will the unemployment insurance provisions of the Act cover 100% of employee wages?

A: Not for all employees, but it will for some. The two unemployment insurance sums combined (the normal one from the state, from the PUA, or from the PEUC plus the $600 from the FPUC) will not necessarily cover 100% of all recipients’ wages, but when considering what the average recipient’s normal wages are, the two sums together can cover 100% of wages for the average employee (in other words, employees who are paid above average will not have 100% of their wages covered). This is why some people are touting this new law as covering 100% of employee wages—but that assertion is not technically accurate.

Q: Will employees who are on 50% furlough still have access to unemployment insurance benefits under the Act?

A: Generally, yes, under the PUA and FPUC, but not under the PEUC. The specific answer to this question, with respect to both the PUA and the FPUC, will require a state-by-state analysis. Initially, the PUA allows for benefits to eligible individuals who are only partially unemployed. In addition, under the FPUC, if employees are eligible for unemployment insurance benefits under state law, they will be entitled to the extra $600 a week through July 31, 2020. Many states provide unemployment benefits when employees are reduced to part time instead of being let go completely. It is not entirely clear from the text of the Act what will happen to employees in states that do not provide for unemployment insurance benefits to employees who are reduced to part-time work, but the Act also provides funding for states to enact short-term compensation programs, which provide pro-rated benefits for employees whose hours have been reduced in lieu of a layoff.

On the other hand, the 13 weeks of additional unemployment benefits under PEUC is limited to only employees who are “totally unemployed,” so the person on 50% furlough will not be eligible for PEUC benefits.

Q: Can an employee receive PUA benefits and disaster unemployment assistance at the same time?

A: No. If the employee is eligible for disaster unemployment assistance during a given week, he or she will not be eligible for PUA benefits for that week.

Q: If an employee was unable to work in March due to one of the specific COVID-19-related reasons for PUA, will the employee be able to receive benefits now for that time frame?

A: Assuming the employee meets all other eligibility requirements, yes, the employee should be able to receive benefits. Claims for PUA may be backdated to February 2, 2020.

Q: If an employee is helping a family member who has been diagnosed with COVID-19, will the employee be eligible for PUA based on that reason?

A: It depends. Generally, providing care for a family member who has been diagnosed with COVID-19 is a qualifying event for pandemic unemployment assistance. “Providing care” means that the employee’s care is ongoing with constant attention to the family member, such that the employee’s ability to perform work or other work functions is severely limited. This does not include assisting a family member who can adequately care for him or herself.

Q: The State has not ordered a “quarantine,” but has restricted travel to flatten the curve such that my non-essential employees cannot get to work without violating the order. Would they be eligible for PUA based on that reason?

A: Yes.

Q: I plan to temporarily shut down my business because COVID–19 has caused my State to institute social distancing that has resulted in severe financial difficulties for my business. Will my employees be eligible for based on that reason?

A: Probably. Closure of a place of employment as a direct result of COVID–19 is a qualifying event for PUA. Guidance suggests that this event pertains to employees of businesses that shut down due to an emergency order or necessary social distancing protocols.

Q: My employee has a job that would permit telework, but the employee is unable to telework because he is the primary caregiver to his child and his child’s school is shut down. Will he qualify for pandemic unemployment assistance based on that reason?

A: It depends. If the employee would typically have to remain at home to care for the child and such care requires ongoing and constant attention that prevents the employee from being able to perform work at home, then the employee would likely be eligible. The child’s school must be shut down, however, as a direct result of COVID–19. Importantly, a school is not considered to be shut down as a direct result of COVID–19 after the date the school year was originally scheduled to end.

Q: I have work for my employee and he is able to telework safely from his home. The employee, however, has determined that between PUA, FPUC, and PEUC he will make more money if he quits. What should I do?

A. Quitting work without good cause to obtain benefits under regular unemployment insurance or CARES act programs qualifies as fraud. If the individual obtains benefits through fraud, he is ineligible for further benefit payments, must pay back the benefits, and is subject to criminal prosecution. As the employer, you should make it clear to the employee that you have work for him and that his refusal to do the work constitutes his quitting without cause in your opinion. And then, of course, if asked by the state about the circumstances of his departure, tell the truth.

Leave Issues

Q: Does the CARES Act change the amount of paid sick leave provided under the Families First Coronavirus Response Act?

