The CARES Act will provide sweeping relief for America’s small businesses, but how exactly will it apply to your company?
Note: The following is the UpCounsel Team’s analysis of the CARES Act and how it may affect employers. It is not legal advice. Consult your own legal resources before making decisions for your business.
In the face of COVID-19, the US government has signed in a historical $2 trillion coronavirus relief law called the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Its intention is to relieve the 31 million small businesses that employ 59 million employees across the country. The CARES Act comes at a time when small businesses are under extreme pressure to close their doors and send employees home in the wake of the coronavirus pandemic.
The $2 trillion in funding was created to boost the economy, and provide immediate, substantial relief and financial security to business owners who are facing coronavirus-related disruptions and are struggling to retain their employees instead of laying them off. The provisions of the Act include direct relief payments to many Americans, but also include forgivable loans for business owners, deferrals and tax credits, and measures around unemployment to protect both employees and employers. Here are four things for employers to know about the CARES Act and how it could affect your business:
#1 – The CARES Act encourages you NOT to lay off your employees.
In fact, one of its provisions is to provide $350 billion in loans to small businesses (with less than 500 employees), sole proprietors, self-employed, and nonprofit organizations just to cover compensating your employees.
These loans were created to fund payroll and certain expenses such as utilities, rent, and mortgage interest that occur between February 15th and June 30th. It also allows small businesses to get a refundable payroll tax credit as well as defer some or all payroll taxes in 2020 to encourage you to keep your employees.
#2 – It can help you borrow up to $10 million to recover from coronavirus-related disruptions in workflow.
A small business that has been affected by COVID-19 may be able to borrow up to $10 million to meet payroll and cover other certain expenses such as utilities and insurance. These loans can be the lesser of either 2.5 times payroll or $10 million with a maximum interest rate of 4%. Additionally, businesses that apply for a loan will be able to apply for loan forgiveness which would forgive some or all of the loan for the portion used to cover payroll.
That said, the process for acquiring this funding can be convoluted, which is why UpCounsel is offering an SBA advisory service, available immediately.
#3 – Non-citizen employees may not have the same access to benefits under CARES Act.
Notably, the CARES Act excludes individuals who are “nonresident aliens,” so they are not eligible to these relief funds available to employees who are US citizens. For non-US citizens to be eligible, they must either meet the substantial presence test (which requires a non-US citizen to have been on US soil for 31 days of the present year and 183 days during the three-year period that includes the current year and the two preceding years) OR hold a valid green card. If an employee does not meet either of those requirements, he will not be able to access the relief funds provided by the CARES Act.
#4 – Employees who quit their jobs for coronavirus-related reasons can apply for unemployment benefits under the CARES Act.
Although this system was made to protect employees who feel unsafe at their jobs, it is anticipated that some employees will leave their jobs in order to receive unemployment benefits available in the face of COVID-19. These benefits are partially based on your state, but an additional $600 per week of Federal Pandemic Unemployment Compensation is also available to unemployed individuals under CARES Act. The latter is available until July 31st 2020, even in the event an unemployed individual has exhausted state benefits.
While businesses are slowing across the nation, the Trump administration hopes to keep the economy afloat by instigating protective measures to help small businesses keep their doors open, employees stay on the payroll, and to provide relief payments for Americans at every socioeconomic level. While the CARES Act was created to relieve Americans of a variety of situations, our hope is that protective measures will be defined to protect business owners from employees quitting. For employers, the CARES Act can be used to help you keep your employees, borrow the money you need to keep business as usual and recover through this period.