How the CARES Act impacts employers who keep employees on payroll
Employers are encouraged to keep employees on their payroll by the CARES Act. What now? Every organization’s leadership wants to ensure that their employees are safe during a COVID-19 coronavirus outbreak. What happens next now that there are government programs available to assist with this mission?
Let’s first look at the funding options. Each business is unique, so every business should look at the different assistance programs to determine which one best suits it. This includes other benefits and programs under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Family First Coronavirus Response Act.
What funding is available for businesses during COVID-19
The CARES Act, which was signed into law March 27, 2020, will provide relief for small businesses through programs administered under the Small Business Administration (SBA), and the United States Treasury. The “small business concern” size limit has been modified, making it easier for more entities to receive assistance through programs administered the SBA.
There are three main funding options for incentives to keep employees happy:
COVID-19 Economic Injury Loans (EIDL),Employe Retention CreditPaycheck Protection Program, (PPP),Economic Injury Loans (EIDL).
EIDL loans are available to small businesses located in declared disaster areas that include all 50 states. This is to cover the economic injury caused by the disaster (e.g. loss of revenue). EIDL loans are processed directly by the SBA. They are available in a maximum of $2 million and have an interest rate at 3.75% for for profit organizations and 2.75% to non-profit organisations. This fixed 30-year loan is much cheaper than the 8-10% pre-COVID rate.
After approval, companies have up to one year to obtain the loan. The SBA encourages you to apply as soon and as possible. If your business is not expected be in operation for a few months, you may want to wait to accept the loan before you are ready to open.
This provision would allow eligible employers to claim a refundable tax credit of 50% on wages paid to certain employees during the COVID-19 crises. Employers, including non-profits, who have had their operations suspended due to a government order restricting commerce, travel, or meetings, can apply for the credit. Employers who have seen a decrease of more than 50% in their quarterly receipts over the past year are eligible for the credit. Employers who receive Small Business Interruption Loans are not eligible for the credit. This credit is only applicable to the Employee Retention Tax Credit under the CARES Act. It does not apply to any credits under the FFCRA (such the paid sick leave tax credit or other credits under the CARES Act).
Paycheck Protection Program (PPP)
The CARES Act authorizes the Paycheck Protection Program to make loans up to $10,000,000 to qualified small businesses with no more than 500 employees. PPP loans are two-year, 1% interest loans that can be forgiven if they are used to pay payroll costs, interest on mortgages, rent, or utilities. (Due to the likely high subscription, at minimum 75% must have been used in payroll). These loans can be obtained through local credit unions, lenders, and participating banks.
If you are unable to use the loan on payroll, PPP loans will become a 2 years, 1% interest loan. If people are kept on the payroll, rehired quickly and maintain their salary levels, it will be a grant. The Paycheck Protection Program loan renders the borrower ineligible to the Employee Retention Tax Credit, which is available under the CARES Act.
What employees do I keep under PPP?
If you want to forgive PPP loans, you will need to make wise use of the funds for payroll. Temporary employees are not eligible for the payroll protection program. It doesn’t count if it isn’t a W-2 employee.
Payroll protection program loans can be forgiven if they are equal in dollar amount to your “average monthly salary”. This means that you don’t have to bring back the same people. To be eligible for forgiveness, you don’t need to reinstate someone who doesn’t want to return to work.
You may have hired employees who could not work remotely or in a new environment. The forgiveness is tied to a dollar match, and is not tied to any employee. You could use the funds for remote workers.
I’ve kept my employees, now what?
Maintaining your “average monthly salary” could mean that you are not utilizing 100% of your workers. This is the time for you to consider other channels, such as employee development, upskilling, and cross-department utilization.
Although upskilling should always be a priority in every organization, it can sometimes be necessary to do so in an emergency. This is the right time to invest in employee development, just as we did during quarantine. It’s not hard to see the point. Now that you have forgivable funding from the government for payroll, your business is not at 100%. These professional development training ideas are now available.
Managing Remote TeamsCommunicating Across Your OrganizationPrioritizing Your Time EffectivelyCybersecurity for End Users: Spotting Ransomware, Phishing Emails, Malware, Creating Strong Passwords, and moreAny of these topics are great starting points for improving your organization’s workforce while payroll is protected.