NEW COVID RELIEF BILL PASSED BY CONGRESS: WHAT IT MEANS FOR EMPLOYERS
Updated January 14, 2021
On December 27th, the President signed into law a new coronavirus relief bill that extends and modifies programs created under the CARES Act and Families First Coronavirus Response Act (FFCRA).
Here is a summary of major provisions affecting employers:
FFCRA’s Paid Sick Leave Programs
- The new law does not extend the FFCRA’s paid sick leave and paid family and medical leave requirements for employers with fewer than 500 employees.
- However, employers who voluntarily offer paid leave through March 31, 2021 for the coronavirus-related reasons described in the FFCRA will continue to receive payroll tax credits.
- All employers should review their plan for providing leave to employees who test positive for or are exposed to coronavirus to protect others from contracting the virus and give ill employees time to recover.
Paycheck Protection Program (PPP)
- The new law adds more than $284 billion to the Paycheck Protection Program to provide forgivable loans for businesses, including second loans for eligible small businesses.
- Second loans are available only to businesses with fewer than 300 employees that had at least a 25% reduction in gross revenues in a 2020 quarter compared to the same quarter in 2019.
- The maximum loan size for small businesses is 2.5x average monthly payroll costs, up to $2 million. For small businesses classified as Accommodation and Food Services the maximum loan size is 3.5x average monthly payroll costs.
- Businesses with multiple locations may be eligible for a second loan as long as they do not have more than 300 employees at any location. The maximum loan size for a business with multiple locations is $2 million for all locations combined.
- The definition of qualifying expenses has been expanded to include things like supplier costs and expenses for worker protection.
- Employers may apply for a second PPP loan even if they have not yet submitted their loan forgiveness application for their original loan
- The loan forgiveness application process has also been simplified for those who received loans of less than $150,000.
Employee Retention Tax Credit (ERTC)
- Under the original CARES Act, businesses that had their operations fully or partially suspended by a government order or saw a decline in gross receipts of at least 50% (in one quarter compared to same quarter in the previous year) were eligible for this refundable tax credit.
- Eligible employers could receive a refundable tax credit for 50% of wages paid to an employee up to a limit of $10,000 per employee (max of $5,000 per employee in 2020).
- Businesses with fewer than 100 full-time employees could receive this credit for wages paid to all employees. Those with more than 100 full-time employees could receive the credit only for wages paid to employees for the time they were not working.
- What’s changed? The new law extends the ERTC through July 1, 2021 and increases the credit to 70% of wages up to a limit of $10,000 per employee per quarter (max of $14,000 per employee in 2021).
- It also significantly expands eligibility. Now, employers with up to 500 full-time employees can receive this credit for wages paid to all employees. Plus, employers that saw a decline in gross receipts of at least 20% are now eligible for the ERTC.
- Another major change is that employers who received PPP loans are now also eligible to take the ERTC. Under the CARES Act, businesses could only receive one or the other. However, employers cannot receive the refundable tax credit for wages that were covered through forgivable PPP loan funds.
- Finally, the new law also makes the ERTC retroactively available to PPP borrowers with the original law’s max limit of $5,000 per employee. We are waiting for the IRS to provide guidance on how employers can go about taking this credit for 2020.
We expect more guidance about implementation of the law, particularly the PPP and ERTC revisions, will be forthcoming from the Small Business Administration and IRS. Our team continues to monitor and will update this blog as more information becomes available.