Coronavirus Aid, Relief, and Economic Security (CARES) ACT
- Small Business Loans-Paycheck Protection:
One of the ways the CARES Act seeks to provide relief to small business is to provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. Employers can take loans up to 250 percent of its average monthly payroll costs. An employer can calculate its average its monthly payroll costs using:
- Employee compensation, that does not exceed $100,000;
- payment for vacation, parental, family, medical or sick leave;
- allowance for dismissal or separation;
- payment required for provisions of group health care benefits, including insurance premiums;
- payment of any retirement benefit;
- payment of state or local tax assessed on compensation of employees.
After the employer receives the loan, the employer can use the loan proceeds towards:
- Payroll costs;
- costs related to continuation of group health care benefits during periods of paid, sick, medical, or family leave, and insurance premiums;
- employee salaries, commissions, or similar compensations;
- interest on any mortgage obligation;
- interest on any other debt obligations that were incurred before covered period.
If the loan is not forgiven, the loan will be repayable over 10 years at a max interest of 4 percent with zero loan fees or prepayment fees.
A portion of available paycheck protection loans can be forgiven on a tax-free basis. This portion includes the sum of the payroll costs, mortgage interest, rent, and certain utility payments during an eight-week period beginning on the date of the loan. In order to obtain loan forgiveness, the employer must submit an application for partial loan forgiveness, including documentation confirming and verifying the number of employees, pay rates, canceled checks showing mortgage, rent or utility payments as applicable.
- Economic Injury Disaster Loan:
Business with less than 500 employees can obtain up to $2 million in emergency loans, if they are located in federally declared disaster area and are experiencing economic injury and shortfall in revenue. This loan may be used to make payroll and associated costs, including health insurance premiums, facilities costs, and debt service, so long as the funds are not being used for same purposes as or commingled with an already acquired federal loan.
This loan requires no creditworthiness, no personal guarantee on amounts less than $200,000, and applicants can receive an advance of $10,000 in 3 days. If the applicant is denied, the applicant is not required to repay the $10,000.
Eligible businesses include sole proprietorships, independent contractors, employee owned business, and tribal small businesses.
- Employee retention credit:
The employee retention credit is a tax credit the employer may utilize against the employer’s 6.2% share of social security payroll taxes if the business has to suspend, close, or sees significant decline in gross receipts due to the COVID-19 pandemic.
Applies to qualified wages paid after March 12, 2020 and before January 1, 2021 and the credit will be up to $5,000 per employee. A business will be eligible if:
- The operation of business was fully or partially suspended during any quarter due to government authority as a result of coronavirus
- The business remained open but experiences a 50% or more decline in gross receipts during the calendar year, adjusted for each quarter.
For more information, please reach out to your finance department, your attorney, or us at ILG.
In an effort to protect employees who, because of COVID-19, cannot work but their employer remains open, the FFCRA was enacted to allow for emergency family and sick leave. This only applies to employers with less than 500 employees, state and local governments, or federal employees not covered under Title II of the FMLA.
- Emergency Sick Leave:
Emergency sick leave is available to employees that are unable to work or telework, and their employer remains open, due to government or health care provider order to quarantine because of COVID-19 or their caring for someone who is subject to a quarantine.
If an employee takes emergency sick leave, the employee is entitled to up to 80 hours of regular rate of pay or two-thirds their regular rate of pay-depending on the circumstances.
- Emergency Family Leave:
Emergency family leave is available to an employee who must take care of their child due to schools or child-care closing down but cannot telework while their employer remains open for business.
If an employee chooses to take emergency family leave, the employee is entitled to 12 weeks of job-protected family leave-the first 10 days of which may be unpaid. This not an additional 12 weeks of leave, but rather a new qualifying event that entitles the employee to take FMLA leave.
- Tax Credits:
Tax credit options do not apply to state or local government employers currently. Qualifying employers who pay qualifying sick or child-care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying leave that they paid, rather than deposit those amounts with the U.S. IRS.
Payroll taxes that are available for retention include withheld federal incomes taxes, employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
If there are not enough payroll taxes to cover the cost of qualified sick and child-care leave, employers are able to file a request for an accelerated payment from the IRS.
For more information on the FFCRA, please see our white paper or reach out to us at 720-506-1956.
Supreme Court does not hear case on EEOC’s Power to Investigate Claims:
Supreme Court justices declined to hear a 9th Circuit Court of Appeals ruling stating the EEOC could continue to investigate the employer VF Jeanswear, after it issued a right-to-sue a notice to a former employee. The EEOC sent VF Jeanswear a subpoena seeking information about its employees, which the employer refused to provide. The district court declined to enforce the subpoena, but the Appeals court reversed. The court held that “EEOC subpoenas are enforceable so long as they seek information relevant to any of the allegations in a charge, not just those directly affecting the charging party.”
Justice Clarence Thomas, also former head of the EEOC, dissented from the denial. Justice Thomas noted that there is a circuit court split and to leave the question unanswered “directly implicates the EEOC’s core investigative powers.” Additionally, Justice Thomas disagreed with the 9th Circuit’s approach, believing it subjects the employer to time consuming investigations and drains employer’s resources.
The 10th Circuit disagrees with the 9th Circuit’s approach. In EEOC v. Burlington, the 10th Circuit Court of Appeals found that the EEOC is entitled only to evidence that is “relevant to the charge[s] under investigation.” Here, the EEOC could not investigate beyond the charging parties to determine if there is a pattern or practice of discrimination within the company. Therefore, the evidence is relevant only as it relates to the charging parties and the charges against the employer.