Opinion: CARES Act is a big step forward

On March 27, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law, becoming the largest stimulus package in U.S. history and providing $2.2 trillion in much needed relief to individuals and businesses grappling with the fallout of the COVID-19 epidemic. The Act creates several programs intended to curb the devastating economic consequences that have already impacted businesses and workers including forgivable loans, tax credits, and expanded unemployment insurance.

At its core, the CARES Act provides a critical injection of financial assistance to small businesses via the Paycheck Protection Program (PPP). The PPP delivers nearly $350 billion in forgivable loans to small businesses that keep workers employed during the COVID-19 crisis.

The PPP loans will be administered by the Small Business Administration. An employer qualifies as “small” business under the PPP if it employs fewer than 500 workers or meets the SBA’s size standard for the employer’s industry.

Employers should be aware that the SBA determines the size of a business on an “affiliate” basis — meaning that a borrower must include the employees or receipts of all affiliates when determining the size of their business and eligibility for an SBA loan. According to the SBA, affiliation with another business is based on the power to control — via ownership, management, or other relationships or interactions between the parties — whether exercised or not. The SBA’s affiliation rules are waived under certain circumstances.

The portion of the PPP loan used to cover payroll costs, interest on mortgage obligations, rent payments and utility payments is eligible for forgiveness. The amount of the loan eligible for forgiveness will be reduced proportionally by any reduction in employees, or reduction in pay in excess of 25 percent for employees making less than $100,000, during the covered period.

To encourage employers to rehire any employees who have already been laid off, the PPP provides that employers that re-hire previously laid off employees (or increase a previously reduced salary) are still eligible for the full loan forgiveness amount.

The CARES Act also contains a significant expansion of unemployment benefits for workers. The Act provides $600 in weekly federal unemployment benefits in addition to weekly state unemployment benefits, and also provides an additional 13 weeks of benefits for those workers that have previously exhausted their state unemployment benefits. Small businesses can apply for a PPP loan as of April 3. The program is open until June 30, or when the funding runs out, whichever date is earlier.

Many employers have expressed concerns that the $600 — which works out to about $15 an hour for a 40-hour week — could incentivize essential employees to stay home, especially if they are already on the fence about going to work during the COVID-19 pandemic.

The Act also expands eligibility for unemployment benefits to workers who are not otherwise eligible for unemployment benefits, but are unemployed, partially unemployed, or unable to work due to COVID-19. This includes when an individual is responsible for caring for a child or other person in their household and that child or other person is unable to attend school or another facility that is closed as a direct result of COVID-19, and when an individual has to quit his or her job as a direct result of COVID-19. It is unclear what the legislature means by a “direct result” of COVID-19, but it is fair to say that this language could be broadly interpreted.

The total amount of benefits is currently capped at 39 weeks. Importantly, the $600 is not subject to reduction even if it exceeds the wages actually earned by the individual prior to becoming eligible for unemployment benefits. For example, in Florida, an individual who is eligible for full weekly unemployment benefits would receive a total of $875 weekly unemployment benefits (the $275 state weekly benefit plus the $600 federal weekly benefit).

The CARES Act also expands coverage to include individuals who historically have been ineligible for unemployment benefits, including individuals who are self-employed, “gig” workers, freelancers, independent contractors and part-time workers.

▪ Andrew M. Gordon is a partner with the U.S. law firm of Hinshaw & Culbertson, with offices in Miami and Fort Lauderdale. He focuses his litigation practice in the representation of management-side labor and employment matters. agordon@hinshawlaw.com. M. Megan Coughlin is also with Hinshaw. She counsels employers on labor and employment matters. mcoughlin@hinshawlaw.com.

▪ This “My View” piece, which was contributed to Business Monday, reflects the opinion of the writers and not necessarily of the Miami Herald.

This story was originally published April 3, 2020 at 12:55 PM with the headline "Opinion: CARES Act is a big step forward."