On Friday, March 27, 2020, President Trump signed into the law the CARES Act. It is 335 pages long and covers a wide range of programs, tax credits, and industries.

We read it this weekend, so you don’t have to. It is so long, we’re sending out two blogs this week. The first one (this one) pertains to business loans, grants, and taxes, as well as unemployment. The second blog will deal with individual benefits and healthcare provisions.

     1. Paycheck Protection Program under 7(a)(2)(F)

From February 15, 2020 through June 30, 2020, qualifying businesses can apply for a loan equal to 2.5 X the business’s average monthly payroll costs, plus any refinance of (b)(2) loans (Economic Injury Disaster Loans), up to $10 million. Qualifying businesses are businesses which existed as of February 15, 2020, and include businesses with up to 500 employees or which meet the applicable size standard for the industry per SBA's existing regulations; businesses in the accommodation and food services industries with no more than 500 employees at each physical location; nonprofit organizations; and 1099 workers, sole proprietors, and eligible self-employed individuals.

The loans will be made through SBA-approved banks, credit unions, and some nonbank lenders. Within thirty days from the passage of the CARES Act, the SBA must issue guidance to the approved lenders. So far, these loan applications are not yet available. Borrowers must certify that: (1) they’ll only use the loan proceeds for qualified payroll costs, rent/mortgage, utilities, and interest on mortgage and other debt obligations; they do not have an application pending for a loan under 7(a)(2) for the same purpose and duplicative of amounts applied for or received under a covered loan; and (3) from February 15, 2020 to December 31, 2020, that they have not received amounts under 7(a)(2) for the same purpose and duplicative of amounts applied for or received under a covered loan. Qualified payroll costs include vacation, health care and retirement benefits, and most taxes, but it does not include compensation for a single employee in excess of $100,000, compensation for non-U.S. residents, and qualified sick or family leave for which a credit is allowed under the FFCRA passed last week.

Lenders are required to defer repayments and interest for no less than six months but no more than a year. Interest rates are capped at 4%. No personal guarantees are required, and the law provides that owners are not subject to personal liability for non-payment. Finally, there is no requirement that the business be unable to get credit elsewhere.

Loan forgiveness is available in an amount equal to the 8 weeks of payroll and other qualified expenses (meaning, expenses the borrower was obligated to as of Feb. 15, 2020) starting on the date of the origination of the loan, not to exceed the actual loan amount. The loan forgiveness amount is reduced if the business lays off an employee or reduces an employee’s pay by more than 25%. If an employee is rehired within thirty days of the enactment of this Act, they do not count negatively.

In order to get the forgiveness, the borrower needs to present accurate employment, expense, and tax records to the lender (who shall enter a decision within 60 days). Therefore, you should work with an accountant during this period of time to ensure you can take advantage of this. The forgiven amount is not included in gross income. If there is any loan balance remaining after the forgiveness, the maximum maturity of the loan is ten years, at which time the borrower can again apply for forgiveness of the remainder of the loan.

Finally, express loans have been increased from $350,000 to $1 million.

     2. Emergency Economic Injury Disaster Loans and Grants

The CARES Act also expands eligibility for borrowers applying for Emergency Economic Injury Disaster Loans under 7(b)(2). Qualifying businesses must be in business as of January 31, 2020, and suffering substantial economic injury, and include businesses, cooperatives, and ESOPs with up to 500 employees (including affiliates), private non-profits, and 1099 workers, sole proprietors, and eligible self-employed individuals.

The Act waives the requirements that (1) the borrower provide a personal guarantee for loans up to $200,000, (2) the business be in operation for one year prior to the disaster, and (3) the borrower be unable to obtain credit elsewhere. The SBA may approve “small dollar loans” solely on the basis of the applicant’s credit score or other alternative methods without the applicant having to provide tax returns or transcripts.

