Since March, Congress passed, and the President signed into law, three pieces of sweeping legislation to address the health emergency and economic damage caused by the coronavirus (COVID-19) pandemic.
The first of these bills (enacted March 6), is the Coronavirus Preparedness and Response Supplemental Appropriations Act. It provides $8.3 billion in emergency funding for federal agencies to respond to the outbreak, with $6.7 billion designated for domestic response and $1.6 billion for the international response.
The majority of the funds for domestic response ($6.2 billion) is for the Department of Health and Social Services (HHS) and includes biomedical research and development of vaccines, and grants under the Health Center Program to improve care to people who are geographically isolated as well as economically and medically vulnerable. The rest is divided among the Centers for Disease Control and Prevention (CDC); the National Institute of Allergy and Infectious Disease (NIAID) whose director, Anthony Fauci, M.D. has become a media celebrity and trusted authority; and the Food and Drug Administration. A smaller amount ($20 million) was designated for the Small Business Administration disaster loans program.
Of the $1.6 billion for international response, $986 million went to the United States Agency for International Development (USAID) for direct help to health systems and humanitarian assistance, with $264 million for the State Department to support consular operations, emergency evacuations and other embassy needs, and $300 million for the CDC. Following is an overview of pandemic response laws.
The Families First Act
The second major legislative initiative, the Families First Coronavirus Response Act, was signed into law on March 18. Because many workers in America currently have no paid leave, the coronavirus outbreak was forcing them to choose between a paycheck, their health and the health of those around them. The emergency paid leave provisions in this law were a crucial step in mitigating the spread of the virus and protecting families’ financial security. Other key provisions besides paid sick leave in the Families First Act include insurance coverage of coronavirus testing, nutrition assistance and unemployment benefits.
The leave sections of the act contain the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLA), both of which became effective on April 1. The EPSLA requires employers with fewer than 500 employees nationwide to provide two weeks of paid sick leave to employees. Employers are entitled to a tax credit equal to 100 percent of the EPSL wages. The law sunsets in December 2020. (See “Who Qualifies?” on page XX.)
EFMLA amends the Family and Medical Leave Act (FMLA) of 1993 to add an additional basis for taking job-protected leave. This includes leave for an employee who is unable to work (or telework) to care for a child whose school or place of care is closed, or whose child-care provider is unavailable due to the COVID-19 public health emergency. The 1993 FMLA applied only to employers with 50 or more employees and only provides eligible employees with unpaid leave because of the employee’s own serious health condition, the serious health condition of the employee’s parent, spouse or child, to bond with a child newly joining the employee’s family, and for qualifying military service needs. The usual FMLA requirements that a person has to be employed for at least 12 months (and worked 1,250 hours in the year before the leave begins) do not apply to the new public health emergency leave law.
Under the provisions of the EFMLA, all employers with fewer than 500 employees must grant public health emergency leave to anyone who has been employed for a least 30 calendar days. It permits up to 12 weeks of job-protected leave between April 1 and Dec. 31, 2020, to care for the child whose school or day care is closed due to the COVID-19 public health emergency. Businesses with fewer than 50 employees may claim an exemption from the EFMLA, if providing such leave would “jeapordize the viability of the business.”
Employers are not required to pay employees for the first 10 days of the EFMLA leave, but must allow employees to use their paid EPSL, or if the employee doesn’t have any remaining EPSL, their accrued vacation, personal leave or sick leave if they choose. The remaining 10 workweeks of EMFLA leave must be paid by the employer at two thirds of the employee’s regular pay (capped at $200 per day and $10,0000 in the aggregate, per employee). Employers are entitled to a tax credit equal to 100 percent of the qualified family leave wages. This law, like the EPSLA, expires in December 2020.
On April 1, the U.S. Department of Labor announced new action regarding how American workers and employers will benefit from the protections and relief offered by the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act, both part of the Families First Coronavirus Response Act (FFCRA). Among the provisions included in the temporary rule: any employee still working, even if working reduced hours, will be eligible for the new paid sick leave under the Emergency Paid Sick Leave Act and the Expanded Family and Medical Leave under the Emergency Family and Medical Leave Expansion Act. An employee laid off or furloughed with no scheduled hours would not be eligible for the paid sick leave, or the expanded family and medical leave. (For more information, visit dol.gov/agencies/whd/ffcra.)