A: Yes and no. The CARES Act does not change the duration of paid sick leave provided under the Families First Coronavirus Response Act, but it does add maximum dollar amounts that an employer will be required to pay employees for paid sick leave. Specifically, when the employee is taking leave because the employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, the employee has been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19, or the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis, employers are not required to (but may) pay more than $511 per day and $5,110 in the aggregate. Alternatively, when the employee is taking leave because the employee is caring for someone subject to a Federal, State, or local quarantine or isolation order related to COVID-19, the employee is caring for someone who has been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19, the employee is caring for his/her child if the child’s school or place of care has been closed or the child’s care provider is unavailable due to COVID-19 precautions, or the employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services, employers are not required to (but may) pay more than $200 per day and $2,000 in the aggregate. See CARES Act § 3602; Families First Coronavirus Response Act § 5102.

Impacts on Potential Union Organizing Attempts and Existing Collective Bargaining Agreements

Q: From a labor relations perspective, what do employers need to be careful of in seeking relief under the CARES Act?

A: While the CARES Act provides economic stimulus and payroll tax relief to employers, the Act presents concerns for companies that seek to remain union-free. Indeed, loans under this discretionary program would have stringent restrictions affecting labor relations. Notably, Section 4003 of the Act provides that in order for businesses with between 500 and 10,000 employees to take a loan under the program, they will need to “remain neutral in any union organizing effort for the term of the loan.” While the language is unclear on exactly what “remain neutral” means, some common and problematic provisions of neutrality agreements are “gag” rules prohibiting businesses from making any statements to employees about the risks associated with collective bargaining. This means that employees will only hear one side of the unionization debate: the union’s. This, in turn, will limit workers’ ability to make informed decisions about who should represent them in the workplace and make it more likely that they will favor union representation.

Another common, pro-union aspect of neutrality agreements is card check provisions that tilt the election process very much in the union’s favor. Current law provides for a formal secret ballot election, supervised by the National Labor Relations Board (NLRB), even if a majority of workers have signed union authorization cards. The “remain neutral” provision of the CARES Act would likely take away an employee’s right to a secret ballot unionization election and allow unions to organize via a petition process where if a majority of employees sign cards, the union is automatically recognized and represents the employees.

In light of the pro-union provisions of the CARES Act, businesses should evaluate the relative costs and benefits of receiving assistance before entering into mid-sized business loans under the program. They also might consider, if a loan is necessary, making it for a short term, or providing in the loan document that the term can be shortened by prepayment.

Q: Does the CARES Act impact any existing union agreements or create any restrictions for employers?

A: A mid-sized business seeking assistance under the CARES Act must certify that it will not abrogate existing collective bargaining agreements with unions or “outsource or offshore jobs” during the length of the loan and two years after the loan is repaid. These restrictions would affect a business’s ability to subcontract work and would limit rights that are currently available to other companies with organized workplaces. They also could interfere with employees’ ability to decertify a union as their representative.

In addition, mid-sized business must certify that funds from the loan will be used to retain at least 90% of its workforce at full compensation until September 30, 2020. Eligible businesses must also restore its workforce to not less than 90% of the workforce that existed on February 1, 2020, and restore all compensation and benefits to the workers no later than four months after the Secretary of Health and Human Services terminates the ongoing public health emergency.

Paycheck Protection Program Issues

Q: The CARES Act excludes payroll costs for employee salary or wages in excess of $100,000. Does this exclusion apply to all payroll expenses incurred with respect to any such employee?

A: No. An employee’s salary or wages up to $100,000 may be taken into account to compute the maximum loan amount and the potential forgiveness amount under the CARES Act. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to noncash benefits. Thus, noncash benefits such as the following can be added to the payroll cost for the employee even if the total exceeds $100,000 as a result:

  • Employer contributions to defined-benefit or defined-contribution retirement plans.
  • Payment for the provision of employee benefits consisting of group healthcare coverage, including insurance premiums.
  • Payment of state and local taxes assessed on compensation of employees.
Q: Is sick leave included in total payroll costs?

A: Yes and no. PPP loans can be used to cover payroll costs, including costs for employee vacation, parental, family, medical and sick leave. However, qualified paid sick and family leave wages for which a tax credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA) may not be included in payroll costs. This means that if you take the tax credit under the FFCRA, you cannot include the amounts paid for the qualified leave in your forgiveness calculation under the PPP loan.