Most importantly, applicants may request an emergency advance of up to $10,000 upon self-certification, under penalty of perjury, that the business is eligible to receive an emergency economic injury disaster loan. The SBA must provide the funds within three days after receipt of the application. If the application is denied, the business does not have repay the $10,000 advance. Emergency advance funds must be used for payroll costs, sick leave, increased material costs, rent or mortgage payments, or for repaying obligations that cannot be repaid due to lost revenue. If the business later receives loan forgiveness through a 7(a) Paycheck Program Loan, the $10,000 advance will be deducted from the forgiveness amount.

     3. Subsidy for Certain Loan Payments

For SBA-issued 7(a), 504, and microloans, the SBA will pay the principal, interest, and associated fees for 6 months starting with the first payment due after the enactment of the Act (whether pre-existing or entered-into within the six-month period following the enactment of the Act, so you can still apply for these and take advantage of the deferment). The SBA will extend maximum loan maturity during the year following the enactment of the Act.

     4. Pandemic Unemployment Assistance

This law greatly expands the classes of people who are eligible to include unemployment benefits, to include furloughed, self-employed, and those who have exhausted all other available federal and state unemployment benefits. The only individuals expressly excluded from coverage are those who have the ability to telework with pay and those who are receiving paid sick leave or other paid benefits. To qualify, a person must be unable to work for essentially any coronavirus-related issue; however, the individual must also be actively seeking work unless unable to do so due to a coronavirus-related issue. The law applies to both loss of full-time employment and a reduction in hours of employment.

The unemployment benefits will be administered by each state, which can waive the typical waiting periods. The total benefit cannot extend more than 39 weeks (which includes any waiting periods for benefits under applicable state law AND any unemployment benefits received under existing state or federal law, unless the duration of other state and federal benefits is extended, in which case the total benefit may extend beyond 39 weeks) during the period January 27, 2020 through December 31, 2020.  The amount of the benefit is the employee’s regular compensation as determine by state law. Additionally, if the state of North Carolina agrees, the federal government will also fund an additional $600 per week starting on the date of the law’s enactment through July 31, 2020.

Finally, the Labor Department was ordered to establish a process for making Pandemic Unemployment Assistance available for the weeks beginning on or after January 27, 2020, through the date of enactment of the Act.

     5. Employee Retention Credit for Employers

This provision would provide a refundable payroll tax credit for 50 percent of wages paid by eligible employers and non-profits whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group 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.

Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit. For employers with 100 or fewer full-time employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave. This credit is not available if the employer is receiving assistance through the Paycheck Protection Program.

     6. Delay of Payment of Employer Payroll Taxes

This provision would allow taxpayers to defer paying the employer portion of FICA and half of SICA payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022.

     7. Modification of Net Operating Losses, Limitations of Losses, Limitations of Interest Expenses, and more – Go see your accountant!

Today, Governor Cooper issued a stay-at-home order for the entire state beginning on Monday, March 30, 2020 at 5 p.m. to remain in effect for thirty days unless otherwise repealed.

The state-wide order trumps the local county orders to the extent that the county orders are less restrictive, meaning that if you are not an essential business under the state-wide order, you have to cease travel by Monday at 5 p.m.

However, that is not likely to be many people in Mecklenburg County because the County’s order is much more restrictive than the state’s order. If you are a non-essential business under the county order, you must remain home, regardless of the state’s order. In other words, if the county and state order conflict, Gov. Cooper said the more restrictive measure applies.

If Mecklenburg County issues an order adopting the state’s order, a lot more business owners would be able to travel to work. Not only are there more essential businesses listed in the state’s order (read it here), but the state’s order contains a broad category of essential businesses that can remain open if the business meets “Social Distancing Requirements . . . Between and among its employees; and . . . Between and among employees and customers except at the point of sale or purchase.” Social distancing requirements are defined as:

          a. maintaining at least six (6) feet distancing from other individuals;

        b. washing hands using soap and water for at least twenty (20) seconds as frequently as possible or the use of hand sanitizer;

          c. regularly cleaning high-touch surfaces;
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          d. facilitating online or remote access by customers if possible

Additionally, the Governor’s state-wide order contains a provision allowing businesses excluded from the list of essential businesses who believe that they may be essential to request to be included to the North Carolina Department of Revenue (the "Department") via a point of contact and procedure to be listed on its website. The Department may grant such request if it determines that it is in the best interest of the State to have the business continue operations in order to properly respond to this COVID-19 pandemic. A business that has made a request to the Department to be included as an essential business may continue to operate until that request is acted upon.

