How the CARES Act Impacts Employers Who Keep Employees on Payroll
The CARES Act encourages employers to keep employees on payroll. Now what? The leadership in every organization wants to keep their people during COVID-19 coronavirus pandemic if they can. But now that there are government programs that can assist that mission, what comes next?
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First, let's look at the various funding options. Because each business is different, every business should consider the various assistance programs available to determine which fit it best, including other programs and benefits available under the Family First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
What Funding Is Available for Businesses During COVID-19?
As a result of the CARES Act signed into law on March 27, 2020, multiple avenues of relief will be available to small businesses through programs administered by the Small Business Administration (SBA) and the United States Treasury. The size limits for consideration as a "small business concern" have been changed, making many more entities eligible for assistance through programs administered by the SBA.
There are 3 main funding options available as incentives to retain employees:
- COVID-19 Economic Injury Disaster Loans (EIDL)
- Employee Retention Credit
- Paycheck Protection Program (PPP)
ECONOMIC INJURY DISASTER LOANS (EIDL)
EIDL Loans are available to small businesses in a declared disaster area which encompass all fifty states due to COVID-19 to cover economic injury resulting from the disaster (e.g., loss of revenue). EIDL Loans are processed directly through the SBA and are available in a maximum amount of $2 million, carry an interest rate of 3.75% for for-profit organizations and 2.75% for non-profit organizations. This is a fixed 30 year loan which, in comparison to the pre-COVID rates of 8-10%, is rather inexpensive money.
Companies have up to a year to take the loan after being approved, so it has been encouraged by the SBA to apply as soon as possible. If your business is not expected to be running for another few months, it may be best to wait to accept the loan until business is ready to open.
EMPLOYEE RETENTION CREDIT
This provision would provide a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profit organizations, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year over year basis. The credit is not available to employers receiving Small Business interruption loans. This only applies to the Employee Retention Tax Credit in the CARES Act and does not apply to any credits available under the FFCRA (such as the paid sick leave tax credit) or other credits available under the CARES Act.
PAYCHECK PROTECTION PROGRAM (PPP)
The Paycheck Protection Program authorized by the CARES Act makes loans of up to $10 million available to certain qualified small businesses (no more than 500 employees). PPP loans are 2 year, 1% interest loans with forgiveness available if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). These loans are issued through local participating banks, credit unions, and lenders.
PPP loans turn into a 2 year, 1% interest loan if you are not able to spend it on payroll. But will become a grant if people are kept on payroll or quickly rehired back and maintaining salary levels. A loan under the Paycheck Protection Program makes the borrower ineligible for the Employee Retention Tax Credit made available under the CARES Act.
What Employees Do I Keep Under PPP?
If the forgiveness of PPP loans is your goal, you'll want to use the funds for payroll wisely. Be aware that the payroll protection program does not apply to temporary employees. As a general rule of thumb, if it's not a W-2 employee for you, it doesn't count.
The forgiveness of payroll protection program loans is a dollar for dollar match to your "average monthly payroll". This means that you do not need to bring back the same people. If someone does not want to come back to work, you do not need that person to be reinstated to be eligible for forgiveness.
In some situations, you may have found employees that could not work remote or in a new organizational environment. Since the forgiveness is related to a dollar match and not tied to any employee, you could use the funds to hire people who know how to manage remote work.
I've Kept My Employees, Now What?
Keeping your "average monthly payroll" may mean employing workers that aren't at 100% utilization. This is the time to look at channels such as upskilling, employee development, or even cross-department utilization.
While upskilling should be a priority for every organization at all times, sometimes it takes an emergency to get it done. Just as we may have cleaned every room in our house during quarantine, this is the perfect time to get employee development done. Think about it. You've secured forgivable government funding for payroll, and business is not at 100%. Now is the time to implement these professional development training ideas.
- Managing Remote Teams
- Communicating Across Your Organization
- Prioritizing Your Time Effectively
- Cybersecurity for End Users: Spotting Ransomware, Phishing Emails, Malware, Creating Strong Passwords, and more
Any of these topics are great starting points for improving your organization's workforce while payroll is protected