Emily Schifter, Associate, Troutman Sanders
Richard Gerakitis, Partner, Troutman Sanders
Tracey Diamond, Of Counsel, Pepper Hamilton
Rogers Stevens, Associate, Pepper Hamilton
Lee Tankle, Associate, Pepper Hamilton
Susan Lessack, Partner, Pepper Hamilton
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law on March 27, provides an estimated $2 trillion stimulus package in response to the COVID-19 pandemic. The wide-ranging package covers many areas, but one of the most relevant for employers and to many individuals across the country involves the significant expansion of unemployment insurance benefits with three new federally funded programs — Pandemic Unemployment Compensation, Pandemic Emergency Unemployment Compensation and Pandemic Unemployment Assistance. With unemployment claims topping 3.2 million this week, the CARES Act should provide some much-needed relief to workers.
First, the Pandemic Unemployment Compensation program in section 2104 of the CARES Act substantially increases the standard amount of unemployment insurance available to otherwise qualified Americans. This program allows individuals who are eligible for and are awarded unemployment insurance benefits by their state to receive an additional $600 per week (funded by the federal government) for the next four months (through July 31, 2020) as Federal Pandemic Unemployment Compensation, which will be paid in addition to the weekly benefit amount authorized under state law. This supplemental benefit will be paid at the same time (but not necessarily in the same check) as regular state or federal unemployment compensation benefits.
Surprisingly to most employers, the $600 weekly unemployment compensation supplement is a flat amount that will be distributed to all individuals receiving full unemployment benefits (as well as, in states that provide them, partial unemployment benefits); it is not prorated based on an employee’s pay rate. Many companies worry that this will provide a disincentive for employees to return to work when and if work becomes available.
In addition to the increase in the amount of benefits paid, the Pandemic Emergency Unemployment Compensation program set forth in section 2107 of the CARES Act provides for an additional 13 weeks of state benefits after an individual has exhausted all regular state unemployment compensation benefits for total unemployment. Thus, individuals may be entitled to an additional 13 weeks of benefits beyond what their state ordinarily would offer.
Further, through the Pandemic Unemployment Assistance program in section 2102 of the CARES Act, federal unemployment assistance will be provided to workers who are otherwise ineligible for state unemployment benefits, including certain workers affected by COVID-19, along with other individuals who generally are not eligible for unemployment assistance, such as independent contractors, self-employed individuals and individuals with limited work histories.
Specifically, benefits under section 2102 of the Act are available for unemployed or eligible partially unemployed individuals who:
- have been diagnosed with COVID-19 or are experiencing symptoms and seeking a diagnosis.
- have a member of their household who has been diagnosed with COVID-19.
- have a child who is unable to attend school because it is closed as a direct result of the COVID-19 public health emergency and care by the school is required for the individual to work.
- are unable to reach work due to quarantine.
- are unable to work because they have been advised by a health care worker to self-quarantine.
- were scheduled to begin work but no longer have a job or are unable to reach work.
- have become the head of household or breadwinner because the head of their household has died as a direct result of COVID–19.
- are forced to quit their job as a direct result of COVID-19.
- have their place of employment closed as a direct result of COVID-19.
Thus, the CARES Act expands on the Families First Coronavirus Response Act by providing salary relief to qualified individuals who become unemployed and to qualified individuals who are forced to remain at home due to a shutdown order imposed by many state and local governments closing all nonessential or nonlife-sustaining businesses. Individuals who meet one of the above definitions may submit a “self-certification” that they are unable to work due to the coronavirus outbreak. Despite this broad reach, however, the CARES Act does not cover individuals who are able to telework with pay or individuals who are receiving paid sick leave or other paid benefits, regardless of whether they meet any of the definitions for covered employees.
Further, in an effort to provide immediate compensation to eligible individuals, the CARES Act provides that the one-week waiting period normally applicable under most state unemployment compensation laws will be waived under the CARES Act. Moreover, the law builds on federal guidance issued earlier this month permitting significant flexibility for states to amend their unemployment insurance laws to provide unemployment benefits in multiple scenarios related to COVID-19 by directing states to provide “flexibility” with regard to the work-search requirement for individuals who are unable to search for work due to the COVID-19 pandemic. Many states had already responded by relaxing existing requirements; some have even implemented new rules (such as encouraging or requiring employers to file partial claims on behalf of their employees in the face of unprecedented demand).
The federal government also will temporarily provide full funding for states with workshare programs, thereby providing unemployment benefits to employees whose hours and pay have been reduced. Workshare programs allow employers to voluntarily enter into agreements with the state unemployment office to prevent layoffs by instead reducing employee hours.
The CARES Act also provides relief for employers in the form of loan forgiveness to incentivize employers to keep workers employed. Specifically, if employers maintain their payroll at levels compared to previous time periods (dependent on the size of the employer), the portion of the loan used to cover payroll costs, mortgage interest payments, rent and utilities will be forgiven.
Finally, section 2301 of the Act provides a refundable payroll tax credit for 50 percent of wages — up to $10,000 per employee — available to employers whose receipts decreased by more than 50 percent compared to 2019 or whose business operations were closed or partially closed due to the COVID-19 crisis. Again, the specifics of these benefits and the number of employees for which an employer may receive credit is subject to the size of the employer.
In sum, the multifaceted CARES Act should provide some much-needed relief to employees, as well as incentives to employers to keep employees working, or at least on the payroll, while employers continue to weather the COVID-19 storm.
Please visit the Pepper Hamilton LLP / Troutman Sanders LLP COVID-19 Resource Center for COVID-19 news and developments, recommendations from leading health organizations, and tools that businesses can use free of charge. Please reach out to members of the COVID-19 Task Force of Troutman Sanders and Pepper Hamilton, or an attorney with whom you work, for guidance about COVID-19.