CARES Act Frequently Asked Questions

• How will the CARES Act impact employers?
  The CARES Act is a bridge that will quickly provide employers in our most distressed industries with cash injections. The economic intent is to ensure employees are kept on payroll, are working and on benefits. This will in turn, get money into the hands of employees in order to help jumpstart the economy to avoid a repeat of the great recession. Lastly, the CARES Act will help businesses be prepared for when we emerge from the crisis.
• What do small businesses (under 100) need to know about the CARES Act?
  Focus on managing the immediate business crisis. Huge sectors of the economy (retail, hospitality, etc.) have had to move very quickly to cut expenses and focus on managing their immediate and short-term cash flow. This bill will offer relief to those businesses by providing loan forgiveness and an immediate cash flow. The loan forgiveness won’t be considered taxable income, there’s no personal guarantee and the  loans that aren’t forgiven are  converted  to a  ten-year  loan with  4% interest.  The ultimate objective  should be to maximize forgiveness and with proper planning business should be able to achieve 100% loan  forgiveness.
• What are three things employers can do right now to evaluate these loan programs? 
  1. Contact your banker or local SBA contact as soon as possible to begin your application. Establish contacts and try to get to the front of the line.
  2. Answer these questions: What does your business need today? How do you run your business as effectively as possible in the coming weeks and months?
  3. Run scenarios about getting the proceeds, how can you run your business differently? What are your customer’s needs? What condition is your supply chain in? Focus on performance of your business today and start thinking about scenarios to model things differently during the eight-week period.
• What businesses is the CARES Act not applicable for?
  Employers/businesses who are economic beneficiaries of this crisis and businesses who have already decided to close due to extreme liquidity issues.
• If an employer has already furloughed their employees, are they eligible for the loan?
  Yes! You can bring back furloughed employees or laid off employees, but with this loan, the timing is very important. If you laid off or furloughed employees between Feb 15th and April 26th,  as long as  you restore them to full employees by June 30th, that will connect to your maximum loan forgiveness for this program.
• If an employer rehires/restores employees prior to June 30 – what is their obligation to keep them on the payroll?  How long are employers required to keep employees on after June 30?
  As long as an employer spends the money in the four qualified areas (payroll costs, group health insurance, rent or mortgage and utilizes) rehires formerly furloughed or laid off employees prior to June 30, restores pay reductions by June 30, and performs no additional layoffs between April 26 and June 30, the business will be eligible for 100% loan forgiveness.  If an employer does lay off or furlough employees between April 26 and June 30, they will not have the ability to restore them in order to gain the 100% loan forgiveness. However, if you laid off or furloughed 20% in that April 26 to June 30, then 20% of the loan would no longer be eligible for forgiveness. Additionally, if you furloughed or laid off 80% of your workforce prior to April 26, if you restored  all  those people you would likely not have enough qualified expense in that eight-week  period of time. The money has to  be spent in those four buckets. That’s the type of analysis employers will have to do to maximize return on investment. At the end of the day, the  intent of this program is to return employees to work and help employers emerge from this crisis.
• Would 401K matches be included in the loan forgiveness program? 
  Yes, those are included in one of the four buckets as a payroll related expense.
• For employees making over 100k per year, should employers adjust down the amount they pay those employees during the 8-week period?
  The law reads that payroll costs exclude “compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period”. Therefore, $1,923 is the maximum weekly pay amount that is forgivable. Employers are not required to adjust employees down, but they can. If they don’t, the excess salary would not be forgivable.
• Will businesses be penalized when calculating FTE if an employee voluntarily leaves for another job within the 8-week window?
  Forgiveness information thus far does not clarify. However, it appears that voluntary separation or refusal for rehire may not count against you. Upcoming guidance should address this.
• If employees are temporarily furloughed and called back to work after the 8-week period, can they be paid in advance in order to meet the 75% payroll requirement for the PPP?
  The way the law is written, it is for payroll expenses that are both incurred and paid in that 8-week period. However, upcoming guidance should clarify this.
• If a business is not able to hire back employees to restore headcount until closer to the 6/30 deadline (but after their 8-week loan period closes), are they still eligible for loan forgiveness on the FTE headcount portion?
  Loan forgiveness will take into account the reduction of employees. If the reduction occurred between 2/15/20 and 4/26/20 and you eliminate the reduction in the number of employees by June 30, it will not count against you.
• If employers utilize both a reduction in staff and reduced wages, do both reduce the amount of loan forgiveness?
  Yes. If both of these apply, they will both reduce the forgiveness. Additionally, if more than 25% of the dollars spent in the covered period are for non-payroll costs, that will also reduce the amount of forgiveness.
• If a business lays employees off after their 8-week loan period ends, will that enter into the FTE calculation?
  No. It only looks at the number of employees during the covered period, i.e. 8-weeks after disbursement of the loan compared to 2/15/19-6/30/19 or 1/1/20-2/29/20.
• If a business normally pays employees for 40 hours per week but dropped them to a lower number of hours, would that change the FTE calculation?
  It could depending on how the government chooses to calculate FTE employees. The law actually does not define this FTE and does not point to the ACA definition as it does under the Employee Retention Credit. Upcoming guidance should clarify. Since this is based on employment, they may use the FLSA definition of full-time, which is 40 hours, but that is still unclear.
• If a business hires temporary 1099 employees to accommodate for changing business needs, can those employees be included for loan forgiveness purposes?
