Insight

CARES Act – Paycheck Protection Program

CARES Act – Paycheck Protection Program

Jefferson P. Whisenant

Jefferson P. Whisenant

August 21, 2020 10:42 AM

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The sweeping legislation aimed to provide relief for many hard-hit industries including healthcare and aviation, as well as providing stimulus for the American people. The Act also designated $349,000,000.00 for small business loans through the Small Business Administration (SBA), including the new “Payroll Protection Program.” This blog post will give you a basic understanding of the structure of this new loan program for small businesses.

Who is Eligible?

Businesses in operation on February 15, 2020, with less than 500 employees (including part-time) per physical location, will be eligible for this new loan program. The Act also contemplates eligible businesses with more than 500 employees if it is the standard size for the industry as determined by the SBA. The business will need to certify that the uncertainty of the current economic conditions makes the loan necessary to support ongoing functions. The business will also need to certify that the funds will be used to retain workers and maintain payroll, or make mortgage, lease, or utility payments. Unlike some other SBA loans, you will not need to prove that you cannot obtain credit elsewhere. You’ll need to provide your lender with payroll documentation.

What is My Maximum Loan Amount?

This answer depends on how much you need to continue your payroll for two-and-a-half months. Businesses will be eligible for an amount up to two-and-one-half times their average monthly payroll costs for the year before the loan is made. If the business is seasonal, you can look at the 12-week period beginning either February 15, 2019 or March 1, 2019. If not in business from February 15, 2019 to June 30, 2019, look at the average monthly payroll costs from January 1, 2020 to February 29, 2020.

What are “Payroll Costs?”

“Payroll costs” are specifically defined in the Act, and this definition will come into play later with the loan forgiveness.

It includes:

  • Salary, wage, or commission;
  • Payment of cash tip or equivalent;
  • Payment for vacation, parental, family, medical, or sick leave;
  • Allowance for dismissal or separation;
  • Group health insurance premiums;
  • Retirements benefits;
  • State and local tax on the compensation of employees; and
  • Compensation of a sole proprietor up to $100,000.00 annually.

It does not include:

What Can I Use the Loan For?

The Act limits the use of the loan proceeds. Recipients can use the loan for:

  • “Payroll costs” (see above);
  • Continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • Employee salaries and commissions;
  • Mortgage interest (but not principal);
  • Rent;
  • Utilities (including internet); and
  • Interest on other debt obligations incurred before February 15, 2020.

Will This Loan Be Forgiven?

Businesses will be eligible for 100% forgiveness of an amount equal to all costs incurred and payments made for eight weeks after the date of the loan origination for the following:

  • “Payroll costs” (see above);
  • Payment of mortgage interest payments existing before February 15, 2020 (but not principal);
  • Payment of rent obligation existing before February 15, 2020; and
  • Utility payments.

Let’s call that sum the “forgiveness amount.” To start, the business gets 100% of the forgiveness amount. However, the forgiveness amount can be reduced if the business loses employees or cuts wages by more than 25%.

If the business loses employees, the forgiveness amount will be reduced as a function of the average number of employees for the eight-week period after the loan origination, divided by the average number of employees from February 15, 2019 to June 30, 2019 or January 1, 2020 to February 29, 2020 (employer’s choice).

For example, let’s say the loan recipient has a forgiveness amount of $100,000.00. The loan recipient averaged having 100 employees per month on payroll from February 15, 2019 to June 30, 2019. However, for the first eight weeks after the origination of its loan, the business only averaged 80 employees on payroll per month. The loan recipient would only be entitled to have 80% of their forgiveness amount forgiven, or $80,000.00.

The forgiveness amount could also be reduced if employee wages are reduced by more than 25% for employees who earn less than $100,000.00. However, borrowers will be exempt from either of these reductions if they restore their number of full time employees and/or their wage levels by June 30, 2020.

This is only a small portion of the CARES Act, but it is incredibly important for small businesses struggling to make payroll. The application for small businesses and sole proprietors through existing SBA lenders opens on April 3, 2020 and the application for independent contractors and self-employed individuals opens on April 10, 2020. Funding for this program is expected to run out, so apply early. Reach out to the attorneys on our COVID-19 task force for help or counsel in applying for this loan.

Click here to download a print friendly pdf. Visit our COVID-19 Resource Center for more information related to the Coronavirus outbreak.

Jefferson P. Whisenant represents employers and insurers throughout all stages of litigation on matters involving employment and workers’ compensation. Contact Jefferson at (919) 861-5045 or Jefferson.Whisenant@youngmoorelaw.com.

Related Articles

A Legal Guide for Businesses During COVID-19


by Roy D. Oppenheim

Oppenheim Law creates a useful guide for problems small to medium-sized businesses may face during this time of uncertainty.