Finally, the state order is in effect for longer than the County’s. If the County does not adopt the state’s order, County residents will be subject to the County order until April 16 and then switch over to the State’s order until April 29 (unless either are repealed earlier or extended).

We will continue to monitor the situation and provide an update if Mecklenburg County adopts the State’s order.

The Department of Labor (“DOL”) released a number of “Frequently Asked Questions” related to the FFCRA: https://www.dol.gov/agencies/whd/pandemic. The three main takeaways are:

1. The effective date of the FFCRA is April 1, 2020.

2. Employers are required to post additional labor law posters regarding the FFCRA. Copies of those posters can be found here and here.

3. The DOL has not yet issued regulations related to businesses with fewer than 50 employees claiming exemptions from the new law. In response to the question “how do I take advantage of the small business exemption?,” the DOL advises that small business owners should document why complying with FFCRA “would jeopardize the viability of the business as a going concern.” The DOL also notes that business owners should not send materials to the DOL in an attempt to qualify for the exemption.

In an attempt to “flatten the curve” and prevent the spread of COVID-19/Coronavirus, Mecklenburg County has issued a stay-at-home order for all County residents beginning on Thursday, March 26, 2020 at 8 a.m. and effective through April 16, 2020. This order encourages all county residents to stay in their residence for the next 21 days except when engaging in or providing essential activities and services.

Some examples of essential activities include going to the grocery store, warehouse store, or pharmacy, going to a restaurant for take-out or delivery, receiving medical care that you cannot obtain virtually, caring for a family member or friend, traveling to and from a job performing an essential service, and going outside to walk pets or exercise (while
maintaining a safe distance of at least six feet between you and another person).

For business owners, it is important to know what types of work are considered essential and thus do not need to transition to complete “work-from-home” operations while this order is effective. Businesses and types of work that are considered essential include the following:

     1. Healthcare and Public Health Operations: This includes all healthcare workers in hospitals; healthcare workers
where medical or dental care cannot be provided virtually, pharmacy personnel, mental health and substance abuse
providers, reproductive healthcare providers, home healthcare service providers, collectors of blood or plasma,
pharmaceutical and biotechnology companies, and other healthcare workers or suppliers that assist with or provide
services for healthcare operations
     2. Essential Infrastructure: This includes food production, distribution, and sale,distribution centers, construction,
building management and maintenance, operations of utilities such as water, gas, sewage, electricity, collection and
removal of garbage and recycling, oil and biofuel refineries, airport operations, maintenance of roads and public
transportation, cybersecurity, internet, video, and telecommunications systems
     3. Human Service Operations: This include long-term care facilities; residential settings and shelters for adults and
children, including seniors, or people with disabilities, substance abuse disorders, and/or mental illness,
home-based services for such individuals, field offices relating to the provision and/or determination of eligibility for
basic need services, developmental centers, adoption centers, or businesses providing food, shelter, social services,
and other basic necessities of life to disadvantaged or needy individuals
     4. Essential Government Functions: This includes first responders, dispatchers, court personnel, law enforcement
and corrections personnel, hazardous materials responders, child and adult protection services, housing and shelter
personnel, military; and other employee working to support essential businesses or operation
     5. Stores Selling Groceries and Medicine: This includes grocery stores, pharmacies, certified farmer’s markets,
convenience stores, pet supplies, stores selling fresh meats, fish, and poultry, stores selling alcoholic beverages,
and stores selling household consumer products, such as cleaning products or personal care products
     6. Food, Beverage, and Agriculture: This includes food and beverage manufacturing, production, processing,
cultivation, including farming, livestock, fishing, baking, distribution of animals and good for consumption, providing
food, shelter, and other necessities for animals. This also includes animal shelters, animal rescues, kennels, and
adoption facilities.
     7. Hardware and Supply Stores
     8. Information and Media: This includes media, such as television, radio, newspapers, and communication
​and information technology, such as internet service providers and IT
     9. Businesses Essential to Transportation Services: This includes airlines, taxis, public transportation,
transportation network providers (such as Uber and Lyft), other transportation and logistics necessary to facilitate
essential activities or essential business operations, vehicle rental, logistics, gas stations, auto-supply and auto-
repair and related facilities, and bicycle shop and related facilities
     10. Financial Institutions: This includes banks, currency exchange, and consumer lenders, including but not limited,
to payday lenders, pawnbrokers, consumer installment lenders and sales finance lenders, credit unions, appraisers,
title companies, financial markets, trading and future exchanges, affiliates of financial institutions, entities that issue
bonds, related financial institutions, and institutions selling financial products
     11. Mail and Shipping/Delivery Services: This includes post offices and other businesses that provide shipping and
delivery services, businesses that ship or deliver groceries, food, goods or services to end users or through
commercial channels
     12. Educational Institutions: This includes all public and private educational institutions from pre-K through college
and university and which may only operate for purposes of facilitating distance learning, performing critical research
related to COVID-19, or performing essential operations as defined below
     13. Public Works and Utilities: This includes energy, water and wastewater, transportation and logistics for the
County, and businesses handling hazardous materials
     14. Organizations Providing Charitable and Social Services: This includes both businesses and nonprofits (both
religious and secular) providing food, shelter, and social services, such as homeless shelters, services to help the
economically disadvantaged or disabled, and food banks
     15. Home-based Care and Services: This includes home-based care for adults, seniors, children, people with
disabilities. This includes nannies who may travel to a child’s home to provide care and meal delivery services.
     16. Residential facilities and shelters: This includes facilities for adults, seniors, and children, and/or people with
disabilities, substance abuse disorders, or mental illness. Some examples include nursing homes, assisted living
facilities, and homeless shelters
     17. Childcare Centers: This is limited to childcare for employees providing essential services such as first
responders, healthcare workers, public health, health and human services staff, and others responding to COVID-19
     18. Restaurants for Off-Site Consumption: This is limited to restaurants offering curb-side pick-up, delivery
services (through the restaurant or third-party delivery service), or drive-thru. No on-site consumption is permitted.
     19. Hotels and Motels: Operations are limited to lodging and providing carry-out or delivery food
     20. Laundry Services: This includes laundromats and dry cleaners, both industrial and commercial
     21. Funeral Services: This includes cremation, burial, cemetery and related services.
     22. Professional Services: This includes legal, accounting, insurance, and real estate (restricted to appraisal and
title services)
     23. Construction and Critical Trades: This includes tradespeople providing services such as building and
construction and related services such as plumbers, electricians, exterminators, cleaning and janitorial staff for
commercial and governmental properties, security staff, operating engineers, HVAC, painting, moving and relocation
services, and other service providers who provide services that are necessary to maintaining the safety, sanitation,
and essential operation of residences, essential activities, and essential businesses
     24. Business manufacturing or providing supplies to work from home
     25. Businesses providing supplies for essential business and operations: This includes businesses
manufacturing such products or providing support, such as computers, audio-visual electronics, household
appliances, IT and telecommunication equipment, hardware, heating, cooling, and plumbing equipment, firearm and
ammunition suppliers for purposes of safety and security, optics and photography equipment, medical and
orthopedic equipment
     26. Manufacturing, distribution, and supply chain: This is limited to critical products and industries. This includes
manufacturing companies, distributors, and supply chain companies producing and supplying essential products and
services related to healthcare, pharmaceuticals, technology, biotechnology, chemicals and sanitation, waste pickup
and disposal, food and beverage, transportation, energy, national defense, steel and steel products, petroleum and
fuel, mining, construction, communications, and other products used by essential businesses

All non-essential businesses must reduce operations except for “minimum basic operations,” which means operations limited to those activities necessary to maintain and preserve the value of the business (including maintaining inventory, preserving condition of the business’s physical location and/or equipment, ensure security, process payroll and employee benefits) or facilitate employees being able to work from home. Some examples of non-essential businesses are gyms and recreational centers, theaters, shopping malls, museums, sporting and entertainment venues, salons and spas, bowling alleys, and skating rinks.

