Phase Three COVID-19 Response Bill Now Law: What it Means for Businesses and Employees

Client Alert

Gibbons Special Alert

March 28, 2020

President Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act on March 27, 2020. The CARES Act is the third piece of legislation enacted to address the economic and healthcare fallout from the COVID-19 pandemic. It includes major relief provisions intended to bolster the struggling economy by supporting employers of all sizes and expanding unemployment benefits.

Paycheck Protection Program – SBA Loans and Principal Forgiveness

Title I of the CARES Act creates the Paycheck Protection Program, which can provide eligible businesses loans of up to $10 million through the Small Business Administration (SBA). Businesses in existence as of February 15, 2020 that employ 500 people or fewer at the time of application may be eligible for this program. The program contains several provisions that can impact the amount of the loan, including rules regarding the termination, layoff, furloughing, and rehiring of employees and the types of eligible costs. Moreover, businesses that intend to pursue an SBA loan and loan forgiveness may be ineligible for other forms of relief, such as the payroll tax credits and deferrals described below. Businesses interested in pursuing an SBA loan under the Paycheck Protection Program must also be prepared to provide significant documentation as part of the application process.

Payroll Tax Deferrals and Credits

Title II of the CARES Act attempts to give immediate cash-flow relief to businesses by providing them the option of delaying the payment of the 6.2 percent employer OASDI portion of 2020 payroll taxes into future years. Employers can also access refundable tax credits against the 6.2 percent employer OASDI portion of 2020 federal payroll tax liabilities for qualified wages paid to employees when those employers’ business operations have been negatively impacted either by a government-ordered shutdown or a significant decline (50 percent tested quarterly) in year-over-year gross receipts because of COVID-19. Importantly, those businesses that elect to avail themselves of the payroll tax deferrals and credits may be ineligible for loans or loan forgiveness under the Paycheck Protection Program outlined above.

Economic Stabilization and Assistance

Businesses that are unable to access loans or loan guarantees under provisions of the CARES Act may be eligible to access loans through a $454 billion program to be established by the Secretary of Treasury. Specifically identified companies are air carriers and other businesses that employ between 500 and 10,000 employees. These businesses must meet certain criteria to access these loans, which include making a commitment that the loans will be used to retain at least 90 percent of their workforce at full compensation and benefits until September 1, 2020, or will be used to restore their workforce to 90 percent of the employee base that existed as of February 1, 2020.

For Which Programs and Benefits Should Businesses Apply?

As with many other aspects of this crisis, there is no fixed playbook for businesses to follow when deciding the options that are best for them. Determining the best course of action will need to be made on a case-by-case basis depending on a variety of factors, including, but not limited to:

  • How many employees the business has;
  • Immediate cash flow needs versus long-term sustainability;
  • Whether the business has already furloughed or laid off employees and the assistance necessary to rehire; and
  • How much longer the business believes the interruption to their operations will continue.

Unemployment Benefits

The CARES Act significantly expands the number of people who are eligible for unemployment benefits, by providing “Pandemic Unemployment Assistance” to individuals who normally would not qualify for regular unemployment compensation. These include self-employed workers, such as gig workers, independent contractors, and freelancers; part-time workers; furloughed workers; and those with limited work histories – provided they are able and available to work but are unemployed or partially unemployed due to any of the qualifying COVID-19 pandemic reasons. Workers who are able to work from home, and those receiving paid sick leave or paid family leave, would not be covered.

The Act also increases the amount of regular unemployment benefits by an additional $600 per week in federally-funded compensation to an individual’s weekly unemployment benefits; individuals who have exhausted their state unemployment benefits will be eligible for 13 additional weeks of unemployment benefits. These increased benefit amounts and extension of benefits will also apply to those eligible for “Pandemic Unemployment Assistance,” discussed above.

The attorneys in the Gibbons Employment & Labor Law, Government & Regulatory Affairs, and Corporate Departments have been analyzing these issues and can provide guidance for businesses making these critical decisions. For assistance or additional information, please contact Christine Amalfe, Chair of the Employment & Labor Law Department, or Michael D. DeLoreto, an Associate in the Government & Regulatory Affairs Department.

To view all client alerts in Gibbons “The Coronavirus Pandemic and Your Business: How We Can Help” Series, click here. Please also be sure to follow Gibbons on LinkedIn for a continuous feed of COVID-19 related updates and other important business, industry, and firm news.