As we continue our quest for clarity on the coronavirus-related Acts and Bills passed by Congress we offer the following updates on several clarifications that came out during the week of April 13 impacting various parts of the CARES Act, the Families First Act (FFCRA), and unemployment claims.
Deferral of Employer Payroll Taxes
Part of the CARES Act, this provision provides that an employer may defer the EMPLOYER portion of Social Security taxes into 2021 and 2022 (find details on this provision here). The Bill originally stated that an employer must NOT be utilizing the Paycheck Protection Program Loan (the PPP) in order to take advantage of this provision. The U.S. Treasury has since indicated that an employer CAN take advantage of this up until the PPP loan is forgiven. We recommend you contact your payroll service provider immediately if you wish to begin taking advantage of this. Also, it was noted in our recent CARES Act webinar that employer Social Security is a trust fund tax and that an owner can be personally liable if not paid. That is only true of the employee portion, which is not eligible for deferral. We apologize for any confusion this may have caused.
Ordering Rules for Deferral of Employer Payroll Taxes, Retention Credit and FFCRA Credits
In addition to the Deferral of Employer Payroll Taxes, employers may also qualify for credits for “sick leave” or “family leave” wages paid under the Families First Act and/or a retention credit. (Note, if you are utilizing the PPP loan you will not qualify for the retention credit.) All of these credits are claimed via a reduction of your 941 liability payment. First reduce your 941 liability for the deferral of the employer portion of Social Security taxes discussed above and THEN further reduce your liability for these potential credits in order to maximize cash flow savings. Any credit in excess of the 941 payment due is eligible to be refunded by the IRS. Please contact your payroll service provider for more information about this.
The Paycheck Protection Program (PPP) Loan Funding Status
The initial $349 billion that had been allocated for this program has been exhausted. The Senate has approved an additional $480 billion in coronavirus funding of which $310 billion has been allocated to PPP funding. Banks continue to accept applications and we encourage you to apply now as banks are working to get applications approved in preparation for the additional funding. Keep in mind only about 20% of initial PPP applications were funded and simply applying does not guarantee approval. It is expected that a second wave of funding will run out quickly as banks still have 80% of initial applications to process.
$100,000 Compensation Limit for the PPP Loan Under the CARES Act
A reminder that not only were you to exclude compensation in excess of $100,000 for purposes of determining your total PPP loan, but loan proceeds used to pay people in excess of an annualized salary of $100,000 will NOT be forgiven.
Loan Forgiveness and the PPP
The Bill has indicated if full-time equivalent employees are reduced when compared to a similar period last year and/or salaries and wages are reduced by more than 25% from a previous calendar quarter, the amount of forgiveness may not be 100%. The SBA added their own caveat that at least 75% of the loan proceeds must be utilized for payroll costs. That being said, there are still a lot of unknowns and questions that have yet to be answered about how this calculation will work. Based on language in the original Bill, it is expected that the SBA will release additional guidance on this in the coming weeks. In the meantime we recommend having a preliminary discussion with your DunlapSLK team member regarding what this forgiveness will look like.
The $10,000 EIDL Advance
The SBA has now indicated that this advance will be limited to $1,000 per employee, so if you have applied with less than 10 employees it appears it will be limited. The SBA has also indicated that the funding has run out for this program. It has been the slowest moving of any SBA program and many businesses have yet to receive any funding from it. At this time it is not clear if those who have applied have been approved and not yet received the funding OR if the funding simply ran out and no advance has been forthcoming.
The SBA Bridge Loan Program
This is an additional funding option for businesses to obtain loans of up to a $25,000. These loans are NOT eligible for forgiveness and are funded by the SBA through your bank. More information can be found here.
Main Street Lending Program
This program is targeted at mid-size to larger businesses with 10,000 or fewer employees and 2019 revenues of $2.5 billion or less. The minimum loan is $1 million with a four year payback period. These loans are NOT forgiven. More information can be found here.
Unemployment for Self-Employed Individuals
Pennsylvania now has the platform for the Pandemic Unemployment Assistance (PUA) part of the CARES Act operational. Access the site here to submit your application and review the program requirements.
Effective Date of the $600 Federal Government Subsidy
From the PA UC Website:
- Beginning the week that ends April 4, 2020 and all eligible weeks through July 25, 2020, individuals will receive the extra $600 Federal Pandemic Unemployment Compensation (FPUC) for all weeks they receive UC or Pandemic Unemployment Assistance (PUA) benefits.
- UC claimants should now be receiving the FPUC payments, which are paid approximately one week after regular UC benefits are paid. Once the PUA Program is making payments, FPUC payments will be made retroactively for any backdated weeks of benefits for weeks ending April 4, 2020 and later. The $600 per week will be a separate payment from your bi-weekly benefit.
- For more information visit the PA UC FAQ page here.
FFCRA Limits on the 80 Hours of “Sick Leave”
A reminder that an employer will be reimbursed for a maximum of 80 hours per employee for sick leave. So for example, if an employee has been paid for one eligible reason (i.e. caring for someone who has been diagnosed with the virus which would be subject to two-thirds of regular pay) then has a second incident (i.e. they contracted the virus themselves which would be eligible for full pay), they would only be eligible for the second incident to the extent both incidents do not exceed 80 hours.
In this example, if the employee was paid 80 hours for caring for someone who has been diagnosed with the virus and then get sick themselves, they are not entitled to an additional 80 hours of paid time and the employer will NOT receive reimbursement if they pay the employee for more than 80 hours. There is nothing in the guidance that indicates being able to take the additional one-third pay they forewent while taking care of someone. Also, the Act does not say the 80 hours must be consecutive. If someone only needs paid leave for 40 hours to care for someone, they could still take 40 additional hours at a later date (through December 31, 2020) for another eligible reason.
Finally, a reminder that when claiming the leave, an employee needs to be advised by a medical professional. Simply staying home because an employee is experiencing symptoms is admirable, but not eligible for the credit unless diagnosed by a professional.
Figuring Part-Time Hours for FFCRA
A part-time employee is entitled to leave for his or her average number of work hours in a two-week period. Therefore, allowable leave is calculated based on the number of hours the employee is normally scheduled to work. If the normal hours scheduled are unknown or the part-time employee’s schedule varies, you may use a six-month average to calculate the average daily hours. Such part-time employees may take paid sick leave for this number of hours per day for up to a two-week period and may take expanded family and medical leave for the same number of hours per day up to ten weeks after that. If the employee has not been employed for at least six months, use the number of hours that were agreed to at hiring. In the absence of such an agreement you may calculate leave based on the average hours per day the employee was scheduled to work over the entire term of his or her employment.
As you have no doubt noted, there is a plethora of information to digest. We are here to help and encourage you to reach out to your DunlapSLK team member with any questions.