Businesses who are covered by the CARES Act and who are planning to make large-scale layoffs this week might consider pressing pause.
The Senate is presently debating the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), originally introduced late on March 19, 2020. In addition to proposing tax rebates and additional resources for COVID-19 testing and vaccine development, the bill incentivizes certain businesses to retain their employees by allocating $300 billion for Small Business Interruption Loans. If passed in its current form, the CARES Act would provide significant economic relief for certain costs associated with keeping employees on the payroll through June 30, 2020.
According to the current version of the bill, businesses with fewer than 500 employees can apply for emergency loans (up to $10 million) to cover the costs of employee salaries, mortgage payments, rent, utilities, and any other debt obligations incurred before March 1, 2020. Businesses can later apply for loan forgiveness to recoup the costs of maintaining payroll from March 1, 2020 through June 30, 2020.
The amount of loan forgiveness for which a business is eligible depends on the number of full-time employees the business retains from March 1, 2020 through June 30, 2020. For example, if a business spends $1 million of the loan on payroll expenses between March 1 and June 30 and lays off 25% of its full-time employees, then it would only be eligible for $750,000 in loan forgiveness. The loan forgiveness does not cover the costs of providing employees with qualified sick and family leave wages in accordance with the Families First Coronavirus Response Act (FFCRA) because those expenses may be recouped from the Federal government by taking tax credits against the employer’s portion of Social Security taxes. Please reference our FAQ for more information about the FFCRA.
The maximum loan amount is four times a business’s average monthly payments for payroll, mortgage payments, rent payments, and other debt payments, with a cap of $10 million. The bill also proposes some amendments to the paid leave portions of the FFCRA but they are mostly clarifications and are not likely to impact private business in any meaningful way.
While the bill is far from being in its final form, it’s likely that some version of it will pass the Senate early this week. Please stay tuned for updates. In the meantime, please visit our FAQ for employers considering layoffs and furloughs for more information.
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