  No. Only payroll payments to employees will be included.
• Is Social Security and Medicare counted towards the Payroll number within the PPP?
  Payroll costs include payment of state and local taxes assessed on employee compensation.
• Is an employer portion of healthcare insurance premiums an allowable cost?
  Yes. That is the understanding, however upcoming guidance should clarify.
• Can businesses include bonus money paid to employees during the 8-week period as a forgivable expense?
  There is currently nothing that excludes it. However, there may be guidance to clarify this soon.
• How much of a PPP can be forgiven if an organization uses 100% for payroll costs, however due to reduced payroll, only a certain portion of the funds are used?
  Businesses will be eligible for loan forgiveness only on amounts actually paid out in the 8-weeks.
• How much of a PPP can be forgiven if an organization uses 100% for payroll costs, however due to reduced payroll, only a certain portion of the funds are used?
  Businesses will be eligible for loan forgiveness only on amounts actually paid out in the 8 weeks.
• Are expenses incurred before the 8-week period, but paid within the 8-week period able to be included within the forgiveness amount?
  It appears that the expenses must be incurred and paid in the 8-week period. However, upcoming guidance may allow expenses incurred prior to the loan, within a particular period.
• Can businesses include equipment rent/lease payments as an allowable expense?
  According to the law, the term “covered rent obligation” means rent obligated under a leasing agreement in force before February 15, 2020.
• Does utility include internet and cell phone services?
  Yes. According to the law, the term “covered utility payment” means payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.
• What options do employers have if they included ineligible costs such as payroll tax and workers compensation as part of the payroll costs in their PPP application?
  In this scenario, employers can pay back that amount or keep the amount and be subject to the terms of the loan, i.e. 1% interest.
• If a businesses’ PPP expires in mid-June, and their business doesn’t pick back up by that point, can they lay off employees later in the year, such as July or August?
  There are no restrictions on staffing for July or August, or outside of the 8-week forgiveness window.
• Will there be any extensions to the 8-week forgiveness window?
  The upcoming HEROES Act currently includes language for this.
• If a business was mandated to close and then allowed to reopen within the same 8-week time period, what is the latest date that the company can spend its PPP funds to maximize forgiveness?
  The forgivable part of the loan represents expenses incurred and paid in the 8-week period following the date the loan was disbursed. If an employer paid staff while the business was closed, those expenses would be forgivable. The terms for the remainder of the loan are 2 years at 1%.
• How can employers navigate when pay periods do not align with the forgiveness period?
  The law states that loan forgiveness will be based on expenses that are both incurred and paid in the 8-week covered period. Upcoming guidance should let us know if payroll periods will be taken into consideration.
• If an employer submitted and was approved for a loan based on the initial guidance criteria, which has since changed, will the forgiveness be predicated on those initial guidelines or the latest criteria?
  It has been indicated by the government that loans will be based upon the guidance that existed at the time. There are some updates, however, regarding the certification of the loan.
• If an organization pays back what is “not forgiven” immediately, is there still a 1% interest rate?
  It appears that only forgivable amounts would not incur interest.
• Does the 75% on payroll rule apply to what is spent during the 8-week period, or does it apply to the entire loan?
  It appears to be for the 8-week period but the upcoming guidance should clarify.
• Can employers stay within the 75:25 ratio and not spend 75% of the total loan and still qualify for forgiveness?
  Loan forgiveness is based on the amount spent in the 8-week period. That amount will be assessed.
• Can organizations utilize both the PPP and provisions under the CARES Act, such as the Emergency Leave Act, within the same year if there is another spike?
  Employers can utilize the PPP and the FFCRA at the same time. However, they cannot claim the same payroll expenses under both.
• If a business was able to continue its operations with a few modifications but is not fully open, are they qualified to receive the employee retention credit?
  If an employer’s workplace is closed by a governmental order for certain purposes, but the employer’s workplace may remain open for other purposes or the employer is able to continue certain operations remotely, the employer’s operations would be considered to be partially suspended. Additional guidance on this can be found here.

  • Example 1:   A governmental order forces a restaurant to close its sit-down dining, but allows carryout or delivery sales. The company’s operations are treated as partially suspended due to the order. 
  • Example 2:   A governmental order forces a retail business to close its retail locations, but allows it to continue to fulfill online orders. The company’s operations are treated as partially suspended due to the order. 
• If an employer does not meet the 75% threshold for payroll costs, will it disqualify the borrower from applying for the forgiveness of the loan?
  In this scenario, the loan will be prorated. There is no guidance here but based on how the rule is written, it appears that it would be prorated based on the percent of variance from 75%. Upcoming guidance should clarify this.
• Does it matter what bank account an employer uses to pay for approved PPP expenses if there is proper documentation on how those funds were spent?
  Correct. It is not going to be as much about what account the funds are pulled from as much as it is about what the expenses of the company were. Proper documentation that identifies they were properly used will be important to obtain.
• If an employer receives an Economic Disaster SBA Loan before they applied for the PPP, are they able to receive any PPP funds?
  PPP loans may be used to refinance an SBA EIDL loan made between January 31, 2020 and April 3, 2020. If an EIDL loan was not used for payroll costs, it does not affect the eligibility for a PPP loan. If an EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.

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