March 30, 2020 | Covid-19 | Posted by Ascentis
What HR Should Know about the Coronavirus Aid, Relief and Economic Security (CARES) Act
Late on the night of Wednesday, March 25, the U.S. Senate passed the Coronavirus Aid, Relief and Economic Security Act on a unanimous vote of 96-0. The House of Representatives passed the same legislation on Friday, March 27, and shortly thereafter it was signed into law by the President. Weighing in at an impressive 880 pages and estimated to spend a record $2.2 trillion, the much-anticipated “Corona-3” legislation should have an impact on every person, business and institution in American society. To put $2.2 trillion, as an amount, in perspective, if you were given the enviable task of spending ten million dollars a day, every day of the week, it would take you over 600 years to spend the full amount.
Of course, any legislation with such a price tag is going to have more than a few provisions in it; in the case of CARES, the law contains two divisions, six Titles, and more than 170 separately delineated sections.
The Titles in Division A (“Keeping Workers Paid and Employed, Health Care Systems Enhancements and Economic Stabilization”) are as follows:
- Title I: “The Keeping American Workers Paid and Employed Act” (includes paycheck protection, loans and loan forgiveness, and small business contracting relief.)
- Title II: “Assistance for American Workers, Families and Businesses” (includes unemployment insurance and tax relief.)
- Title III: “Supporting America’s Health Care System in the Fight Against the Coronavirus” (includes provisions pertaining to medical supplies, health care coverage, and paid sick and family/medical leave – in addition to, and in some cases modifying the provisions in this same area in the Families First Coronavirus Response Act.)
- Title IV: “Economic Stabilization and Assistance to Severely Distressed Sectors of the United State Economy” (includes relief to airlines, financial institutions and industries deemed critical to national security.)
- Title V: “Coronavirus Relief Funds”
- Title VI: “Miscellaneous Provisions”
Let's Break it Down
Now let's take some time to dig into each of those titles and better understand the employer-impacting provisions of each one.
Title II: Recovery Rebates and Unemployment Enhancements
Of somewhat limited interest to employers, but great interest to employees, Title II provides the details of the much-anticipated recovery payments to more than 140 million families throughout the United States. Designed to offer some amount of money to more than 93.5% of taxpayers, the rebates are actually structured as overpayments on either 2019 or 2018 annual tax bills, applied against a refundable 2020 tax credit. By classifying the amount this way, the payments are available for release immediately.
Recovery amounts begin at $1,200 for individual tax filers with AGI of $75,000 or less (or $112,500 or less for head of household filers), and $2,400 for married filing jointly filers with AGIs of $150,000 or less. $500 per child is then added to this amount. The measuring year is 2019 if the IRS has that return on file; otherwise it is 2018. The recovery amount is then decreased by a 5% phase-out ($50 per $1,000 of additional income) above these limits, with no recovery amounts due to single filers with AGIs above $99,000, heads of household with AGIs above $146,500 and married joint filers above $198,000.
Recovery rebates cannot be withheld or offset against debts to other federal agencies, past-due student loan payments, state income tax obligations, and UI compensation debts, but they can be offset against past-due child support order fulfillment. Payments will be made by direct deposit if that information is in the IRS’s computer files from 2019 or 2018 returns (with an expectation set of one to four weeks from now to pay), otherwise they will be made by check (expectation is four to five additional weeks to receive them). The law also includes authorization for the IRS to issue debit cards for the amounts (for the “unbanked”) but the IRS has not yet said if they will do so.
HR Impact: While employers are not involved in making these payments, employees, as taxpayers, whether impacted personally by COVID-19 or the “worried well,” are focused on these payments and have many questions. A compelling best practice would be for employers to add a “CARES Act Widget” to their Employee Self-Service landing pages, offering employees answers to key questions about timing and process, as well as resource links to IRS and news postings they trust.
