Day-to-day life has been dramatically impacted by the coronavirus disease 2019 (COVID-19), and many businesses have been forced to close or limit their service to slow the spread of COVID-19. In response, Congress has passed several pieces of legislation to assist individuals and businesses affected by the virus.
The Families First Coronavirus Response Act
The Families First Coronavirus Response Act (FFCRA) was signed into law on March 18, 2020. The Act requires employers with less than 500 employees to provide both emergency paid sick leave (EPSL) and emergency leave under the Family and Medical Leave Act (EFMLA). Both types of leave are available during the period from April 1 through December 31, 2020 as follows.
- Emergency Paid Sick Leave (EPSL): Employees are entitled to two weeks of EPSL if they are unable to work, including telework, for specific reasons related to Covid-19. The EPSL benefit is 80 hours of pay that is subject to caps based on the reason for leave.
- Family and Medical Leave Act (EFMLA): An employee is entitled to twelve weeks of leave under the EFMLA only if the employee is unable to work due to a need to care for a child under 18 years of age whose school or daycare provider has been closed due to Covid-19. The first two weeks of this leave are unpaid, but eligible employees can take their EPSL pay during these two weeks. For weeks 3-12, the employee receives 2/3rds of regular pay, subject to the same statutory cap as EPSL. The employee may not be terminated during this twelve-week period.
Employers will receive payroll tax credits and/or refunds for the full amount of EPSL or EFMLA pay they provide to employees. A more detailed discussion of the Families First Coronavirus Response Act can be found here.
The Coronavirus Aid Relief and Economic Security Act
The Coronavirus Aid Relief and Economic Security Act (the CARES Act) passed and was signed into law on March 27, 2020. This bill will apportion over $2 trillion to help counter the economic and health impacts of the pandemic. This bill will send checks directly to eligible individuals and families, provide loans to small businesses and non-profits (500 employees or less), and assist certain industry sectors and allocates funding for state and local governments. Key provisions of the CARES Act are discussed here.
- SBA and Treasury direct lending programs
For small businesses, generally with 500 or fewer employees, there are two programs regulated by the U.S. Small Business Administration (SBA): (1) a new loan program under the Paycheck Protection Program (PPP), and (2) an expanded program of Economic Injury Disaster Loans (EIDL). The CARES Act extends eligibility for PPP and EIDL beyond typical SBA-defined small businesses to include, qualified 501(c)(3) nonprofits, 501(c)(19) veterans’ organizations, and sole proprietors and independent contractors.
Under the PPP, eligible borrowers may qualify to receive a loan in the amount of 2.5 times their average monthly payroll to meet certain defined short-term operational cashflow needs up to $10 million. PPP loans have favorable terms and are eligible for partial forgiveness. Although affiliation rules typically prevent many private equity-sponsored companies from qualifying for SBA loans, the CARES Act waives these rules under the PPP for certain accommodation and food service businesses. Under the EIDL, eligible borrowers who have suffered substantial economic injury may qualify to receive a loan up to $2 million to meet certain working capital needs. Loans typically have favorable terms and payments are deferred for 12 months.
For mid-sized businesses with 500 to 10,000 employees, the CARES Act authorized a new Treasury Direct Loan program. Eligible borrowers may qualify to receive low interest loans to retain at least 90% of their workforce. Borrowers must accept restrictions on the borrower’s ability to increase executive compensation, pay dividends, buy back stock, regulate unions, and outsource jobs. To determine if any of these loan programs may be right for your business, and for a more detailed discussion of SBA and Treasury programs under the CARES Act, please click here. We expect the SBA and Treasury Department to issue regulations on these programs in the next 10-15 days, and we will monitor such regulations and update this discussion.
- Tax relief
The CARES Act amended a range of provisions across the Internal Revenue Code, affecting both individuals and businesses. The legislation modifies a number of 2017 Tax Cuts and Jobs Act provisions (relating to net operating losses, alternative minimum tax credit carryforwards, business interest expense limits, excess business loss limits, and immediate expensing of qualified facility improvement costs); enacts a refundable payroll tax credit for employers that retain employees; defers payment of the employer’s portion of payroll taxes; adjusts several aspects of the charitable contribution deduction; implements an exclusion for employer payments of student loans; and suspends a federal excise tax on spirits for those used in producing hand sanitizers. A more detailed discussion of tax relief in the CARES Act, can be found here.
- Relief for Retirement Plan Participants
The CARES Act provides for retirement plan relief for individuals affected by Covid-19. The relief provisions allow for retirement plan and IRA tax-favored distributions and for certain expanded plan loan limits and repayment postponements. In addition, waivers for 2020 required minimum distributions are provided. A more detailed discussion of relief for retirement plan participants in the CARES Act can be found here.
- Other Employee Benefit Plan Relief Provisions
The CARES Act provides relief regarding funding requirements and benefit restrictions for defined benefit and cash balance plans. Moreover, educational assistance benefit plans may now cover an employer’s payment of principal or interest on qualified education loans. In addition, the Act also requires group health care plans to cover certain COVID-19 related services, and expands Qualified Medical Expenses to include over-the-counter drugs without a prescription for the purposes of healthcare FSAs, HSAs, HRAs and Archer MSAs. A more detailed discussion of other employee benefit plan relief provisions in the CARES Act can be found here.
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