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Coronavirus FAQ #3 for Employers - The CARES Act

Dear AJ:  Help! I’m a small business and caught between a rock and a hard place.  I don’t want to lay people off, but I need a lifeline to keep the doors open.  What do I do?

 AJ’s Answer:  The first thing that I want to say is:  You are not alone.  Second:  With our American ingenuity, we will make it through.  Third, there is help.

The biggest lifeline out there was just passed by Congress and signed by the President on Friday, March 27, 2020.  That’s the Coronavirus Aid, Relief, and Economic Security Act (“CARES” or the “Act”), the largest stimulus package of all time, at $2.2 trillion.

Help from CARES

CARES covers a lot of issues, including direct payments to individuals making less than $100,000 a year, see my preliminary discussion of the Act here.  For small businesses, the Act offers some real relief and. . . hope.  In a nutshell the Act permits businesses with less than 500 employees to seek loans (up to $10 million) from the government, to cover basic operating costs, including payroll costs, rent and utilities.  Interest is minimal (4%), and there are no prepayment penalties, collateral requirements, or personal guarantee requirements – and the best part is that the loan principal may be entirely forgiven.

Debt Forgiveness – Tied to Employee Retention

In simple terms, a qualifying loan used for payroll, rent or utilities, will be forgiven to the extent the employer is able to maintain employee retention and wage normalcy despite the crisis.  Conversely, if employees are let go or wages reduced significantly (e.g., more than 25%), that data will be used to reduce the potential loan forgiveness.  So, loan forgiveness is tied to what a small business does with its employees.   Further, if a business quickly brings back employees who were let go during this crisis or raises previously reduced wages back to normal levels, the business may be exempt from any forgiveness reduction.

The Goal?

The goal is to help both business and employment. The Act offers loan forgiveness as a carrot for employee retention.  This Act can be a way out of a tough spot for a small business, providing a potential pathway to survival without laying off employees.  Obviously, the issue is complicated, and a business, well-intentioned about employees, still has to consider many business and tax factors in making these decisions.

KRCL has established the KRCL CARES Task Force to help small businesses with all these questions.  Both co-chairs of the Employment Law Practice Group, Douglas Bracken, and Andrea “AJ” Johnson are on this KRCL CARES Task Force.

Other Help for Employees of Small Businesses - FFCRA

As we have been advising in previous posts on the Law in the Workplace blog - employees of small businesses (less than 500 employees) also have been afforded other protection during this emergency, though the Families First Coronavirus Response Act (“FFCRA”).  In very general terms, FFCRA, offers two buckets of help for employees:

  1. 12 weeks of job-protected leave to care for a child at home because of school closure or similar reason (due to COVID-19), and two-thirds of normal pay during that time, up to $200 a day. AND
  2. Two weeks (10 days/80 hours) of paid sick leave for an employee to take care of him or herself, if she/he is sick due to COVID-19, has to self-quarantine or is put into isolation – at normal pay, up to $511 a day (assuming the employee cannot work during this time).

FFCRA provides certain tax credits for employers to help pay for these employee protections.

As with CARES, FFCRA has several provisions, and a company should seek legal assistance in the interpretation (plus everyone is still waiting on the Department of Labor’s regulations for the FFCRA and CARES).  FFCRA takes effect April 1, 2020, and employers must post notices about the law.  See our prior posts on the blog.

What’s the Message? 

Obviously, with both acts, Congress and the President are hoping that businesses will employ and protect employees through the crisis.  Every business owner wants to do so, if possible, for all kinds of reasons, mostly centered on the fact that employees are the lifeblood of most businesses, particularly those in the service industry.

The jury is still out whether these lifeline laws, coming well into a shut-down of large parts of American economy, will actually help small businesses avoid layoffs and/or shutting their doors (many have already had to make these drastic decisions).  Nevertheless, CARES clearly offers a possible path forward for business, if employers are in a position to secure the loans and can manage to keep employees on payroll through the weeks ahead.  And FFCRA offers some secondary help for employees facing COVID-19 related attendance issues.  It goes without saying that guidance on these topics is critical.

If you need assistance in navigating these laws, please call the KRLC CARES Task Force .  Certainly, we in the Employment Law Practice Group are here to help on all employment-related questions:

Call or email us anytime.