To date, Congress has enacted three pieces of relief legislation to address the COVID-19 pandemic, driving four main areas of opportunity for the staffing industry.
With so many regulatory and legislative updates peppering the headlines, we wanted to provide some general information about three significant laws aimed at helping workers and businesses through the pandemic.*
The Coronavirus Preparedness and Response Supplemental Appropriations Act provided emergency funding for federal agencies:
$6.7 billion in domestic support: Nearly the full amount going to the Department of Health and Human Services for research and development of vaccines, therapeutics, and diagnostics. The Centers for Disease Control (CDC), Food and Drug Administration, and other organizations also received reinforcement and support.
$1.6 billion in international support: Most of this amount was set aside for the United States Agency for International Development. The US State Department and the CDC also received funds for global emergency evacuations, operations, and US embassy needs, as well as global disease detection and emergency response, respectively.
FFCR took effect on April 1, 2020, offering organizations with fewer than 500 employees funds to support those workers in the following ways:
Enhanced unemployment insurance benefits
New federal emergency paid leave benefits and refundable tax credits for small businesses to defray the cost of paid leave
Increases in Medicaid matching funds to support healthcare providers
Policies to ensure significantly expanded, free access to COVID-19 testing in the US
Food safety support needed in the wake of school and business closures
The US Department of Labor prepared a Fact Sheet for Employees, a Fact Sheet for Employers, and a Questions and Answers document. Among other topics, these documents address how an employer must count the number of their employees to determine coverage, how small businesses can obtain an exemption, how to count hours for part-time employees, and how to calculate the wages employees are entitled to under this law.
The CARES Act provides more than $2 trillion in relief for both companies and families affected by the COVID-19 pandemic. It includes several provisions designed to help employers and employees contend with a scaled-back workforce and other economic fallout:
$250 billion in unemployment insurance benefits
$301 billion in direct payments to households ($1,200 to taxpayers with an adjusted gross income of $75,000 or less and couples with US$150,000 or less, plus additional money for children in their households)
$150 billion in direct aid to states and territories
$221 billion in tax deferrals with extended filing deadlines
$300 billion for small business loans
$500 billion for loans, loan guarantees, or other assistance to businesses, states, and municipalities
$340 billion in further emergency supplemental appropriations
So, what do these new laws mean for our industry? We’ve identified four main topics of importance.
Employers generally are responsible for paying a 6.2% Social Security tax on employee wages to the federal government. For wages from the date of enactment of the CARES Act through December 31, 2020, employers and self-employed individuals may delay paying the 6.2% employer share of Social Security taxes, with no penalties or interest charges. One-half of the amount will be due by December 31, 2021, and the other half by December 31, 2022. Small businesses that have received loan forgiveness under Section 1106 of this legislation are not entitled to delay these tax payments.
During 2020, eligible employers may receive a credit against their employment taxes equal to 50% of qualified wages up to $10,000 for each employee. Eligible employers are: 1) those that experience a partial or full suspension of operations due to a COVID-19-related government order that limits commerce, travel, or group meetings, or 2) employers with gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year, until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year.
Eligible employers with more than 100 employees qualify for an employment tax credit on wages for their employees who do not provide services due to a COVID-19-related business suspension or reduction in gross receipts, as noted above. Employers with 100 or fewer employees may receive an employment tax credit on all wages paid to their employees.
Note: Employers may not receive an employee retention credit if they are claiming an FMLA credit under Code Section 45S. Additionally, employers that receive a business interruption loan under the Small Business Act will not be eligible for an employee retention credit.
The CARES Act provides $350 billion to fund two types of lending programs for small businesses:
Economic Injury Disaster Loan (EIDL) Program: Helps small businesses recover from broader economic injury related to the COVID-19 pandemic. Program highlights include:
Loans of up to $2 million for working capital, including fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact
Excludes the refinancing of long-term debt, expanding facilities, paying dividends or bonuses, or relocation
May defer payment of remaining principal, interest, and fee balances for at least six months and up to one year after any loan forgiveness
Variable maturity dates and with a maximum interest rate of 4%
An emergency advance of $10,000, without repayment if the application is denied, for payroll costs, increased material costs, rent or mortgage payments, or for repaying obligations that cannot be met due to revenue loss.
EIDL is open to applicants with an employee headcount lower than the greater of 500 employees or the employee size standard, if any, under the applicable North American Industry Classification System (NAICS) Code. The eligibility period ends on December 31, 2020. Further, businesses that have received a Paycheck Protection Program (PPP) loan – described below – are not eligible for EIDLs. However, businesses receiving an EIDL are eligible for a PPP loan.