Lisa Ann Hilario, an attorney with Spaulding, McCullough and Tansil, LLP, points out that many areas of the law and many industries are affected—and will be affected—by COVID-19 legislation. “My advice, and the advice of the 22 attorneys in our firm, is always based on a business’s particular circumstances. Questions about employment and employee leaves are just a piece of this right now,” she says. “As things evolve and change, people will need legal advice in many other areas. How do the federal stimulus and loan packages work? Is my estate plan in order? What happens if my tenant can’t pay the rent? Or, my commercial tenant wants to get out of the lease? Vendors will be asking if contracts are enforceable. What if a supplier is unable to deliver on a contract? With the COVID-19 laws coming out so fast, it can be challenging for businesses to keep on top of things. Sometimes the counsel we gave 10 days ago must be modified later when a new law gets passed. And that is certainly what we have seen with the multiple stimulus packages and loan programs rolling out since the COVID-19 crisis began.”
The U.S. Department of Labor provides fact sheets on the legislation and who is eligible for the emergency leave and compensation, as well as FAQs, instructions for employer posting requirements, and presumably any updates and additional guidelines.
Another key provision of the Families First Coronavirus Reponse Act distributes $1 billion to states “for the administration of its unemployment compensations laws, including ensuring adequate resources in periods of high demand.” This provision was subsequently and necessarily expanded upon by the $2.2 trillion economic relief package enacted by Congress and signed by the President March 27.
Food assistance
Perhaps recognizing the paramount need to ensure Americans receive the food they need, the first section of the Families First Act allows the Department of Agriculture to expend, through September 2021, $500 million for WIC (Special Supplemental Nutrition Program for Women, Infants and Children), $400 million for the Commodity Assistance Program and “such amounts as are necessary during FY2020” for SNAP (Supplemental Nutrition Assistance Program, formerly known as Food Stamps). The recently-imposed work and work training requirements issued by the Trump administration for SNAP recipients were lifted April 1, and will remain so until the public health emergency declaration by the Secretary of Health and Human Services is lifted.
The Secretary of Agriculture established a nationwide waiver for states for the purposes of providing meals and meal supplements, including the vital federal school breakfast and lunch programs. The waiver allows “non-congregate feeding,” meaning food can be provided outside the school or care setting with appropriate safety measures for COVID-19.
The CARES Act
After days of discussions and what Speaker of the House Nancy Pelosi called “a little ju-jitsu,” Congress members came together to pass the third piece of sweeping legislation in a month—The $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act. Putting aside petty partisan fights, and realizing there was no time to lose, representatives passed the bill on a nearly unanimous voice vote. You may have received a communique from your U.S. Senator or Representative explaining the benefits, answering frequently asked questions, and offering resources to take advantage of this unprecedented economic relief bill which was signed into law on March 27. Following are some key provisions of the CARES Act.
Direct Payments. Individuals making up to $75,000 ($150,000 for married workers) will receive a one-time direct deposit of up to $1,200 ( married couples will receive $2,400) with an additional $500 for each child. If an individual’s income is between $75,000 to $99,000 the amount will be phased down until zero for those earning more than $99,000. This payment is not considered taxable income. Those not eligible are young people aged 18-24 claimed as a dependent on their parents’ tax return and undocumented workers.
These payments will be issued by the IRS via direct deposit and will be based on 2019 or 2018 tax return or 2019 Social Security statement. For those not filing a tax return in the past two years and who do not receive Social Security, the IRS recommends filing a 2018 return to receive payment.
Unemployment. The CARES act provides $250 billion for an extended Unemployment Insurance (UI) programs, expanding eligibility by 13 weeks. The California weekly unimployment benefit amount can range from $40 up to $450 per week. Eligible workers will get $600 per week for four months on top of what state programs pay and in the same time frame as regular state or federal unemployment benefits; payments will be available without the previously-required one-week waiting period. Benefits are extended for those whose benefits were scheduled to expire.
The CARES Act also extends UI to workers who are usually not eligible for such benefits, as long as their unemployment is connected to the coronavirus outbreak. These include part-time employees, independent contractors, freelancers, gig economy workers and the self-employed. More than $6.6 million Americans applied for Unemployment Compensation in the last week of March. Prior to that, the worst single week for unemployment filings was 695,000 in 1982, according to the New York Times. Total applications for unemployment topped ______ on _____ [UPDATE on Proof 1: (the amount on April 23 was nearly 26 million nationwide.]
Small Business Relief. Congress secured $350 billion in forgivable loans and $10 billion in grants to small businesses, tribal business concerns and certain nonprofits. This money is dedicated to preventing layoffs and business closures while workers have to stay home during the outbreak. The Paycheck Protection Program (PPP) creates a new loan option for companies with 500 employees or fewer that maintain their payroll during coronavirus can receive up to eight weeks of cash flow assistance. If employers maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent and utilities would be forgiven.
Borrowers can request a loan amount equal to 2.5 times each the business’s average total monthly payroll costs, based on its historical payroll obligations (inclusive of benefits) during the one-year period before the loan is made. The current interest stated by the SBA is 1.0% with a repayment term of 2 years (unless forgiven).
