CARES Act Provides Help to Self-Employed Workers and Independent Contractors

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From Mintz, David R. Lagasse  and Danielle M. Bereznay provide an excellent summary of the Coronavirus Aid, Relief and Economic Security Act or CARES Act which has a number of provisions that help self-employed individuals and independent contractors. David and Danielle write:

Section 1102 – Paycheck Protection Program

  • The Small Business Administration is authorized to make up to $349 billion in loans available to eligible employers and self-employed individuals under this program.
  • Eligible employers and self-employed individuals are eligible for loans from the Small Business Administration that are generally equal to the lesser of $10,000,000 and 2.5 times the borrower’s average monthly payroll costs over the one year period preceding the loan.
    • Payroll costs include all wages, tips, vacation, family leave and sick pay, allowances for dismissal or separation, contributions to maintain group health care, payment of retirement benefits, and state and local tax payments.
    • Payroll costs exclude the compensation of individual employees or self-employed individuals in excess of $100,000 (calculated on a prorate basis), taxes withheld or paid by the borrower for income tax or FICA and paid sick leave or paid family medical leave under the Families First Coronavirus Response  Act.
  • Loan proceeds may only be used to cover payroll costs, contributions to group health coverage, mortgage payments, rent, utilities and interest on debt incurred prior to the covered period.
  • The paycheck protection program extends to small businesses otherwise eligible for loans from the small business administration, any business concern, non-profit, veterans organization or Tribal business concern that employs fewer than 500 employees or if greater, the number of employees determined by the Small Business Administration to be standard for the industry in which the entity operates.
    • Independent contractors and sole proprietors are also eligible for loans under this program.
    • If the business concern provides accommodations, food service or drinking places, the 500 limit on employees is applied to each physical location of the  business concern.
    • The number of employees includes employees employed on a full-time, part-time other basis (and not based on full time employees)
  • Loans are available during the “covered period” between February 15 and June 30, 2020.
  • Loans will have the following terms:
    • 10 year maturity period (to the extent not forgiven under Section 1104)
    • Not greater than 4% interest
    • Personal guarantees are waived
    • No recourse against owners, directors or officers of the borrower
    • Lenders are required to treat every borrower as having been impacted by the COVID-19 and to defer the loan repayment for no less than 6 months and no longer than 1 year if the borrower requests deferral.

  1. The act provides enhanced unemployment insurance benefits to employees for total and partial unemployment and to employers for retaining certain employees.

Title II – Assistance for American Workers, Families and Businesses

Subtitle A — Unemployment Insurance Provisions

Section 2102 – Pandemic Unemployment Assistance

  • This section creates a temporary pandemic unemployment system program for those individuals terminated or who are unable to work for a COVID-19 related reason, and who are not eligible for regular compensation or extended benefits, including those individuals who have exhausted all rights to regular unemployment or extended benefits under State or Federal law.
  • Individuals who may fall within this category are those who are self-employed and independent contractors.
  • The individual must certify that he or she is either:
    • able to work except that he or she is unemployed or partially unemployed, or
    • is unable or unavailable to work because he or she was diagnosed with COVID-19 or is seeking a medical diagnosis, or a member of the individual’s household is diagnosed with COVID-19 or meets one of the following factors:
      • the individual is providing care to a family member of member in the individual’s household who is diagnosed with COVID-19,
      • a child or another person in the individual’s household cannot attend child care or another facility for care that is closed as a direct result of COVID-19,
      • the individual is unable to reach his or her place of employment due to a quarantine requirement,
      • the individual can reach his or her place of employment but has been instructed to self-quarantine,
      • the individual was scheduled to start employment but cannot reach his or her new place of employment or no longer has the new employment available due to COVID-19,
      • the individual has become the bread winner or major support for the household due to COVID-19,
      • the individual has quit his or her job due to COVID-19
      • the individual’s place of employment is closed due to COVID-19,
      • the individual is self-employed and cannot find work or is unemployed.
  • This section does not apply to employees who can telework for pay or those who are receiving paid sick leave or any other type of paid leave benefits.
  • This section is in effect from January 27, 2020 until December 31, 2020. An employee may only receive unemployment compensation under this section for a maximum of 39 weeks.
  • Employees will receive the weekly benefit amount authorized by the state in which they are employed. If the state raises the amount of weekly benefits, the employee will be entitled to that amount.  For example, the maximum benefit in New York is $504 per week currently.  If New York increased its benefit to $525, current unemployment benefit recipients will receive the benefit of the increase.

Section 2302 — Delay of Payment of Employer Payroll taxes

  • Employers and self-employed individuals may defer payment of the employer share of social security under Section 3111(a) that they are otherwise are responsible for paying to the federal government with respect to their employees.
  • The Employer or self-employed individual is required to pay the deferred employment tax over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.

Read the full story at Summary of CARES Act for Employers | Mintz

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