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Novel Coronavirus Legislation

On March 27, President Trump signed the CARES Act into law before lawmakers returned to their home districts to combat the medical and economic crisis resulting from the COVID-19 pandemic. Federal agencies are now focused on providing the approximately $2 trillion in aid to Americans, hospitals and businesses throughout the country.

ABC applauded its passage, calling it a lifeline for businesses.

"The CARES Act provides a critical lifeline for our nation’s construction companies as they work hard to maintain their businesses, keep employees on payroll and provide paid leave and essential health benefits to those affected by the coronavirus," says Vice President of Legislative and Political Affairs Kristen Swearingen.  "As the majority of the U.S. construction sector is made up of small businesses, the nearly $350 billion for small business loans will help ensure that many of our construction businesses are able to weather this storm. The critical tax provisions also included in the bill will further assist businesses in mitigating the challenges construction faces during this national emergency."

Below is an overview of elements of the law that will affect construction employers. Contractors are encouraged to consult with their accountants and financial consultants on these provisions.

Paycheck Protection Program

The Paycheck Protection Program (PPP) authorizes $349 billion in forgivable loans from the Small Business Administration. 

The PPP provides eight weeks of cash-flow assistance through 100% federally guaranteed loans to small employers that maintain their payroll during this emergency. If the employer maintains payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent and utilities would be forgiven, helping workers to remain employed and small businesses to recover. 

The PPP is retroactive to Feb. 15, 2020, to help bring workers who may have already been laid off back onto payrolls. Lenders may begin taking loan applications as soon as mid-April. PPP loans must be made during the period prior to June 30, 2020.

The law defines eligibility for these loans as a small business, 501(c)(3) nonprofit, a 501(c)(19) veteran’s organization or Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees or the applicable size standard for the industry as provided by SBA, if higher. It also includes sole-proprietors, independent contractors and other self-employed individuals as eligible for loans and allows businesses with more than one physical location that employs no more than 500 employees per physical location in certain industries, mainly franchise and food services, to be eligible.

The law requires eligible borrowers to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19, and that they will use the funds to retain workers and maintain payroll, lease and utility payments, and are not receiving duplicative funds for the same uses from another SBA program.

In other words, to prevent double dipping into these relief efforts, businesses that receive an SBA loan through the PPP cannot also benefit from the bill’s tax provisions, including the retention tax credit and deferment of payroll taxes.

PPP Loans:

PPP loans can be as large as 250% of a business’s average monthly payroll costs over the last 12 months; however, the maximum loan amount under this program is $10 million through Dec. 31, 2020. It also specifies allowable uses of the loan to include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums and mortgage, rent and utility payments.

PPP loans are made by SBA-certified lenders (over 800 financial institutions currently), in all 50 states, through delegated authority from the SBA. In addition, the SBA Administrator and Secretary of Treasury may further authorize additional lenders to join the program, as needed. SBA-certified lenders simply need to verify that a small business was in operation on Feb. 15, 2020, and paid employee salaries and payroll taxes or paid independent contractors, as reported on Form 1099-MISC, for eligibility in the PPP.

All loans under this program will have the following identical features:

  • Maximum loan amount up to $10 million
  • Interest rate of 0.5%
  • Maturity of 2 years
  • First payment deferred for six months
  • 100% guarantee by SBA
  • No collateral
  • No personal guarantees
  • No borrower or lender fees payable to SBA

Loan Forgiveness:

Principal amounts on PPP loans, for the first eight-week period from when the PPP loan is made, may be forgiven, if loan funds are used to cover payroll costs, interest payments on mortgages (not including prepayments or principal), rent and utilities.

The amount of a PPP loan that may be forgiven cannot exceed the principal amount of the loan. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of the prior year's compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that rehire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

Tax Provisions:

The law includes tax provisions that will help businesses maintain liquidity through this national crisis.

Retention Tax Credit. Creates a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis.

  • Qualifying employers are those whose (1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50% when compared to the same quarter in the prior year. 
  • For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. 
  • For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shutdown order. 
  • The credit is capped at $10,000/quarter per employee, including health benefits paid. 
  • The credit is provided for wages paid or incurred from March 13, 2020 through Dec. 31, 2020. 

 Delay of payment of employer payroll taxes. Payment will be due over the course of two years with half due on Dec. 31, 2021 and the balance due on Dec. 31, 2022.

