On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law. The CARES Act’s purpose is aimed at reducing the economic impact of the COVID-19 pandemic and stimulate the economy with a $2.1 trillion dollar infusion.
Among other things, the CARES Act amends Section 7(a) of the Small Business Act creating the the “Paycheck Protection Program (the “Program”). The Program broadens relief to a segment of small businesses than those that would otherwise be ineligible to receive SBA 7(a) loans. The Program will apply retroactively from February 15, 2020 until June 30, 2020, below are some highlights:
- The Program covers: nonprofit organization, veterans organization or tribal business with 500 employees or less; individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals; businesses with an NAICS code beginning with 72; and certain franchises.
- Covered loans can be used for payroll costs, costs related to continuation of group health care benefits, employee salaries and commissions, interest payments on mortgage obligations, rent, utilities and interest on debt obligations incurred before the commencement of the program. A covered loan cana lso be used to refinance a loan taken out on or after January 31, 2020 and the date on which the “covered loan” became available.
- Generally, the maximum loan size is limited to the lesser of $10 million or 2.5 times the average total monthly payments for payroll costs during the one-year period prior to the date of the loan. Payroll costs include salaries (excludes compensation of an individual employee in excess of $100,000), wages, commissions, separation payments, payments for group health and retirement benefits, and payments of state or local employment taxes and compensation, but
- The interest rate on a loan will not exceed 4% percent. Lenders will provide payment deferment for payments of loan (inclusive of principal, interest and fees) for a minimum of 6 months and a maximum of 12 months.
- Recipients are eligible for forgiveness on a covered loan in an amount equal to the sum spent on covered expenses during the eight-week period after the loan is originated. Those covered expenses include: payroll, rent, utilities, and mortgage interest obligations. Loan forgiveness may be subject to a reduction if a business reduces either headcount or wages.
- Borrowers must make a good faith certification that: (i) “uncertainty of current economic conditions” necessitates the loan; (ii) that funds will be used to retain workers and maintain payrolls other permitted uses; (iii) the recipient does not already have a pending application for the same purpose and duplicative of amounts applied for or received under a covered loan; and (iv) from February 15, 2020 to December 31, 2020 the recipient has not received amounts for the same purpose under the Program.
The CARES Act also amends several provisions of the FFCRA. In addition to a number of technical corrections the CARES Act made several substantive amendments to the FFCRA that employers should be aware of:
- Employers can choose to exceed monetary limits for Paid Leave. The CARES Act revises previous language to state that an employer “shall not be required to pay more than” the monetary limits set forth in the FFCRA.
- FMLA leave eligibility is expanded for rehired employees. A rehired employee is eligible for paid FMLA leave when (i) they were laid off March 1, 2020 or later and (ii) they worked for the company for at least 30 of the 60 days prior to layoff.
- Employers can request an advance of anticipated tax-credits and refunds for paid sick and paid FMLA leave.
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