On Friday, March 27th, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) officially became the largest financial assistance bill enacted by Congress. The Act includes provisions to help small businesses as they work to survive through the economic crisis caused by COVID-19. However, the Act is hundreds of pages long and filled with detail that, while important, is likely to cause confusion. We’ve broken down what decision-makers at businesses with 500 employees or less need to know:
Payroll Protection Program
The Paycheck Protection Program is likely to be the most important section of the Act for businesses and nonprofit organizations with 500 employees or less. This program sets aside $349 Billion in government-backed loans that, based on certain conditions, may be forgiven. This section of the Act provides for loans for payroll costs (salaries, commissions and other compensation), healthcare costs, payments of interest on mortgage obligations, rent, utilities, and interest on any other debts. The Act also may allow a company to refinance an SBA economic disaster recovery loan made after January 31, 2020. These loans are available until June 30, 2020 and, significantly, may be forgiven in whole or in part. The specifics of this program will require employers to dive deeper and perform a company-specific analysis. You can find more information on the details of the Paycheck Protection Program on our one-page summary, here. In addition, here is a link to a sample application form published by the SBA, a similar form of which would need to be submitted to your lender.
Enhanced Unemployment Benefits
Recognizing the fact that providing benefits to employers to maintain current employment levels likely will not do enough to stem the rising tide of unemployment, Congress also acted to enhance unemployment benefits for up to 39 weeks. One step taken by Congress was to expand unemployment benefits to workers not typically covered, like the self-employed and independent contractors. In addition to broadening eligibility for unemployment benefits, the CARES Act also provides for enhanced unemployment benefits of $600/week for a limited period. Additionally, the Act eliminates one week waiting periods for employees to be eligible for benefits.
Direct Payments to Eligible Americans
The Act also provides for the direct payment of stimulus checks. Under the Act, adults that have earned up to $75,000 will receive $1,200 and married couples earning up to $150,000 will receive checks for $2,400. These credits are phased out for individuals and married couples earning greater than the specified amounts of income.
Payroll Tax Credits Are Available for Employers that Do Not Participate in the Paycheck Protection Plan
Businesses that do not participate in the Paycheck Protection Program may qualify for payroll tax credits. However, this benefit is available only if the business was operational in 2020 and has either suffered a full or partial shutdown resulting from a COVID-19-related government order or a “significant decline” in revenue as measured by quarterly gross receipts compared to the corresponding quarter of the prior year. For these purposes, a significant decline begins with a quarter where there is a 50% reduction in gross receipts from the same quarter in the prior year and ends with the quarter following the first quarter where gross receipts are greater than 80% of the same quarter in the prior year. If a business qualifies, it will receive a credit against employment taxes equal to 50% of the “qualified wages” with respect to each employee for each applicable quarter. However, the definition of qualified wages depends on the number of full-time employees. For businesses that averaged greater than 100 full-time employees in 2019, qualified wages are those wages paid to an employee who is not providing services because of a COVID-19-related full or partial shutdown or significant decline in gross receipts. For businesses that averaged 100 full-time employees or less in 2019, qualified wages are all wages paid, whether to someone out of work or not, during any full or partial shutdown or any quarter in which there was a significant decline. Qualified wages “for all calendar quarters shall not exceed $10,000” for any employee that may be considered.
Delay of Employer’s Payroll Taxes
Both employers and the self-employed may defer the payment of payroll taxes. With respect to payments that would otherwise be due before January 1, 2021, 50% of such payments are now due December 31, 2021, with the remainder due December 31, 2022. The payroll tax deferral is not available to employers that have a loan forgiven pursuant to the Paycheck Protection Program.
ABOUT GLENN D. SOLOMON
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Glenn D. Solomon is a principal at Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years. He has extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress.
ABOUT RUSSELL BERGER
As an accomplished labor and employment attorney and Practice Group Director, Mr. Berger provides business counsel to employers on employee matters and is well-versed in litigating in both state and federal courts. Russell Berger is the trusted legal counsel every business owner needs to feel confident in their decision-making and secure with their assets. As a Practice Group Director at Offit Kurman, Mr. Berger has direct experience with managing other managers, which he draws from in advising his clients. He is a pragmatic problem-solver that works efficiently and tirelessly to present his clients the best possible solutions to their most complicated issues. He represents employers, businesses, and professionals in employment disputes across the nation.
ABOUT MAX MCCAULEY
Charles “Max” A. McCauley III is an attorney with extensive business experience. Mr. McCauley is a member of Offit Kurman’s business law and transaction practice group as a principal attorney in the suburban Philadelphia and Wilmington, Delaware offices. Mr. McCauley’s practice has involved corporate, banking, real estate, employment, tax, corporate and commercial litigation, and bankruptcy matters. He also advises clients on electronic discovery issues and is the former co-chair of the E-Discovery and Technology Law Section of the Delaware State Bar Association.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing full-service law firms in the United States. With 14 offices in seven states, and the District of Columbia, and growing by 50% in two years through expansions in New York City and Charlotte, North Carolina, Offit Kurman is well-positioned to meet the legal needs of dynamic businesses and the individuals who own and operate them. For over 30 years, we’ve represented privately held companies and families of wealth throughout their business life cycles.
Whatever and wherever your industry, Offit Kurman is the better way to protect your business, preserve your family’s wealth, and resolve your most challenging legal conflicts. At Offit Kurman, we distinguish ourselves by the quality and breadth of our legal services—as well as our unique operational structure, which encourages a culture of collaboration and entrepreneurialism. The same approach that makes our firm attractive to legal practitioners also gives clients access to experienced counsel in every area of the law.
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