COVID-19 Legal Information for Businesses

Protecting Small Business Owners: Trial Experts Connick Law LLC Notoriously Successful with Fire Litigation


by Justin Smulison

When small business owners become the target of insurance companies in fire-related lawsuits, hiring a firm with a reputation for understanding the science of fire suppression trials can save their livelihoods.

Gold Indoor Sprinkler Heads on Red Background

Employment Alterations


by Ariel Beverly

As corporate America continues to grapple with pandemic-induced employment shifts, companies are still facing wage-hour compliance issues. Here’s some advice for navigating a post-pandemic work world.

Post-Pandemic Employment Difficulties

What Does Workplace Harassment Look Like in 2021?


by Victoria E. Langley

The COVID-19 pandemic reshaped the U.S. workforce. But has it changed harassment on the job?

Workplace Harassment in 2021

Avon Calling


by Rebecca Blackwell

Nostalgia-soaked childhood memories of the neighborhood "Avon lady" can mask an insidious reality: Multilevel marketing companies are often little more than polished Ponzi schemes. My experience is illustrative.

Multilevel Marketing Is Not Employment

Trending Articles

Announcing the 2023 The Best Lawyers in America Honorees


by Best Lawyers

Only the top 5.3% of all practicing lawyers in the U.S. were selected by their peers for inclusion in the 29th edition of The Best Lawyers in America®.

Gold strings and dots connecting to form US map

Best Lawyers: Ones to Watch in America for 2023


by Best Lawyers

The third edition of Best Lawyers: Ones to Watch in America™ highlights the legal talent of lawyers who have been in practice less than 10 years.

Three arrows made of lines and dots on blue background

The Best Lawyers in South Africa™ 2023


by Best Lawyers

Best Lawyers proudly announces lawyers recognized in South Africa for 2023.

South African flag

Could Reign Supreme End with the Queen?


by Sara Collin

Canada is revisiting the notion of abolishing the monarchy after Queen Elizabeth II’s passing, but many Canadians and lawmakers are questioning if Canada could, should and would follow through.

Teacup on saucer over image of Queen's eye

IN PARTNERSHIP

2022: Another Banner Year


by John Fields

Block O’Toole & Murphy continues to secure some of New York’s highest results for personal injury matters.

Three men in business suits standing in office

Famous Songs Unprotected by Copyright Could Mean Royalties for Some


by Michael B. Fein

A guide to navigating copyright claims on famous songs.

Can I Sing "Happy Birthday" in Public?

Announcing the 2023 The Best Lawyers in Canada Honorees


by Best Lawyers

The Best Lawyers in Canada™ is entering its 17th edition for 2023. We highlight the elite lawyers awarded this year.

Red map of Canada with white lines and dots

Wage and Overtime Laws for Truck Drivers


by Greg Mansell

For truck drivers nationwide, underpayment and overtime violations are just the beginning of a long list of problems. Below we explore the wages you are entitled to but may not be receiving.

Truck Driver Wage and Overtime Laws in the US

What the Courts Say About Recording in the Classroom


by Christina Henagen Peer and Peter Zawadski

Students and parents are increasingly asking to use audio devices to record what's being said in the classroom. But is it legal? A recent ruling offer gives the answer to a question confusing parents and administrators alike.

Is It Legal for Students to Record Teachers?

Thirteen Years of Excellence


by Best Lawyers

For the 13th consecutive year, “Best Law Firms” has awarded the most elite and talented law firms across the country through a thorough and trusted data review process.

Red, white and blue pipes and writing on black background

The Upcycle Conundrum


by Karen Kreider Gaunt

Laudable or litigious? What you need to know about potential copyright and trademark infringement when repurposing products.

Repurposed Products and Copyright Infringemen

Choosing a Title Company: What a Seller Should Expect


by Roy D. Oppenheim

When it comes to choosing a title company, how much power exactly does a seller have?

Choosing the Title Company As Seller

Caffeine Overload and DUI Tests


by Daniel Taylor

While it might come as a surprise, the over-consumption of caffeine could trigger a false positive on a breathalyzer test.

Can Caffeine Cause You to Fail DUI Test?

Announcing the 2022 Best Lawyers® in the United States


by Best Lawyers

The results include an elite field of top lawyers listed in the 28th Edition of The Best Lawyers in America® and in the 2nd Edition of Best Lawyers: Ones to Watch in America for 2022.

2022 Best Lawyers Listings for United States

Announcing The Best Lawyers in Australia™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Australia.

The Best Lawyers in Australia™ 2023

Announcing The Best Lawyers in Germany™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Germany.

Black, red and yellow stripes