Unemployment compensation (“UC”) benefits were also enhanced under the CARES Act. These enhancements include:
- Extending UC to the self-employed and so-called “gig-economy” workers,
- Waiver of the first week waiting period for benefits payments,
- An addition of up to $600 per week in enhanced benefits for up to four months,
- An additional 13 weeks of benefits,
- Establishment of an additional “short-term compensation” program for employees who’ve had their hours reduced to avoid outright layoff, this would fund the hours reduction for the employee and for the first time ever, offer employees still working the opportunity to collect a form of unemployment compensation.
All but the first of the above benefits do require the states to “opt-in” via a new agreement with the federal government, but it is expected that most or all will.
Title II: Business Benefits
Title II, Subtitle C offers eligible employers an “employee retention credit.” To qualify for this credit, employers must have carried on business in 2020 prior to the crisis, AND either (a.) had their business operations fully or partially suspended by governmental order OR (b.) experienced a calendar quarter year-over-year reduction in gross receipts of 50% or more, and remain eligible for the benefit until gross receipts exceed 80% on that same comparison.
Section 501(c)(3) organizations ARE eligible for the employee retention credit, but government entities are not.
The credit is calculated as 50% of the first $10,000 in wages per employee (and includes employer cost of health insurance) and is taken against employer payroll taxes (SS-OASDI and Medicare) owed, but is “refundable” – presumably meaning the credits can exceed the taxes owed.
The credit applies to employers of ANY size (including those with more than 500 employees), but – and here’s the key that makes it a “retention” credit – for employers with more than 100 employees, the credit applies only against the wages of employees NOT providing services for the employer, i.e., those in paid, non-working status. The maximum credit under this provision is $5,000 (50% of $10,000) for all calendar quarters between effective date and December 31, 2020.
Note: These tax credits should not be confused with similar credits already granted employers under the FFCRA. The tax credits for Paid Health Emergency Leave and Emergency Paid Sick Leave under FFCRA apply ONLY to wages paid to employees on qualifying leave, and different limits apply.
HR Impact: The law requires additional new “earnings codes” to be defined and tracked in an employer’s HCM suite – Retention Creditable Wages. The limit, in this case, is a numeric one, not one based on hours actually worked or not worked by an employee.
Title II, Subtitle C also postpones the due date for depositing the employer OASDI portion of payroll taxes, until 2021 or later. Fifty percent of the amounts owed for the remainder of 2020 may be paid by a new due date of December 31, 2021, and the other 50% will be due no later than December 31, 2022.
HR Impact: Employers will have to revise their employment tax record-keeping significantly, and create long-term liability accounts representing the amounts owed from 2020 but not paid until 2021-22.
Title I: Small Business Act Amendments, and Title IV: Economic Stabilization – Loans and Loan Guarantees
Careful reading of the new law clarifies that there are multiple benefits available to businesses, large and small, that vary in how rich they are. They range from loans requiring repayment, to forgivable loans, to outright grants, and they vary by size and industry. The HCM impact of these credit facilities generally revolve around two requirements: (a.) employee retention at various rates, and (b.) limits on executive compensation changes for a period of time.
Title I, Subtitle A amends the SBA (Small Business Act) to create a new Business Loan Program, funding it up to $350 billion. For the period February 15, 2020 to June 30, 2020 (and will it be renewed? Watch this space!) eligible small businesses may take out federally-backed, forgivable loans, to a specified maximum, for small businesses to cover payroll costs, employee health benefits, and a host of other expenses.
Certain prior loans under the Disaster Loan Program made on or after February 1, 2020, may be refinanced under this new program. Eligible companies under this provision starts with the prior definition of a small business under the SBA, expands it to employers with 500 or fewer employees, and then adds exceptions by industry to be granted by the Treasury Secretary.
Note: For hospitality and dining industry employers – so-called Sector 72 employers under the NAICS – an employer qualifies even if it totals more than 500 employees, if it has multiple locations and each location has fewer than 500 employees. This obviously opens this area of the law to most hotel and restaurant employers.