While essential businesses are allowed to continue operating, it is important to establish education and protocol for allowing employees to continue doing their jobs while minimizing the risk of exposure among employees and others. This includes continuing to practice social distancing practices of maintaining at least six feet between employees and customers, enhanced sanitation protocol and access to sanitization products, separating vulnerable employees or populations when applicable, and maintaining communication with employees so that they may be able to reach their employer remotely if necessary.

Finally, the County has ordered that all public and private gatherings of more than 10 people are prohibited (except where they reside in the same house).

Yesterday, Congress passed the Families First Coronavirus Response Act, and the day before Governor Cooper issued an Executive Order expanding unemployment insurance benefits.  The President has not yet signed the federal act into law, but it is anticipated that he will do so immediately.

Unlike the regular Family Medical Leave Act (“FMLA”), The Families First Coronavirus Response Act (FFCRA) would apply to an employer with fewer than 50 employees. Both the proposed FMLA changes and the proposed paid sick leave would take effect 15 days after enactment and would remain in place only until the end of 2020. There are there separate acts within the FFCRA that are relevant to business owners.

1) Emergency FMLA Expansion Act (EFMLAEA)
          a. Unlike regular FMLA, this would apply to employees if they had been employed at least thirty days.
          b. Eligible employees get 12 weeks of FMLA leave if they have to miss work (or cannot telework) because they have to stay home with children if the school is closed more than five consecutive days.
          c. FMLA leave is unpaid for the first two weeks. However, the employee can choose to use their own paid sick leave (or the emergency paid sick leave granted below).
          d. After the first two weeks, employers are required to pay the employee at a rate greater than or equal to 2/3 the employee’s rate of pay.
          e. Leave is capped at $200 per day and $10,000 in the aggregate.
          f. This is in addition to benefits already available under the FMLA.
          g. The Department of Labor has explicit authority to create regulations that would “exempt small businesses with fewer than 50 employees from the requirements of the EFMLAEA when the imposition of such requirements would jeopardize the viability of the business.”*
          h. While the FMLA generally requires employers to restore covered employees to the job they had before they took leave, employers with fewer than 25 employees would not be required to if the employee takes leave under this Act and their position no longer exists due to economic conditions or other changes in the employer’s operating conditions that (1) affect employment and (2) are caused by the public health emergency during the leave period. However, the employer must make reasonable efforts to restore the employee to a position equivalent to one they held when leave began (i.e., equivalent benefits, pay, terms and conditions of employment). Additionally, the employer would be required to make reasonable efforts to contact the employee if an equivalent position becomes available during the one year period beginning on the earlier of (i) the date on which the qualifying need related to public health emergency concludes, or (ii) the date that is 12 weeks after the date on which the employee’s public health emergency leave commences.

2) Emergency Paid Sick Leave Act
          a. If an employee takes leave due to being quarantined or ordered isolated, a diagnosis of Coronavirus, showing symptoms of the Coronavirus, being ordered to stay home due to exposure to Coronavirus, staying home to care for a sick or exposed person, or staying home with children, an employer must pay two full weeks of paid leave (part time employees will be paid according to the number of hours they work on average).
          b. Leave is capped at $511 per day and $5,110 in the aggregate to care for themselves and $200 per day and $2,000 in the aggregate to care for another.
          c. This leave would be in addition to any employer-provided leave, and employers would not be permitted to change their leave policy.
          d. An employee can take this leave no matter how long they’ve been employed (no thirty-day requirement).

3) Tax Credits for Paid Sick and Paid Family and Medical Leave - Covered employers would be provided payroll tax credits to cover the wages paid to employees under the sick leave and family medical leave programs described above.
               
                               *We have no idea when regulations would be issued and what they would say.