The Coronavirus Aid, Relief, and Economic Security (CARES) Act has now passed the Senate and the House of Representatives and is reportedly headed to the President’s desk for signature. This post summarizes the key employment-related provisions of the bill.

The “Paycheck Protection Program”

The CARES Act would increase government guarantees for SBA loans to 100% through December 31, 2020. Notably, it specifies that such loans may be used for business operating costs including payroll, mortgage interest and rent, employee salaries, utilities, and costs associated with group benefits and insurance premiums and paid sick or medical leave periods. This is a key provision, given the new paid leave requirements implemented via the FFCRA. A borrower could not, however, receive this assistance along with that afforded by an economic injury disaster loan from the SBA. The maximum loan amount would be $10 million through December 31, 2020, but the loan amount is tied to actual payroll costs of the borrower. To be eligible, borrowers must attest that the loan is required due to business exigencies related to COVID-19. Finally, the proposal would allow complete deferment of section 7(a) payments for at least six months and at most one year.

Loan Forgiveness for Payroll Costs & Incentives to Rehire

Under the proposed bill, borrowers would be eligible for loan forgiveness equal to the amount spent in the eight-week period after the origination date on payroll and mortgage interest costs. Eligible payroll costs would not include compensation above $100,000 in wages but would include additional amounts paid to tipped employees.

The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and by the reduction in pay of any employee that is more than 25% of their prior year compensation. To encourage employers to rehire any employees who were laid off due to the COVID-19 pandemic, borrowers that rehire workers previously laid off will not be penalized under the above formula for having a reduced payroll at the beginning of the period.

Expanded Unemployment Insurance

The bill proposes temporary “Pandemic Unemployment Assistance” through December 31, 2020 for independent contractors, self-employed individuals, and those with sporadic work histories who otherwise would not be eligible for benefits. It also proposes the following:

  • An additional $600/week payment in addition to state benefits, and eligibility for an extra 13 weeks of benefits (following expiration of state eligibility) for individuals who receive unemployment benefits through December 31, 2020;
  • Reimbursement to the state of the first week of benefits paid to individuals in states that have agreed to waive the standard benefits waiting period; and
  • 100% reimbursement to employers for payroll costs incurred through December 31, 2020 in providing reduced-hours schedules in lieu of layoffs (resulting in a corresponding reduction in unemployment benefit payments to employees).