Coronavirus relief law gives companies a reason to keep workers
A tattoo parlor is temporarily closed in the Brooklyn neighborhood of New York, United States, Friday, March 20, 2020. Photographer: Gabby Jones / Bloomberg via Getty Images
The $ 2 trillion coronavirus relief law signed by President Trump last week has several incentives for struggling companies to retain their employees instead of firing them.
Financial assistance under the CARES Act includes forgivable loans for small businesses, tax credits and deferrals, as well as measures to combat unemployment. They come like employers blow up speak economical consequences of COVID-19.
“I see in many provisions of the bill an emphasis on maintaining employment during this period,” said Susan Houseman, director of research at the WE Upjohn Institute for Employment Research. “Having people there, ready to work, ready to go, will accelerate a recovery” in the economy, she added.
The arrangement that may be most effective is a $ 350 billion loan program for sole proprietors, independent contractors, freelancers, nonprofits, and businesses with less than 500 employees, the experts said.
Reduced rate loans, created under the Paycheque Protection Program, offers up to $ 10 million to fund certain business expenses incurred between February 15 and June 30.
Business owners are eligible for a forgiveness of all or part of their loan, for the part used to cover salary costs (excluding salaries over $ 100,000), rent, utilities and interest. mortgage – over a period of eight weeks.
But the amount of debt forgiven, which would occur via a subsidy, largely depends on how many workers the company retains and how much it cuts their wages.
“You have to keep your payroll intact,” said Jay Shambaugh, an economist at the Brookings Institution, a think tank. “The loan forgiveness amount is reduced if you drastically reduce your payroll. “
According to David Newman, a partner at law firm Morrison & Foerster, borrowers who have laid off workers can return to their jobs and wages by June 30 to recoup credit from the loan cancellation.
Loan cancellation is also excluded from a business owner’s gross income for tax purposes, Newman said.
Likewise, a separate $ 500 billion loan program – the Coronavirus Economic Stablization Act of 2020, which helps airlines and other industries – states that some borrowers must retain at least 90% of their employees until the 30th. September, according to Newman.
The small business administration website has more details on the Payroll Protection Program and other loan assistance programs. The agency is expected to provide additional PPP advice in the coming days, experts said.
A sign warns patrons of the bar that it is closed due to the coronavirus outbreak in Washington, DC, United States, Tuesday, March 17, 2020. Photographer: Andrew Harrer / Bloomberg via Getty Images
Businesses and nonprofits that are holding their workers back during the coronavirus health crisis can get a refundable tax credit.
The credit, available until 2020 for businesses in difficulty, is equal to 50% of wages (including eligible health plan expenses) up to $ 10,000 per worker. (So the maximum credit per employee is $ 5,000 this year.) It is not available to businesses that also obtain a loan through the Paycheck Protection Program.
The credit can be deducted from quarterly social charges. The Treasury can make advance payments of the tax credit and waive penalties for employers who do not pay applicable payroll taxes while waiting to receive the credit.
The CARES law also allows small businesses to defer certain social charges this year.
Employers can defer their share of the Social Security payroll tax – a rate of 6.2% in 2020.
The measure will not necessarily save businesses money because they will have to pay tax later. But it could help free up money for struggling businesses, and businesses only benefit to the extent that they have workers on the payroll, experts said.
The CARES Act gives federal money to states to pay unemployment benefits through “short-term compensation programs.”
These programs pay benefits to workers whose hours are reduced, typically around 40% to 60%, depending on the state, Houseman said.
Short-term compensation programs are currently available in about half of the states. Companies offer them voluntarily.
But the federal rebate is an incentive for other states to move quickly to these programs and employers to come up with them afterwards, Houseman said. This would prevent outright layoffs and provide financial support to supplement employees’ part-time income.
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Workers on eligible leave and those experiencing drastic reductions in working hours (over 60%) may also expect bigger unemployment checks following the new law.
Unemployment benefits replaced around 40% of the average worker’s salary before the new law, according to the House Ways and Means Committee. The CARES law aims for unemployment benefits to replace around 100% of the worker’s average salary.
“Now, employees on leave don’t mean they will suffer this massive pay cut,” Shambaugh said.
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