Paycheck Protection Program (PPP): Administered under the Small Business Administration’s (SBA’s) 7(a) program, PPP provides small business owners with forgivable, low-interest, no-collateral loans to provide needed liquidity to support employees during the impacts related to the COVID-19 pandemic in amounts up to $10 million.
The amount to be guaranteed is an amount equal to 2.5 times the average total monthly payroll costs in the one-year period before the loan is made (or from January 1, 2020 through February 29, 2020, if the business did not exist in the previous year).
“Payroll costs” include the sum of all payments for compensation: (1) salaries, wages, commissions, or similar compensation; (2) payment of cash tips or equivalent; (3) payment for vacation, parental, family, medical, and sick leave; (4) allowances for dismissal or separation; (5) payments for group health care benefits and premiums; (6) retirement benefits; and (7) state and local tax assessed on employee compensation.
“Payroll costs” do not include: (1) employee compensation over $100,000 per year; (2) compensation of an employee whose principal place of residence is outside the US; or (3) qualified sick leave or family leave wages for which a credit is allowed under Section 7001 or 7003 of the Families First Coronavirus Response Act.
Other pertinent highlights of the loan program include:
Loans can be used to pay allowable payroll costs, interest on mortgage obligations (but not principal payments), rent (including utilities), and interest on debt that existed as of February 15, 2020. As suggested above, loan proceeds may not be used to pay salaries over $100,000.
The principal amount may be forgiven for eligible costs incurred and paid during the eight-week period after the origination of the loan.
Forgiveness for rent under a lease agreement, mortgage interest, and utility payments is only allowed for those services and contracts that were in place before February 15, 2020.
Loans do not require collateral or personal guarantees. The loans are non-recourse, except to the extent that loan proceeds are used for disallowed costs and expenses.
Loans only start to mature following the business’s application for loan forgiveness (but no later than 10 years after issuance and have a maximum interest rate of 4%).
Loan recipients may defer payment of remaining principal, interest, and fee balances for at least six months and up to one year after any loan forgiveness.
Applications are available now through June 30, 2020. Eligible applicants are those entities with a headcount lower than the greater of 500 employees or the employee size standard, if any, under the applicable NAICS Code. The employee limit does not apply for businesses in the “accommodation and food services” sector under the NAICS (NAICS codes beginning with 72) or those that maintain more than one physical location, in which case the 500-employee cap applies for each physical location. Note: Businesses receiving an EIDL are also eligible for a PPP loan. If a borrower has also obtained an EIDL after January 31, 2020, the outstanding amount of the EIDL will count against the $10 million cap for purposes of calculating the amount available. EIDL loans made after January 31, 2020, and ending on the date when PPP loans are made available, may be refinanced as part of the PPP loan.
Loans from such a facility are appealing in their terms. The interest rate is capped at 2% (unlike the requirement for loans made through other facilities that must charge a penalty rate), and no principal or interest payments are due during the first six months after the loan is made.
Any business or other entity that receives support through this facility would be required to use the funds to:
Retain at least 90% of its workforce as of March 24, 2020, at full compensation and benefits through September 30, 2020;
Restore 90% of its workforce that existed as of February 15, 2020, at full compensation and benefits within four months of the termination of the national emergency established in response to the COVID-19 outbreak;
Not pay dividends on common stock as long as the loan is outstanding;
Not outsource or offshore jobs for two years after the loan is repaid;
Not abrogate a collective bargaining agreement for two years after the loan is repaid; and
Remain neutral in any union organizing effort.
Note: There are additional provisions aimed at preventing executives and officers from buying back stock and/or enriching themselves or granting themselves golden parachutes.
As future legislation works its way through Congress, we’ll be sure to keep you updated. In the meantime, be sure to keep up with the recent global Government Updates, Business News, and Resources on this webpage.
*Much of the legislative overview is based on information from the American Staffing Association and the law firm Squire Patton Boggs.
This update contains general information only, and AGS is not rendering legal advice. Before making any decision or taking any action that may affect your business, you should consult qualified legal counsel. AGS shall not be responsible for any loss whatsoever sustained by any person or company who relies on this update. Inclusion of any hyperlink or explanatory notes/summary do not imply any endorsement, investigation, verification, or monitoring by AGS of any information in any hyperlinked site.