SPECIAL REPORT: Economic Relief In Light of The COVID-19 Pandemic
The COVID-19 pandemic has had a significant impact on businesses, employers and employees. Businesses are faced with having to decide whether to remain open or close (in some events, they are effectively being forced to close with stay in place/home orders). Employers are faced with the dilemma of deciding to layoff or furloughs employees. Employees are faced with having to work from home or scramble to seek aid if separated from work.
This memorandum sets for a general overview and summary of some of the relief opportunities available, or being negotiated, by Congress and the Trump administration. Please note that this information is current at the time of release of this memorandum. However, the information and relief being made available is rapidly developing and changing.
Economic Injury Disaster Loans
The Small Business Administration (“SBA”) released revised guidelines for the issuance of economic injury disaster loans (“EIDL”) to small businesses in designated states. EIDLs are available for small businesses and private non-profit organizations in declared-disaster areas. The SBA defines a “small business” as one that typically makes a maximum of $750,000 to $38.5 million in annual revenue with 100 to 1,500 employees. The current declared-disaster areas with EIDL availability are Arizona, California, Colorado, Connecticut, Georgia, Idaho, New Hampshire, Maine, Maryland, Massachusetts, Nevada, New Mexico, New York, Oregon, Rhode Island, Texas, Utah, Virginia. Washington, Wyoming, and the District of Columbia.
The loans are determined by actual economic injury and can be worth up to $2 million at an interest rate of 3.75% for small businesses and 2.75% for non-profits for up to 30 years. The SBA will review the creditworthiness of applicants, and will take the circumstances surrounding COVID-19 into account. Loans in excess of $25,000 must be secured by the business’s collateral. Loans to businesses without collateral may need to be secured by the business owner’s collateral.
EIDLs may be used to pay fixed debts, payroll, accounts payable, employee sick leave, or other debts bills that cannot be paid due to the disaster. EDILs may not be used to refinance debts incurred prior to the disaster event, make payments on other loans owned by another federal agency or the SBA, pay tax penalties or non-tax criminal/civil fines, repair physical damage, or pay dividends or other disbursements to owners or partners except as related to their performance of services for the business.
Pursuant to the new guidelines, states/territories are now only required to certify that at least five small businesses within the state/territory have suffered substantial economic injury, regardless of where those businesses are located. EIDLs will be available statewide following an economic injury declaration. This will apply to current and future disaster assistance declarations related to coronavirus. After a state becomes a declared-disaster area, small businesses, private nonprofits, homeowners and renters can apply online for an SBA disaster assistance loan.
H.R. 6074. Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020
This first phase of COVID-19 related relief legislation removed regulatory hurdles and authorized the SBA to provide an estimated $7 billion in low-interest disaster loans to small businesses as described above.
H.R. 6201. Families First Coronavirus Response Act
On March 18, 2020, President Trump signed into law emergency legislation entitled the Families First Coronavirus Response Act (“FFCRA”). The FFCRA goes into effect on April 2, 2020 and will remain in effect until December 31, 2020. It is important for employers to understand the various requirements under this emergency legislation. The FFCRA is broken up into multiple divisions, some of which are outlined below.
The Emergency Family Medical Leave Expansion Act:
The Emergency Family and Medical Leave Expansion Act (“EFMLEA”) expands on FMLA to provide for Public Health Emergency Leave. Under EFMLEA, employees are eligible to take up to 12 weeks of job-protected leave if the “employee is unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency.” A public health emergency is defined as an emergency with respect to COVID-19. Under the EFMLEA, employers with fewer than 500 employees, as well as government employers, must provide Public Health Emergency Leave to employees who have been employed for at least 30 days.
The first 10 days of Public Health Emergency Leave may be unpaid, or employees may elect to substitute accrued vacation time, personal leave, or medical or sick leave for this first 10 day period. Under EFMLEA employees will receive pay for leave that extends beyond ten days in an amount that is not less than two-thirds of an employee’s regular rate of pay based upon the employee’s regular work schedule. In the case of an employee whose schedule varies from week to week, to such an extent that an employer is unable to determine with certainty the number of hours the employee would have worked if such employee had not taken leave, the employer shall use (i) a number equal to the average number of hours that the employee was scheduled per day over the 6 month period ending on the date on which the employee takes such leave or (ii) if the employee did not work over such period, the reasonable expectation of the employee at the time of hiring of the average number of hours per day that the employee would normally be scheduled to work. In no event shall such paid leave exceed $200 per day and $10,000 in the aggregate.