  • Modification for net operating losses (NOL). This provision will allow five-year carryback for 2018, 2019 and 2020 tax years, respectively.
  • Modification of limitation on losses for taxpayers other than corporations. The 80% carryback limitation will be lifted for pass-through entities to harmonize with corporate NOL treatment for 2018, 2019 and 2020.
  • Modification of credit for prior year minimum tax liability of corporations. This will accelerate the ability of companies to recover AMT credits in the form of refunds.
  • Modification of limitation on business interest. This will loosen the limitation on interest deduction to 50% of EBITDA for 2019 and 2020. 
  • Technical amendments regarding qualified improvement property (QIP). This fix to the so-called “retail glitch” will unlock $15 billion in liquidity for QIP expenses incurred by hard-hit sectors such as restaurants, hotels and retail, among others.

 

Families First Coronavirus Response Act

On March 18, Trump signed into law the Families First Coronavirus Response Act (FFCRA),which will take effect on April 1. It creates two new emergency leave benefits for eligible employees: emergency paid family and medical leave and emergency paid sick leave. The act generally applies to employers with fewer than 500 employees, with certain exceptions. Key provisions that will impact employers are summarized here.

The U.S. Department of Labor’s Wage and Hour Division (WHD) published additional guidance to provide information to employees and employers to address issues such as the definition of a “health care provider;” the scope of the small business exemption for purposes of exclusion from the provisions of the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act; and whether public sector employees may take paid family and medical leave. In addition, WHD posted its two recently released posters and fact sheets in Spanish on the COVID-19 website. 

Helpful links: 

 

DHS Updated Guidance:

On March 28, the U.S. Department of Homeland Security’s Cyber and Infrastructure Security Agency issued additional guidance about types of construction activity deemed essential services during the COVID-19 crisis. This list is intended to help state, local, tribal and territorial officials as they work to protect their communities, while ensuring continuity of functions critical to public health and safety, as well as economic and national security.

Impact on Construction, Other Industries

While construction backlogs remain high, contractors in Boston, Philadelphia and several other cities are addressing jobsite halts and additional worker safety requirements. Several state governors have issued shelter-in-place and stay-at-home orders according to a New York Times map, and non-essential business have been ordered to shut down in multiple states. 

"At this moment, business confidence in America is ratcheting lower as travel, hospitality, entertainment and other segments of the economy are rocked by COVID-19," says ABC Chief Economist Anirban Basu in ABC's most recent Backlog Indicator report. "Interruptions to the global supply chain, a crash in oil prices and other phenomena are also putting more pressure on significant parts of the economy, which is likely already in recession.

"The good news is that preexisting backlog insulates many contractors from near-term dislocations," Basu says. "Work on existing projects is ongoing, and that will help support many contractors in terms of keeping staff in place and generating cashflow. However, when Boston halted construction on major projects this week, that created a new dynamic—one in which backlog is no longer a source of protection during the early stages of a downturn for impacted construction firms.

"Beyond that, the weakness pervading the broader economy will aggressively seep into nonresidential construction, translating into fewer construction starts, particularly in private construction segments. Public construction volume is also vulnerable since state and local government finances are already deteriorating due to a dearth of retail sales, hotel and other tax collections. But a federal stimulus package is in the works, and the hope is that this will generate a new set of opportunities for U.S. nonresidential construction firms."

ABC and its chapters are reaching out to state and local lawmakers and asking them to treat construction activities conducted in a safe and responsible manner as essential services in order to permit critical infrastructure services to continue as states and localities. 

In a March 23 letter to the president, ABC President and CEO Mike Bellaman wrote: “ABC members are committed to the health, safety and welfare of our workforce and the public. We ask you to continue to treat construction as an essential service.

“The impact of shutting down construction work will be severe for the construction of critical infrastructure and housing. Worker layoffs will make it extremely difficult for construction companies to meet the demand to maintain existing healthcare facilities and build new ones, retrofit existing structures (such as dorms, hotels and ships) for emergency use, modify manufacturing facilities to meet an increased demand for medical supplies and provide new transportation corridors for people and materials. Moreover, such a hit to the construction industry workforce will undermine current and future efforts to recover from natural disasters. A virus pandemic does not halt hurricanes, tornadoes or floods. Governors across the country have recognized the important role construction will play during this difficult time and, to various capacities, most state executive thus far has permitted construction activity to remain open.

“ABC recognizes that each construction project is unique and therefore a local decision as to whether the project can be safely delivered is appropriate. ABC has encouraged our members to implement strict measures for the safety of their workforce during these times, including significantly enhanced and modified safety plans and stop work plans to effectively mitigate the risk for workers.”

IMPORTANT LINKS

In order to stay up to date and access accurate information, employers are encouraged to utilize the below links.

ABC Coronavirus Update

Centers for Disease Control and Prevention

U.S. Department of the Treasury

U.S. Equal Employment Opportunity Commission

Occupational Safety and Health Administration

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