UPDATED 4/3/20: Regulations were issued and, as of April 3, banks are accepting applications for loans. Funds will be issued through June 30 or until the money appropriated is exhausted.

Phase 3 of the coronavirus relief is expected to be passed and signed into law on Friday, March 27. It is titled the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). There are some new benefits in the CARES Act that benefit employers and employees, in addition to the widely discussed stimulus payments.

New SBA Loans & Paycheck Protection Program (PPP) 

The Paycheck Protection Program (PPP) will provide loans through the Small Business Administration (SBA)’s 7(a) program of up to $10 million to businesses, nonprofits, and veterans organizations that employee less than 500 employees or less than the employee size standard set by the SBA for the borrower’s particular industry. The loan process is streamlined (possibly with funding within 2-3 weeks), and will be administered by banks (and backed by SBA). The interest rate on the loans is 1%, and the terms will be 2 years. The amount of the loan is the lesser of $10 million or 2.5 times average monthly payroll (for the prior 12 months). Payments can be deferred for a minimum of 6 months. No collateral is required. Lender origination fees are paid by SBA.

Loans can be used to cover payroll support, insurance premiums, mortgage premiums, rent, utilities, and other specified debt obligations (except costs of the paid sick and family leave passed in the Phase 2 relief bill, the FFCRA that are refunded in payroll tax credits). Loan amounts spent on payroll costs, mortgage interest, rent, or utilities during the 8-week period following the origination date of the loan (roughly through June) may be forgiven, but the forgiveness amount is reduced if the borrower reduces employee count or salaries (beyond 25% of their prior year level). Businesses must apply for forgiveness. The money can be used to retroactively bring back employees already laid off on or after February 15, 2020. Bringing back previously laid off employees can increase the amount of the loan that will be provided. Payroll costs of gross salaries above $100,000 are excluded. 75% of the loan must be used for payroll costs.

Employers that already have “disaster loans” through SBA can apply to refinance them into CARES Act loans. Existing disaster loan applications may be eligible to convert into CARES Act loans.

Other Loans to Larger Businesses

The emergency loan provisions lay out conditions for nonprofits and private businesses with between 500 and 10,000 employees, including that they maintain staffing, pledge not to offshore jobs, abide by collective bargaining agreements with unions, and promise to “remain neutral” if employees seek to form a union during the loan term. There are also limits on stock buy backs and executive compensation. Notably, most of these conditions do not apply to the small business loans above.

Payments to Employees on Unemployment

The CARES Act also expands unemployment for individuals on unemployment for up to 4 months by providing an additional $600 per week (on top of state benefits) and by paying the typical one-week waiting period (which has been waived in most states). The legislation also adds a 13-week extension to unemployment for those employees nearing the end of their eligibility. Further, independent contractors, the self-employed, and those who have not yet hit the minimum hours will now qualify for benefits.

Employee Retention Payroll Tax Credit

The CARES Act provides an employee retention credit of 50% of wages and health insurance premiums (up to $10,000 of wages per employee, with $5000 credited) paid to employees while closed (and employees are furloughed) or while the employer is experiencing a significant decline in gross receipts (more than 50%) due to COVID-19. This money will be “paid” to employers through a refundable credit against social security tax payments due.

For employers with more than 100 full-time employees, the credit is for wages paid to employees when they are not providing services because of the coronavirus. Eligible employers with 100 or fewer full-time employees could use the deduction even if they aren’t closed if revenue was less than 50% what it was for the same quarter in 2019. The credit covers wages paid or incurred from March 13 – December 31, 2020.

Once an eligible employer’s gross receipts for a calendar quarter are greater than 80% of the gross receipts for the same calendar quarter in 2019, the credit ends in the second calendar quarter after the 80% threshold is met

Delay of Payroll Taxes

Employer payroll taxes for the 6.2% employer share of social security taxes are generally due quarterly. The payments can be deferred, with half due on December 31, 2021, and the other half due on December 31, 2022.

Relief for Employees – 401k Distributions

Early withdrawal penalties are waived for employees that take certain distributions from their 401k accounts. Employees may take up to $100,000 or 100% of the account balance, whichever is less. To qualify, employees need to fall into one of 2 categories. First, the employee, spouse, or a dependent is diagnosed with COVID-19. Second, the employee experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care or closures related to the coronavirus pandemic. Employees have 3 years to pay back the money, or pay income tax on the amount distributed.

Relief for Employees – Payoffs of Student Loans

Up to $5,250 of money paid by an employer toward an employee’s student loan repayment is income tax-free. This benefit is available only in 2020. Employers may provide each employee with up to $5,250 in 2020 in combined tuition and textbook assistance and student loan repayment assistance, tax-free. Student loan payments are also deferred until September 30, 2020, without penalty or accrued interest.

COVID-19 Insurance Coverage

All private insurance companies must cover testing free of copays and coinsurance and cover COVID-19 treatments and vaccine (when one is developed).