On March 27, Congress passed the Coronavirus Aid, Relief, and Security Act (the “CARES Act”) to provide additional stimulus relief to businesses and workers. The new stimulus bill creates a number of good options for small businesses trying to weather the COVID-19 crisis. In this newsletter, we outline various options in the new law for businesses and their workers. As always, we remind you that regulations have yet to be issued and this is an evolving area of the law. We will do our best to update you when changes occur or when we receive more guidance.
Pandemic Unemployment Assistance
The CARES Act expands unemployment assistance to cover several groups that were not previously eligible for unemployment, including independent contractors and self-employed workers. If your workforce relies heavily on independent contractors, they are now eligible for unemployment under the same terms as W2 employees. To be eligible, the individual must be unable to work due to COVID-19, either due to illness or a business shutdown. Individuals are not eligible if they are able to telework or are receiving paid sick leave or paid family leave.
In addition, the CARES Act increases unemployment benefits for workers affected by COVID-19 by $600/week across the board, regardless of an individual’s weekly benefits. For many low wage earners in Massachusetts, this might mean that they make more on unemployment than they would make if you retained them on payroll. For example, an individual making $500 per week would ordinarily collect $250 per week on unemployment. Under the CARES Act, they would collect $250 + $600 per week, or $850. This additional payment is good for 4 months and can be backdated to January 27, 2020 for individuals who have already lost their jobs due to COVID-19.
Tax Credit for Maintaining Payroll
The CARES Act also offers a refundable payroll tax credit to employers affected by COVID-19 shutdowns who retain their employees during this period. Businesses who were fully or partially closed due to a COVID-19 shutdown order or whose gross receipts declined by more than 50% compared to this time last year are eligible for the tax credit.
The tax credit is equal to 50% of wages paid per quarter during the crisis, capped at $10,000 in wages per employee. For businesses with 100 employees or less, the credit applies to all employees whether the business is open or closed due to COVID-19. For businesses with more than 100 employees, only wages paid to employees who are not working are eligible for the tax credit.
The CARES Act creates a special program for low-interest SBA loans and provides loan forgiveness for qualified business operating expenses during this crisis.
Businesses with fewer than 500 employees, including non-profits, sole proprietorships, and self-employed individuals, are eligible for the loans.
The maximum loan amount is 2.5 times the average total monthly payroll costs in the one-year period before the loan is made, with some exceptions for seasonal employers and new businesses. Loans are capped at $10 million.
Businesses may use the loans for the following purposes:
- Payroll, including wages, salaries, and other compensation to employees, group health benefits, payroll taxes, and compensation to sole proprietors or independent contractors. Eligible compensation is capped at $100,000 per year, prorated for the covered period (February 15, 2020 to June 30, 2020).
- Group health care benefits during periods of paid sick, medical, or family leave
- Rent/lease payments
- Mortgage interest payments
- Interest on any other debt obligations incurred before February 15, 2020.
The program offers loan forgiveness equal to the amount spent in the 8 weeks following the origination date on payroll costs (capped at $100,000 per individual, prorated for 8 weeks), rent, mortgage interest, and utilities. Forgiveness cannot exceed the principal of the loan.
The program reduces loan forgiveness for employers that terminate or reduce hours for employees during this time. However, loan forgiveness is reinstated if these employees are rehired or their wages are restored by June 30, 2020.
Loans will be offered and administered through commercial banks. We recommend that you check with your current bank or lender about how to apply for a loan. Applications should start to be available as early as this week.
A Note on Non-Competes and Restrictive Covenants
Finally, if you need to layoff or furlough employees or reduce hours/wages during this time, these actions will most likely terminate any existing non-compete/non-solicit obligations. Once you are ready to rehire, be sure to ask relevant employees to sign new non-competes/non-solicits and other employment agreements. Old non-compete agreements from prior to October 2018 will need to be updated to comply with Massachusetts non-compete law.
As always, please feel free to reach out to us if you have any questions about these new laws or how to manage your workforce during the COVID-19 crisis.