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 makes many pertinent changes to existing law with significant impact for small business owners and employees.
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 expansion of UI benefits. 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, when 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 the 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, 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 appropriate state agency in the state where they work. Small business employers who need to furlough or reduce the hours of their workers, including independent contractors, should likewise encourage these individuals to apply for unemployment.
Credits for Employers Retaining Employees
The CARES Act also provides tax credits to incentivize small businesses to keep employees on the payroll. The tax credit will equal 50% of the qualified wages to each employee (up to $10,000 in qualified wages per employee) for the 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 are considered qualified wages.
Employers 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.
Small Business Paycheck Protection Program
The Paycheck Protection Program, another component of the CARES Act, 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;
- utilities; or
- interest on prior debt.
For employers that meet certain requirements, all or a portion of the 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.
Robert Kaitz is an employment and trial lawyer at Boston law firm Davis Malm. His litigation practice focuses on employment and business matters, representing clients in employment discrimination, wage and hour claims, and close corporation disputes.