Job restoration is required under EFMLEA, unless the employer has 25 or fewer employees and the position does not exist when the leave commenced due to economic conditions or other changes in operating conditions. In these circumstances, employers must first make reasonable efforts to restore the employee to an equivalent position with equivalent employment benefits, pay, and other terms and conditions of employment.
There is an exception under EFMLEA to exclude certain health care providers and emergency responders from the definition of eligible employee and to exempt small businesses with fewer than 50 employees from the requirements when the imposition of such requirements would jeopardize the viability of the business as a going concern.
Emergency Paid Sick Leave Act:
Under the Emergency Paid Sick Leave Act (“EPSLA”) employers with fewer than 500 employees must provide an employee with paid sick time to the extent that the employee is unable to work (or telework) due to a need for leave because (i) the employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, (ii) the employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19, (iii) the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis, (iv) the employee is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19 or caring for an individual who has been advised by a health care provider to self-quarantine due to concerns related to COVID-19, (v) the employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions, (vi) the employee is experiencing any other substantially similar condition.
The amount of paid sick time to which an employee is entitled is 80 hours for full-time employees. For part-time employees, a number of hours equal to the number of hours that such employee works, on average, over a 2-week period. In no event shall such sick time exceed $511 per day and $5,110 in the aggregate for leave due to (i) the employee being subject to a Federal, State, or local quarantine or isolation order related to COVID-19, (ii) the employee having been advised by a health care provider to self-quarantine due to concerns related to COVID-19, and (iii) the employee experiencing symptoms of COVID-19 and seeking a medical diagnosis; and in no event shall such paid sick time exceed $200 per day and $2,000 in the aggregate for leave due to (i) the employee caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19 or caring for an individual who has been advised by a health care provider to self-quarantine due to concerns related to COVID-19, (ii) the employee caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions, and (iii) the employee experiencing any other substantially similar condition.
Employers should also be away that they may not require an employee to use other paid leave provided by the employer before the employee uses the paid sick time provided under EPSLA. Each employer must also post and keep posted, in conspicuous places on the premises of the employer where notices to employees are customarily posted, a notice, to be prepared or approved by the Secretary of Labor, of the requirements described in this Act. Not later than 7 days after the date of enactment of this Act (March 25, 2020), the Secretary of Labor shall make publicly available a model of a notice that meets the notice requirements.
There is also an exception under EPSLA to exclude certain health care providers and emergency responders from the definition of employee, including allowing the employer of such health care providers and emergency responders to opt out, and to exempt small businesses with fewer than 50 employees from the requirements when the imposition of such requirements would jeopardize the viability of the business as a going concern.
Tax Credits for Paid Sick and Paid Family and Medical Leave:
Under the FFCRA employers are eligible for tax credits equal to 100% of the wage payments made by the employer under EFMLEA or EPSLA. These tax credits are allowed against the employer portion of Social Security taxes. The qualified sick leave wages are capped at $511 per day ($200 per day of the leave is for caring for a family member or child). The qualified family leave wages are capped at $200 per day for each individual up to $10,000 total per calendar quarter.
Emergency Unemployment Insurance and Stabilization and Access Act of 2020:
This section of the FFCRA allocates $1 billion in emergency grants to assist with the processing and payment of unemployment insurance. Half of the $1 billion will be allocated to provide funding for administrative costs. Employers need to know that they are required to provide notification of the availability of unemployment compensation to employees at the time of separation from employment. Such notification may be based on model notification language issued by the Secretary of Labor.
Federal Worker Adjustment and Retraining Notification Act (WARN):
Not part of FFCRA, but something employers need to be aware of when it comes to mass lay-offs or furloughs, the WARN Act and mini-WARN acts. The federal WARN Act requires covered employers to provide at least 60 days advance notice of a mass layoff or plant closing. A covered employer is an employer that employs (i) 100 employees, excluding part-time employees or (ii) 100 of more employees who in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime).
The term "plant closing" means the permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss at the single site of employment during any 30-day period for 50 or more employees excluding any part-time employees.
The term "mass layoff" means a reduction in force which is not the result of a plant closing and results in an employment loss at the single site of employment during any 30-day period for (i) at least 33 percent of the employees (excluding any part-time employees) and (ii) at least 50 employees (excluding any part-time employees), or (iii) at least 500 employees (excluding any part-time employees).
The term "employment loss" means (i) an employment termination, other than a discharge for cause, voluntary departure, or retirement, (ii) a layoff exceeding 6 months, or (iii) a reduction in hours of work of more than 50 percent during each month of any 6-month period.
