On March 27, 2020, President Trump signed into law “Phase Three” of the Congressional response to the COVID-19 health emergency. Entitled the “Coronavirus Aid, Relief, and Economic Security Act” (the CARES Act), the newest legislation is designed to provide over two trillion dollars to individuals and businesses affected by COVID-19 in an effort to stimulate the national economy. Below highlights the sections of the CARES Act that may impact employers with not more than 500 employees who are considering layoffs or furloughs due to the COVID-19 crisis.

Expanded Unemployment Benefits

Nationwide, there were over 3.2 million unemployment claims filed last week alone. The CARES Act contains provisions which provide additional financial assistance to employees unable to work because of the COVID-19 crisis. First, the Act provides unemployment coverage to those typically not eligible for traditional unemployment insurance coverage, including self-employed workers, independent contractors, and employees with limited work histories. These individuals may now qualify for “Pandemic Unemployment Assistance” coverage if they can certify to their state agency that they are available to work, but are unable to work as a direct result of the COVID-19 crisis. Additionally, displaced employees who are already receiving unemployment insurance under their state plans will now be eligible to receive an additional $600 per week in unemployment compensation for up to four months for weeks ending on or before July 31, 2020, regardless of the amount of the employee’s income prior to layoff, furlough, or termination. The Act also provides assistance to states that waive their typical one-week qualification (i.e., waiting) period for unemployment benefits, allowing claimants to immediately begin receiving benefits retroactive to the first day of unemployment or prorated unemployment. Further, qualified individuals who have already exhausted their state benefits (typically 26 weeks) may receive up to an additional 13-week extension of benefits through December 31, 2020, and additional unemployment benefits are provided to certain “covered individuals” who remain unemployed due to the COVID-19 crisis.

Paycheck Protection Program

Hoping to incentivize employers to avoid laying off or furloughing employees, the CARES Act’s Paycheck Protection Program (“PPP”) provides a new loan option for employers that have not more than 500 employees (although food service industry employers with more than 500 employees can still be eligible so long as they do not employ more than 500 employees at a single location). PPP loans are intended to help small businesses maintain cash flow for eight weeks by providing 100-percent federally-guaranteed loans that can be used to cover employment and other costs, such as payroll, salaries (less than $100,000), commissions, paid sick or medical leave (but excluding benefits for which a tax credit is already provided under the Families First Coronavirus Response Act), health care benefits, retirement benefits, mortgage, rent, and utilities. The maximum loan amount available under the PPP is 2.5 times an employer’s average total monthly payroll costs, up to a maximum of $10 million. PPP loans will have a maximum 10-year term with an interest rate up to four percent.  SBA-approved lenders are required to offer 6-12-month initial deferments on payments of principal, interest, and fees.

To incentivize retention of employers’ existing workforce, portions of PPP loans are eligible to be forgiven with respect to amounts spent during a covered eight-week period in an amount equal to the employer’s cost of payroll, rent, mortgage, and utilities. However, the amount of forgiveness will be reduced proportionally by any reduction in employees retained compared to the prior year, and by any reduction in the pay of any employee by more than 25 percent as compared to the prior year’s compensation. To encourage the rehiring of employees who were already laid off as a result of the COVID-19 crisis, this forgiveness reduction will not apply to companies that restore their workforce and wages by June 30, 2020.