On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act contains certain provisions that are applicable to employers. Specifically, small businesses with no more than 500 employees may take advantage of an expanded eligibility of Small Business Administration (“SBA”) loans. In additional to several other provisions, the CARES Act contains changes to employee benefit plans and increases unemployment payments by $600 per week.
The following is a summary of certain provisions of the CARES Act applicable to employers, excluding a summary of the tax provisions of the CARES Act.
The CARES Act authorizes the Small Business Administration (“SBA”) to increase SBA loan availability for certain small businesses (those that do not employ more than 500 employees) and organizations under Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) (“7(a) Loan”) between March 1, 2020 and December 31, 2020.
Eligibility for a 7(a) Loan is expanded by requiring a lender to only consider that the borrower (1) was in operation on March 1, 2020; and (2) paid salaries and payroll taxes to employees.
SBA Loan proceeds can be used for:
Other key points:
If you do not have more than 500 employees, you may want to reach out to your lender to see if you qualify for a Section 7(a) Loan. Masuda Funai is individually consulting with employers that are deciding on obtaining a 7(a) Loan and possible layoffs or reductions in force and the impact those decisions could have on the 7(a) Loan and loan forgiveness.
Regulations will be issued to clarify how these changes to employee benefit plans will be implemented.
For States that elect to participate, and we believe all States will elect to participate, the CARES Act provides for an additional unemployment benefit payment of $600 per individual per week, in addition to the regular unemployment compensation benefits that are provided under State law. There is no waiting period for this benefit, and States that participate have to waive any minimum waiting period for unemployment benefits.
Even without changes it the existing laws, there are options for employers to cut costs during this time. For example, if the 401(k) plan you offer to your employees has a matching contribution, this matching contribution can usually be reduced or eliminated.
Employers should also remember that if they lay off 20% or more of their employees, this will result in a partial termination of the 401(k) plan, resulting in immediate full vesting for all participants.
Please contact your relationship attorney or a member of the Employment Group with any questions regarding the Families First Act, CARES Act, or other legislation including questions related to compliance with the Americans With Disabilities Act, OSHA, the Fair Labor Standards Act, wage and hour compliance, sick leave, working from home policies, immigration, delayed litigation, and any business contract issues, such as the application of force majeure provisions.
If you have questions regarding employee benefit plans, please contact Jennifer R. Watson at firstname.lastname@example.org or Frank J. Del barto at email@example.com.
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