Q: What time period should businesses use to determine their number of employees and payroll costs in order to calculate the maximum loan they can obtain?

A: Guidance issued by the SBA provides that a borrower may use either the payroll costs incurred during calendar year 2019 or aggregate payroll costs from the most recent 12-month period completed prior to the application for the loan.

Q: Are payments made to independent contractors treated as payroll costs?

A: No. SBA guidance provides that independent contractors and sole proprietors are eligible to obtain loans pursuant to the PPP program, and thus payments made to independent contractors and sole proprietors should not be used by other borrowers to compute payroll costs.

Q: Whose responsibility is it, the borrower’s or the lender’s, to calculate payroll costs?

A: It is the borrower’s responsibility, and the borrower must attest to the accuracy of the calculations in the application. Lenders are expected to perform a good-faith review of the borrower’s calculation to ensure accuracy. If errors are found, the lender is to work with the borrower to remedy the issue.

Q: Does the payroll calculation include payroll through a third-party payer such as a payroll provider or a Professional Employer Organization (“PEO”)?

A: Yes. The borrower, however, must provide documentation obtained from the third-party payroll service or PEO to support the payroll figures. If tax returns are not available, the borrower must provide a statement from the payroll provider documenting the amount of wages and payroll taxes paid on the borrower’s behalf.

Q: Can I apply for more than one PPP loan?

A: No. Borrowers are limited to one PPP loan. This means that if borrowers apply for a PPP loan, they should consider applying for the maximum amount.

Q: What is the interest rate, and can I defer making payments?

A: The interest rate will be 100 basis points, or 1 percent. Borrowers will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment.

Q: When can we apply for a loan under the Paycheck Protection Program? And how do we apply?

A: Small businesses (businesses with 500 or fewer employees or businesses that have fewer employees than the Small Business Administration’s small business size standards for the particular industry) and sole proprietorships can apply beginning April 3, 2020. Independent contractors and self-employed individuals can apply beginning April 10, 2020. It is important that you apply as soon as possible because there is a funding cap. You can apply through any existing Small Business Administration 7(a) lender or any participating federally insured depository institution, federally insured credit union, or Farm Credit institution. Participating lenders can be found at www.sba.gov. All loans will have the same terms regardless of the lender. The loan application can be found here.

Q: How can we find out if our business, which has more than 500 employees, falls into an industry that the Small Business Administration (“SBA”) characterizes as a small business?

A: The SBA’s website regarding size standards can be found here. The table of size standards can be found here.

Q: How does forgiveness of a PPP loan work?

A: There has been no guidance on the specifics of loan forgiveness under the PPP. But based on what we understand at this time, the amount of loan forgiveness can be up to the full principal amount of the loan plus any accrued interest. If a borrower wants the loan forgiven, the borrower must spend the loan proceeds during the 8-week period following the origination of the loan on forgivable purposes, such as payroll costs, interest on a mortgage obligation (which includes real and personal property), rent, and utilities. After the 8-week period expires, borrowers may seek forgiveness through their lenders based on documentation that shows that the loan proceeds were used for forgivable purposes.

Q: Does it matter how much of the PPP loan proceeds are spent on any particular forgivable purpose?

A: Yes. The SBA has made clear that at least 75% of the loan proceeds must be used for payroll costs.

Q: What are “payroll costs” under the PPP for forgiveness purposes?

A: Payroll costs consist of all compensation to the employee. These costs include salary, wages, commissions, tips, vacation, pay for leave, allowance for separation or dismissal, payments made by the employer for provision of employee health and retirement benefits, and payment of state and local taxes assessed on compensation of the employees. The employer’s share of FICA taxes are not an allowable payroll cost for this purpose.

Q: How can my forgiveness amount be reduced?

A. Money spent on non-forgivable purposes, and money spent after the 8-week period, will not be forgiven. Though unclear, SBA has indicated that if less than 75% of the loan proceeds are spent on payroll costs, the amount of forgiveness will be reduced dollar for dollar by the amount below 75%. In addition, if the employer reduces the number of full-time equivalent employees during the 8-week period, or if it significantly reduces the compensation to its employees during that same period, the loan amount will also be reduced.