The maximum loan amount per employer is $10 million, subject to various contributing calculations, including certain outstanding SBA loan balances and a limit of 2.5 times total monthly payroll costs over a measuring period established within the law.
Forgiveness amounts for these loans start at 100% of the principal up to $10 million, but are then reduced, dollar for dollar, for any employee cuts or reductions in wages, according to a relatively complex formula. Forgiveness penalties calculated per this formula can be relieved for employers rehiring employees or restoring wages by June 30, 2020.
HR Impacts: Key to documenting an employer’s eligibility for loans, forgiveness amounts, forgiveness penalties, and relief from forgiveness penalties will be good, retroactive reporting on point-in-time and average headcount and compensation levels on key dates mentioned in the law.
Title IV also contains loan and loan guarantee provisions not specifically directed at small businesses. This $500 billion in authorized loans is apportioned as follows: (a.) $25 billion to passenger air carriers, (b.) $4 billion to cargo air carriers, (c.) $17 billion to businesses “critical to maintaining national security”, and (d.) the remaining $454 billion for industries to be designated by the Federal Reserve. These loans may be for a period of up to five years, must bear a market interest rate, and cannot be forgiven. Companies may not use the borrowed money for stock buy-backs for the life of the loan plus one year.
To qualify for any of the Title IV funding mechanisms, an employer must abide by executive compensation caps. Throughout the pendency of the loan, and for a period one year thereafter, there are limits on increases to compensation for any employee receiving more than $425,000 per year, and additional restrictions on officers receiving more than $3 million per year.
HR Impacts: Executive compensation limits may require certain employers to do point-in-time reporting on compensation for some high-level employees, including breakdown by compensation elements, at the relevant point when the employer receives the loan, and then ensure that no statutory rule is violated.
Finally, the law contains a somewhat surprising number of changes to benefits rules of which employers must be aware:
- Tuition reimbursement plans maintained under §127 are amended to allow for up to $5,250 of student loan payments by employers for their employees on a tax-free basis.
- Employees are allowed to take up to $100,000 in penalty-free premature distributions from various retirement plans, including 401(k) plans, without incurring the 10% early distribution excise tax.
- The law increases, from 50% to 100% or a maximum of $100,000, the portion of their retirement plan balance against which they can borrow.
- For plan years beginning on or before December 31, 2021, Health Savings Account (HSA) plans may allow telehealth and remote service benefits to be claimed without deductible, and without endangering the plans HDHP status.
- The law restores OTC medications to FSA claims-eligible status – they had been excluded from that status by the Affordable Care Act. Menstrual products are included in this new provision, but insulin is excluded.
In this blog we have focused on the most headline-worthy aspects of the CARES Act impacting employers, and specifically Human Capital Management infrastructure. Obviously, we could not address all employer-impacting provisions of an 880-page law here. For further details the CARES Act, join us on our webinar, “COVID-19 Legislative Updates: Key Compliance Provisions of the CARES Act” and check out our COVID-19 resource page for businesses.
About the Author
Bob Greene currently serves as Senior HR Industry Analyst at Ascentis. Bob’s 40 years in the human capital management industry have been spent in practitioner, consultant and vendor/partner roles. As practitioner, he managed payroll for a 5,000-person bank in New Jersey. As consultant, he spent 8 years advising customers in HRMS, and payroll and benefits system design as well as acquisition strategies. Bob also built a strategic HCM advisory practice for Xcelicor (now Deloitte Consulting.)
As vendor/partner, he has had prominent roles in sales support, marketing and product management at several companies and currently Ascentis. Bob has been a Contributing Editor for IHRIM's Workforce Solutions Review journal, for the past eight years. His experience also includes two years as Adjunct Lecturer in HRIS at Benedictine University in Lisle, Illinois. In addition to his 39 years of experience, Bob also holds a BA in English from Rutgers University.