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Friday, March 27, 2020

COVID-19 Update: Coronavirus Aid, Relief, and Economic Security Act

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020, and contains numerous provisions summarized below that will assist and impact employers.  The full act can be found here

The CARES Act (§§ 1101-1114) provides for almost $350 billion in small business loans, which are available to business and non-profit organizations that employ less than 500 people and which require a good faith certification that the funds are necessary for operations and will be used to retain workers and make other payments.  No collateral or personal guarantee is required for these loans, and there is no requirement that the borrower show that credit cannot be obtained elsewhere.  The maximum amount available for the loan is the lesser of: (a) taking the average total monthly payments for payroll costs incurred 1 year before the loan and multiplying that number by 2.5; or (b) $10 million.  Allowable uses for the loan include payroll support (including paid leave and health benefits), salaries, mortgage and rent payments, utilities, and any other debt obligations.  Importantly, the Act provides (§ 1106) that a recipient of such a loan may apply to have the amounts spent on payroll costs, mortgage, rent, and utilities for 8 weeks forgiven.  Also, no fees are to be charged by the Small Business Administration, and payments on the loans can be deferred for six months to one year from the date of the loan.

The CARES Act further provides certain forms of tax relief to businesses (§ 2301-2308).  A refundable tax credit on payroll taxes paid are available to businesses that have been closed or suspended by government order or that have suffered a more than 50% decrease in gross receipts.  The payment of payroll taxes from March 27, 2020 to January 1, 2021 can be deferred so that at least 50% of the deferred payroll taxes must be made by December 31, 2021 and any remaining deferred amount paid by December 31, 2022.  The Act also modifies certain sections of the Internal Revenue Code such as those relating to net operating losses, limitations on losses, credit for prior year minimum tax liability, limitation on business interest, and qualified improvement property.  Employers should consult their accountant or tax professional as to how these changes can be beneficial.

Additional relief to employers could come from the Act’s Coronavirus Economic Stabilization Act, which provides for $450 billion in loans and guarantees to distressed businesses (ones with 500 to 10,000 employees are specifically mentioned in the Act) as determined by the Secretary of Treasury.  Employers should monitor developments as to whether their industry will be eligible for such loans and guarantees.

The CARES Act also places limits on the amounts that affected employers must pay for leave required by the Families First Coronavirus Response Act (“FFCRA”).  For an employee on leave under the Family and Medical Leave Act as required by the FFCRA, the limits are $200 per day and $10,000 in the aggregate.  For employees on emergency paid sick leave under the FFCRA, the limits are: (1) $511 per day and $5,110 in the aggregate for an employee who is under a government quarantine or isolation order, who is advised to self-quarantine by a healthcare provider, or who has Covid-19 symptoms and is under medical care; and (2) $200 per day and $2,000 in the aggregate for an employee who is caring for a person under quarantine, who is caring for children while schools or child care facilities are closed, or who is determined to be in similar condition.

The foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation and should not be relied on as such.  Please contact one of our labor and employment lawyers if you have any questions.

This update was prepared by Kevin A. Sullivan and David A. Castleman.


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