Self-employed individuals and “gig economy” individuals are also eligible, as are certain nonprofits including 501(c)3 nonprofits and 501(c)(19) veterans organizations, and tribal business concerns with under 500 employees. SBA will make the loans available through existing lenders. Potential borrowers should contact the Small Business Administration office directly.
Disaster loan relief
The Economic Injury Disaster Loan (EIDL) is the second major lending component of the CARES Act, aimed at smaller businesses (generally those with fewer than 500 employees). It’s an expansion of the SBA’s existing disaster loan program. This loan allows borrowing up to $2 million at an interest rate not to exceed 3.75 percent. Unlike the PPP loan, the EIDL loan is obtained directly through the SBA, rather than through an approved lender. One of the most attractive features of the EIDL is that borrowers are eligible to request an emergency advance of up to $10,000 that does not have to be repaid even if the application is ultimately denied.
Large Corporations. Perhaps the most fought over aspect of CARES Act business measures is the $500 billion that will be allotted to provide loans, loan guarantees, and other investments to large corporations, to be overseen by a Treasury Department inspector general. Airlines will receive $50 billion (of the $500 billion) for passenger air carriers, and $8 billion for cargo air carriers.
Hospitals and Health Care. More than $140 billion in appropriations to support the health care system will be provided, $100 billion directly to hospitals, the rest for Personal Protective Equipment for health care workers, testing supplies, accelerated Medicare payments and more funding for the CDC, among other health investments.
Coronavirus Testing. All testing and potential vaccines for COVID-19 will be covered at no cost to patients. However, this does not apply to the treatment of COVID-19.
Child Care and Development Block Grants (CCDBG). The CARES Act includes $3.5 billion in new CCDBG discretionary funds specifically targeted to individuals and families with low incomes affected by the public health and economic crises. Among other things, it establishes emergency child care for children of essential workers, and provides supports for child care providers (who are often low income themselves). The Administration for Children and Families (AFC) Office of Child Care will distribute money according to the typical state formula and do not require matching funds from states.
Student Loan Deferral. Student loans from the federal government can be deferred for six months without interest accrual or fees.The individual will still owe the money, however, after the deferment period.
Retirement Funds. The bill waives the 10 percent early withdrawal penalty for distributions up to $100,000 for coronavirus-related purposes, retroactive to Jan. 1. Withdrawals are still taxed, but taxes can be spread over three years or the amount can be rolled back over during that same period.
401K and IRAs: The limit for 401K loans is increased from $50,000 to $100,000. Required Minimum Distributions from IRAs and 401K plans (at age 72) are suspended.
The 880-page CARES act is very complex; updated guidance, temporary rules and breaking news pours out daily. For both businesses and individuals, important decisions are being required at an accelerated pace. In general, the financial professionals who are commenting on recent legislation advise taking a breath, organizing resources, seeking consultation and developing a plan.
Chuck McPherson and his team at Santa Rosa’s Leap Solutions has put out a series of articles trying to unravel and process an unprecedented stream of events “from the virus to the CARES act to the stimulus packages and now into the banks and credit unions trying to process loans.” McPherson says, “The key message now is whether you have furloughed or laid people off, you are still entitled to the stimulus money. It’s all about getting people working and not losing those jobs.”
It’s important for employers to understand the difference between a “furlough” and a “layoff,” he adds. A furlough is a continuation of employment, meaning you don’t have to pay out earned vacation, or do any other forms of paperwork and benefits can continue. A layoff is a separation of employment, which means you owe the employee any final payment and benefits are cut off and additional paperwork must be completed.
“Loan forgiveness” has also recently been defined. According to the act, the amount of loan forgiveness will be reduced by the amount of the following: any reduction in total salary or wages of any employee during the covered period that is in excess of 25 percent of the total salary; or wage of the employee during the most recent full quarter during which the employee was employed before the covered period.
Economists say that the more workers stay connected to their companies and remain financially stable, the easier it will be to start recovering when the country reaches the other side of this crisis. “Unlike many downturns, which tend to impact one business sector disproportionately to others, the COVID-19 pandemic has reset the board for almost everyone and done so nearly overnight,” says McPherson.
“Lean on your network—the people that helped you succeed will likely be the same people who help you survive and recover,” he advises. “Each downturn offers an opportunity to take inventory—of personnel, processes, technology and opportunities. Take advantage of the time to improve and modernize your approach and position your business to emerge stronger when the tide turns. This could also be a time for acquisitions, or taking on territory without purchase from someone that couldn’t make it during this time. Many companies are looking at ways to grow through this without high risk.