Q: Under what circumstances will my loan be reduced if my company reduces headcount?

A: The PPP will reduce the forgivable amount based on a reduction in the amount of full-time equivalent employees using a formula. An employer must multiply the maximum amount that may be forgiven (the amount of qualified costs and payments made in the 8-week period) by the following fraction:

The average number of FTEs per month during the 8-week period after loan origination; divided by either:

(a) the average FTEs per month between February 15, 2019 and June 30, 2019; or

(b) the average number of FTEs per month between January 1, 2020 and February 29, 2020.

An employer may choose the denominator that will maximize the forgiveness amount. The product is the amount of the loan that may be forgiven (subject to further reduction based on reduction in salary or wages mentioned below).

Q: Under what circumstances will my loan be reduced if my company reduces an employee’s pay?

A: We expect there to be guidance issued in the future. Preliminarily, we believe the employer must reduce the forgivable amount to account for a reduction in the amount of salary or wages paid to an employee in the 8-week period following the origination of the loan. The amount of the reduction will be determined by comparing the amount of salary or wages paid to each employee during the 8-week covered period with the amount he/she was paid during the most recently completed calendar quarter ending prior to the origination date for the loan. If a particular employee has a reduction in total salary or wages paid in the 8-week period following the origination of the loan that is in excess of 25% of the total amount of salary/wages he/she earned in the most recent full quarter before the origination of the loan, the amount of loan forgiven will be reduced dollar for dollar in that amount.

An example is helpful: If the employee is paid $60,000 per year or $5,000 per month the total salary paid to the employee during the relevant quarter would be $15,000; and the allowable reduction would be equal to $3,750 (75% of $15,000). Based upon the employee regular rate of pay, the employee would normally be paid $9,232during the 8-week period ($1,154 per week time 8). Apparently, the employer may reduce the employee’s salary during the 8-week covered period to $6,924 (75% of $9,232) without causing a reduction in the forgiveness amount

Q: Is there any way to reduce the amount of money not subject to loan forgiveness based on the reduced headcount?

A: In order to limit the impact on the forgiveness amount based on reductions in the number of FTEs, an employee that was terminated before April 26, 2020 may be rehired before June 30, 2020. Accordingly, these rehires will help a borrower increase the numerator fraction to equal the borrower’s chosen denominator. It is not clear whether the specific employees terminated or furloughed must be the same individuals who are hired. However, if an employer wants to take advantage of this process, the total amount of the loan spent on payroll must still be 75% of the loan proceeds. Reaching 75% will be difficult if significant numbers of employees are terminated before April 26, 2020 and then not rehired until June 30, 2020.

In addition, the salary reduction limitation on forgiveness apparently must be applied to any employee(s) who were rehired in order to increase the numerator used to compute the head count reduction test. As a result, if any individual is rehired the amount of loan forgiveness will be reduced in the amount that the rehired employee’s pay during the 8-week covered period is less than 75% of the amount he/she was paid in the last full quarter before the loan origination.

Though decidedly unclear, there appears to be a de facto obligation to give some amount of backpay to the rehired employee that is attributable to the covered period, so as to have the total compensation for the employee equates to a minimum of 75% of that quarterly amount if the desire is to maximize the amount forgiven. We expect guidance to be issued on this subject.

Q: Is there any way to reduce the impact on the amount to be forgiven from my PPP loan due to reductions in salary of employees?

A: In order avoid a reduction in the amount of forgiveness due to any reductions in salary and wages, the salary and wage reductions must have occurred before April 26, 2020, and the amount reduced must be paid back to the employee by June 30, 2020. There is an open issue with the amount that must be paid back to avoid the reduction in the amount to be forgiven. The statute can be read such that in order to take credit for the curing of the reduction in salary/wages, the entire amount of the reduction that occurred before April 26 must be paid back to the employee. There is also a reading that the amount to be paid back is the amount to get the total salary and wages to be over 75% of the wages for the last calendar quarter before the loan originates. We will have to wait to see if there is any guidance issued in this regard.

Authorship Credit: Erin Sales, Ashley Schachter, Kevin Shaughnessy, Joseph Devine, Katherine Ondeck, Annette Winters, Sean Ryan, Jay Seegers and Amy Traub

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