Employer Compliance with CARES Act

Laura Ng
Associate Editor
Loyola University Chicago School of Law, JD 2021

Background

On March 27, 2020, President Donald J. Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (H.R. 748), otherwise known as the “CARES” Act. Originally introduced in January as the Middle-Class Health Benefits Tax Repeal Act, the bill was then revised to address the needs of the United States amid the coronavirus pandemic. The bi-partisan CARES Act, with strong support from the White House, ultimately passed the House of Representatives with a 419-6 roll call and the Senate with 96-0 votes.

Relief for Individuals

The CARES Act provided multiple forms of relief for both individuals and businesses. Stimulus payments of up to $1200 per adult were issued to every U.S. citizen in the country (with exceptions) up to the maximum income threshold (of $99,000 for a single individual, $146,500 for the head of household, and $198,000 for married couples). Households with children were also issued up to $500 per minor child under the age of 17.The stimulus payments excluded some college students over the age of 17, as well adult dependents (i.e. elderly parents, or an older college-aged student who did not have income).

Among other forms of relief, the CARES Act waived all interest and payments on federal student loans until September 30th, 2020, and also suspended garnishments until that date. It also provided money to the universities in the form of financial relief funds for student emergencies, allowed medical providers to bill telehealth services, and waived the 10% tax penalty for early withdrawal of retirement accounts if the individual or his/her spouse was negatively impacted by the pandemic.

Perhaps most significantly (on the individual relief side), the bill increased the unemployment benefit across all states by $600/week, and for the first time, covered gig workers and freelancers.

Relief for Businesses

The CARES Act provided billions of dollars in loans to industries that are suffering in the pandemic, in addition to the Paycheck Protection Program – with forgivable loans — that covers the roll of payroll for up to eight weeks. The Paycheck Protection Program is administered by the Small Business Administration, with individual employers having to apply for the loan through an approved bank. This led to several problems in regards to obtaining the relief needed: some employers (whose banks did not participate in the program) were not able to become new clients of banks that were distributing the funds, and the funding for the first round dried up within days of the bill passing. Furthermore, many large chain companies, as well as universities with billion-dollar endowments, applied for this program, leaving out genuinely small and vulnerable businesses in the cold.

Compliance with the Paycheck Protection Program

The first step for an employer to ensure compliance with the Paycheck Protection Program is to do an honest assessment of whether the company 1) would qualify for such a program, and 2) genuinely needs it. While it is unlikely that the government would be able to audit every company to assess actual need, the risk of being audited only to show that the company was highly profitable at the time of receiving such funds could result in censure or at the very least, having to pay back the loans.

The employer then needs to that the employees are hired back (if previously laid-off) on payroll, or continue to be on payroll. The amount of funding they can receive is based on the payroll data from the earlier quarter of 2020. Thus, if the employer were to reduce the pay of the employees or to continue to lay them off (resulting in them having to apply for unemployment), this could result in the employer having to return the funds to the government. In addition, no more than 25% of the funds received can be used towards paying rent, utilities, and other operating responses of the business. The Paycheck Protection Program lasts for eight weeks, and thus, it is important that during those eight weeks, the employees are kept on payroll at their full pay.

As with all grant and loan programs, it would be advisable to keep detailed records of payroll, the number of employees covered by the program, and a strong accounting of where the funds were spent in the case of an audit.