The Coronavirus Aid, Relief, and Economic Security Act being commonly referred to as the ‘‘CARES Act’’ will provide emergency assistance and health care response for individuals, families and businesses affected by the 2020 coronavirus pandemic. The CARES Act itself is 883 pages long and contains several different Divisions, Titles and Sections including Title I, Keeping American Workers Employed and Paid Act, and Section 1102 known as the Paycheck Provision Program.
Under this new Act, small businesses are eligible for unsecured, no-fee loans to cover business interruptions from COVID-19. During the covered period defined as February 15, 2020 through June 15, 2020, an eligible recipient may use the proceeds of the covered loan for various business-related expenses, including (i) payroll costs; (ii) costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums; (iii) employee salaries, commissions, or similar compensations; (iv) payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation); (v) rent (including rent under a lease agreement); (vi) utilities; and (vii) interest on any other debt obligations that were incurred before the covered period.
It is important that any recipient of funding under the Paycheck Provision Program is aware of what the term “payroll costs” means and what it does not include, so any such funds are used in compliance with the provisions of the stimulus loan program. Specifically, under Section 1102(a)(2)(A)(vii), “payroll costs” means:
(1) The sum of payments of any compensation with respect to employees that is a:
- Salary, wage, commission, or similar compensation;
- Payment of cash tip or equivalent;
- Payment for vacation, parental, family, medical or sick leave;
- Allowance for dismissal or separation;
- Payment required for the provisions of group health care benefits, including insurance premiums;
- Payment of any retirement benefit; or
- Payment of state or local tax assessed on the compensation of employees; and
(2) The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period.
“Payroll costs” shall not include:
- The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period;
- Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period;
- Any compensation of an employee whose principal place of residence is outside of the United States;
- Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–127); or
- Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
If your company is eligible for and receives a stimulus loan, it is important that the proceeds are used properly as your company may be eligible for forgiveness for a portion of the loan equal to the amount spent by the company on payroll costs, mortgages, rent and utilities during the eight-week period following the loan, with the amount of forgiveness to be reduced proportionally by reductions in the number or pay of employees compared to certain prior year benchmarks [to be further clarified under regulations to be issued by the SBA within thirty (30) days of enactment of the CARES Act]. It is very important that any stimulus loan proceeds are used in a manner consistent with the applicable provisions of the Act to receive forgiveness.
For additional guidance on Covid-19 issues affecting your business, please do not hesitate to contact Bernstein-Burkley, P.C. We continue to work remotely each day on a full-time basis and are here to support and guide you through the challenging times we are facing.
Contact Bernstein-Burkley at (412) 456-8100 or via email at firstname.lastname@example.org.