Signed into law on March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) features one-time stimulus payments to taxpayers, loans and grants to small businesses, and additional funding for health care and unemployment insurance.
Two of the largest small business financial relief programs include the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) Program. Each includes relief for businesses with 500 or fewer employees, and the PPP features loan forgiveness for company retirement and health plan expenses:
Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) was created to prevent job loss and the potential failure of small businesses due to the COVID-19 pandemic. An initial funding round of $349 billion was exhausted within the first two weeks of release and a second funding round of $310 billion — including $60 billion specifically earmarked for small lenders — was released on April 24, 2020.
As of May 16, 2020, approximately 131,085 Georgia businesses received PPP loans worth more than $14 billion.
Eligibility: 500 or fewer employees, including full-time, part-time, temporary, or seasonal.
Maximum loan amount: 2.5x the average total monthly payroll cost during a one-year period from the date the loan is made.
Loan use: Loans are to be used to cover payroll costs, mortgage payments, rent and utilities incurred between February 15-June 30, 2020, as well as interest on other debt obligations incurred prior to February 15, 2020. Payroll costs include:
- Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
- Employee benefits including costs for:
- vacation, parental, family, medical, or sick leave;
- allowance for separation or dismissal;
- payments required for the provisions of group health care benefits including insurance premiums; and
- payment of any retirement benefit;
- State and local taxes assessed on compensation.
Loan forgiveness: A portion of a loan that is used to cover the following expenses is eligible for forgiveness:
- Payroll costs (as defined above)
- Mortgage loan interest
- Rent
- Utilities payments for electricity, gas, water, telephone, transportation, or Internet access for services that began prior to February 15, 2020
At least 75% of the forgiven loan amount must be used for payroll costs. In addition, the amount of PPP loan forgiveness may be reduced if the borrower has reduced the number of employees or cut the salaries and wages of employees making under $100,000 by 25% or more unless employees are rehired and salaries/wages are restored by June 30, 2020.
On May 15, 2020, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) Loan Forgiveness Application and provided detailed instructions for completing the application.
According to the SBA, the form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:
- Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles.
- Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan.
- Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness.
- Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30, 2020.
- Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined.
The documents will help small businesses seek forgiveness at the conclusion of the eight-week covered period, which begins with the disbursement of their loans.
Economic Injury Disaster Loan (EIDL) Program
The CARES Act expanded the SBA’s existing Economic Injury Disaster Loan (EIDL) program to provide longer-term loans with more favorable terms for businesses with fewer than 500 employees that have suffered economic injury due to the COVID-19 pandemic. EIDL loans are based on the amount of actual economic damages as determined by the SBA and are available up to $2 million. EIDL loans carry a fixed rate of 3.75% with up to a 30-year term and amortization.
The CARES Act also established an emergency grant of up to $10,000 for companies applying for an EIDL. This grant is not required to be repaid and may be used to cover payroll costs, mortgage or rent payments, paid sick leave for employees unable to work due to COVID-19, and repayment of other obligations that cannot be met due to the impact of COVID-19 on revenues.
Although EIDL loans are not eligible for forgiveness, borrowers can seek to refinance their EIDLs under the PPP to take advantage of the PPP loan forgiveness provisions.
Payroll Tax Credit
Companies that were shut down or suffered a 50% reduction in revenue due to Coronavirus-related government orders are eligible for an advance refundable credit on payroll taxes up to 50% of the first $10,000 of wage payments between March 13-December 31, 2020. This includes monies spent to maintain group health plan coverage. Companies that receive a PPP or EIDL loan are not eligible.
Companies with more than 100 employees will receive a payroll tax credit for health plan coverage for laid-off workers.
Companies with fewer than 100 employees will receive a payroll tax credit for health plan coverage for all employees.
We help our clients stay on top of the legislative and regulatory changes that apply to their businesses and ensure that their benefit plans and processes are updated to stay in compliance. To learn more, call our team today at 678-439-6236.
Hall Benefits Law, LLC