An employer implementing a layoff because of COVID-19 likely thinks it will be a short-term layoff, but if the coronavirus lasts longer than expected, the furlough or layoff could last more than six months. Under the WARN regulations, an employer who has previously announced and carried out an anticipated short-term layoff (six months or less) that is being extended beyond six months due to business circumstances not reasonably foreseeable at the time of the initial layoff is required to give notice when it becomes reasonably foreseeable that the extension is required. However, an employee could claim the extension was reasonably foreseeable at the time of the initial layoff and, thus, the employer should have provided WARN Act notices.
Under State law, employees may be provided with greater rights than are provided by the federal WARN Act. The mini-WARN Acts may have different thresholds to be considered a covered employer or to have a covered event. For example, Illinois WARN defines notice-triggering events differently than federal WARN. Illinois WARN applies to employers with 75 or more full-time employees (excluding part-time workers) and requires employers to provide 60 days advance notice of pending plant closures or mass layoffs. A “mass layoff” under Illinois WARN is a reduction in force at a single site of employment that is not the result of a “plant closing” and results in employment losses during any 30-day period (or, in some cases, during any 90-day period) of 25 or more full-time employees if they constitute one-third or more of full-time employees at the site, or 250 or more full-time employees.
H.R. 748. Coronavirus Aid, Relief and Economic Security (CARES) Act
The Senate continues to work on proposed legislation to provide additional stimulus. The bill, which is still in the process of being drafted and is therefore subject to change, includes:
$350 billion allocated for Small Business Interruption Loans. These loans are meant to help small businesses with fewer than 500 employees impacted by COVID-19. Small businesses may borrow up to $10 million and cover employees making up to $100,000 per year. The loans may be used for paid sick, medical or family leave, costs related to continuation of group healthcare benefits during periods of leave, employee salaries, mortgage payments, or any other debt obligations. Loans will be entirely forgiven after four months if the business does not lay off its employees. TO be eligible for a loan, the small business must maintain an average monthly number of employees during the covered period that is no less than the number it had before the crisis began.
Small businesses that have laid off employees may qualify for forgiveness if employees are rehired by April 1, 2020.
The bill also includes a recovery rebate for individual taxpayers. The bill would provide a $1,200 refundable tax credit for individuals or $2,400 for joint taxpayers. The new version of the tax credit does not have minimum qualifying income requirements or phase-in. The rebate phases out at $75,000 for singles, $112,500 for heads of household, and $150,000 for joint taxpayers at 5 percent per dollar of qualified income, or $50 per $1,000 earned. It phases out entirely at $99,000 for single taxpayers and $198,000 for joint taxpayers. Taxpayers with children will receive a flat $500 for each child.
$500 billion in assistance from the Treasury for large businesses in severely distressed sectors of the U.S. economy, which includes passenger air carriers, cargo air carriers, and the hospitality industry. This aid would come in the form of loans with interest rates based on Treasury securities of the same maturity, although the Treasury could purchase stock options or warrants or other equity instruments contingent on the company’s financial success. Companies receiving aid would be prohibited from increasing executives’ compensation or offering “golden parachutes” for two years.
$75 billion in funding for hospitals and other healthcare providers
All diagnostic testing for coronavirus (COVID-19) would be free of charge to the patient.
A $300 above-the-line charitable contribution for filers taking the standard deduction and expands the limit on charitable contributions for itemizers.
The 10% early withdrawal penalty on retirement account distributions for taxpayers facing virus-related economic challenges would be waived. The amounts withdrawn would be taxable over three years. Taxpayers are able to recontribute the withdrawn funds into their retirement accounts for three years without affecting retirement account caps.
The bill allows employers to delay employer-side Social Security payroll tax payments until January 1, 2021. 50% would be due by December 31, 2021, and the remaining 50%would be due by December 31, 2022.
Companies can take net operating losses from 2018, 2019, or 2020, and carry them back five years. The net operating loss limit of 80% of taxable income would be suspended, which allows companies to use net operating losses to completely offset taxable income.
Companies that have tax credit carryforwards and previous alternative minimum tax liability can claim larger refundable tax credits than they otherwise could.
The net interest deduction limitation would be expanded from 30% to 50% of earnings before interest, tax, depreciation, and amortization for 2019 and 2020.
Income Tax Filing & Payment Extension
Following the extension issued by the IRS, Illinois is also extending the income tax filing and payment deadline by three months, from April 15 to July 15. The Illinois Department of Revenue will continue to process tax refunds for those filing ahead of the new deadline.
CONTACT:
Andrew J. Annes, Esquire
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mobile: (312) 246-3110
John W. Campbell, Jr., Esquire
jcampbell@satclaw.com
mobile: (312) 391-3126