How the COVID-19 CARES Act Works, in Plain English

ASCA simplifies the latest federal benefits in response to the COVID-19 crisis

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Employers are discovering just how complex the CARES Act is as they start to dissect the web of rules and caveats associated with the COVID-19 stimulus package.

Experts offered some clarity recently during a webinar hosted by Accredited Snow Contractors Association (ASCA)’s legal counsel and partner at Freeman Mathis & Gary Attorneys at Law. Weighing in were Justin Boron, a partner; Hillary Freesmeier, an associate and Julie Marquis, also a partner, at Freeman Mathis & Gary.

The trio of attorneys broke down some of the complexity and questions associated with the stimulus package.

Eligibility Requirements

The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes several programs including the Paycheck Protection Program, Economic Injury Disaster Loans and Emergency Grants, as well as Small Business Debt Relief. The program was created to aid businesses weather the COVID-19 pandemic.

Those who qualify include small businesses as defined by the U.S. Small Business Administration and other business entities, including nonprofits and veterans’ organizations with fewer than 500 employees, or the number of employees the SBA has designated for an industry using National Association of Insurance Commissioners (NAIC) codes.

CARES Act loans are available up to 250% of the average monthly payroll costs over the previous year, with a maximum of $10 million, for harm caused by COVID-19 to a business between February 15 to June 30, 2020. Loans can be for a maximum of 10 years at a maximum interest of 4% with a six-month payment deferral.

Delays in Payment to Businesses

Many business leaders expected the stimulus funding to be distributed immediately, but that hasn’t been the case, Boron says.

“A lot of businesses were under the impression that the process would be relatively smooth and painless,” he says. “Unfortunately, that hasn’t been the case.”

Banks have been in charge of processing loans and distributing the money and each institution has its own application, based on varying interpretations of the Paycheck Protection Act. Banks are delaying disbursement in most cases, he says.

“There’s been some who have been putting pressure on the SBA to take back more control,” Boron says.

There’s not a lot of room to be creative with this statute, he adds.

“It’s a chance to get some low-interest, bridge financing,” he says. “But way process is set up, it’s not like taxes that are self-policing. In this situation, you apply, and the banks are the gatekeepers.”

Loan Forgiveness

If employers continue paying employees at normal levels during the eight weeks following the origination of the loan, the loan may be fully or partially forgiven, Boron says.

Amounts forgiven include payroll costs, mortgage interest, rent payments and utility payments. Compensation above $100,000 is excluded from loan forgiveness and not more than 25% of the loan may be tied to non-payroll costs, he says.

The amount of forgiveness will be reduced if the number of full-time employees during the eight -week period is less than the average number of employees during the same time in 2019. Salary reductions during the eight-week period also limits forgiveness, he says.

“The main thing is to keep employees employed and paid the same,” Boron says.

Additional Assistance

Mid-sized firms with more than 500 employees are potentially eligible for loans, as well.

Loans will be available with a 2 percent annual interest rate and deferred payment for six months. The U.S. Treasury is working to set up a program that will allow banks and other lenders to facilitate direct loans, Boron says.

There are several conditions to these loans:

  • Intent to restore at least 90% of workforce as it existed on February 1, 2020
  • Promise not to outsource jobs for the length of the loan
  • Will not abrogate (repeal) an existing collective bargaining agreement for the term of the loan
  • Will remain neutral in any union organizing effort for the term of the loan
  • Limit on executive compensation

Boron says some companies have decided against applying for the loan because of the restrictions on collective bargaining agreements.

“It’s been a bitter pill for some when it comes to staying neutral in any union effort for the term of the loan,” he says.

Employee retention tax credits are available to employers whose operations are fully or partially suspended due to a COVID-19-related government order or gross receipts during the quarter are 50% less than the same time during the previous year. It’s important to note, however, that those who receive a CARES SBA loan are ineligible for the tax credits, Boron says.

Unemployment Benefit Expansion

Freesmeier weighed in on how employers can assist their employees with unemployment benefits.

“They’ve expanded in many ways we’ve never seen before,” she says.

There are four tiers of the unemployment benefits expansion:

  • Tier 1: Look to state unemployment benefits for both eligibility and payment calculation
  • Tier 2: Look to state unemployment benefits and supplemental payments under CARES
  • Tier 3: State and federal benefits exhausted, 13 more weeks
  • Tier 4: Ineligible for state and federal benefits or state and federal benefits exhausted

Where state benefits end, CARES aims to ensure a total 39 weeks of benefits, she says.

“Keep track of what is required of you from your state,” Freesmeier says.

Retirement Funds

When it comes to retirement plans and funds, qualifying individuals may obtain an early distribution up to $100,000 without an early withdrawal penalty, from an IRA or 410K. Income taxes on the withdrawn amount can be avoided if it is repaid within three years, Freesmeier says.

Qualifying individuals may obtain a nontaxable loan from the IRA/401K, within 180 days of CARE’s enactment, up to $100,000.

Qualifying individuals include:

  • Someone diagnosed with SARS-COV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention.
  • Someone whose spouse/dependent is diagnosed with the virus or disease
  • Someone who experiences financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced or being unable to work due to lack of childcare.

Family Medical Leave Expansion

The Family Medical Leave Act (FMLA) has been expanded due to the COVID-19 pandemic.

The act applies to private employers with fewer than 500 employees at the time when the leave is requested.

To be eligible for the expanded FMLA, an employee must meet the following criteria:

  • Employed for 30 days
  • Have a childcare need and
  • The child’s school or daycare is closed due to the emergency
  • Cannot work or telework

Those with fewer than 50 employees must comply but cannot be liable to an employee for failing to do so. Additionally, employers with fewer than 50 employees can seek a hardship exemption from the U.S. Department of Labor.

The Emergency Family and Medical Leave Expansion Act adds a basis for 12-week FMLA leave related to childcare related to school closings due to COVID-19. Employees receive 10 weeks of limited paid leave through the expansion.

The Emergency Paid Sick Leave Act is for COVID-19-related absences and grants 10 days of limited pay leave. The act is broader based than the Emergency Family and Medical Leave Expansion Act. There are tax credits available to employers impacted by this rule, which sunsets on December 31, 2020.

How to Count Employees

Marquis gave instructions on how employers should count their employees when it comes to CARES Act rules and benefits.

Any employee whose name appears on the employer’s payroll will be considered employed each working day of the calendar week and must be counted whether any compensation is received for the week, she says. Count temporary workers and day laborers but not independent contractors, she says.

However, do not count employees outside of the United States, she says.

And, she says, “only count when it is requested.”

The rules associated with the CARES Act are complex. Boron, Freesmeier and Marquis urged employers to seek advice from experts before applying for aid or taking action on the CARES Act stimulus package. For more information about the company’s future webinars, visit