Due to the COVID-19 Pandemic, a lot of businesses in the CNMI have closed. More are closing. Some employers are planning to temporarily let their employees go to save on costs. At this moment, it is unclear when this global health emergency will end. A lot of employers here have foreign workers who are on work visas. If they are fired now it will be hard to get them back due to visa issues. The foreign workers will be unable to leave the CNMI at this time and will end up overstaying and may be ineligible for employment once the pandemic ends. The new CARES Act actually provided several difference solutions for employers. These benefits could help employers keep their workers during this difficult time without creating a huge payroll burden at a time when there are no customers.

There is much information on the Internet to help businesses. This article is a brief summary. Also provided with this article is a FAQ that may help you in applying for the programs you qualify for.

Economic Injury Disaster Loans (EIDL)

Section 1110 of the CARES Act expanded the eligibility rule of section 7(b)(2) of the Small Business Act. It now allows most of the business entities which have less than 500 employees, including sole proprietorships, independent contractors and self-employed persons, private non-profit organization or veterans organizations, and businesses that otherwise meet small business standards under the SBA rules to apply for EIDL. Businesses in certain industries are still excluded from this loan, but they might be eligible for the Paycheck Protection Program we are going to discuss later.

The most significant benefit under new law is that applicant can apply for a grant which is up to $10,000 and it does not need to be repaid even if the loan application is subsequently denied. Based on the rule, it shall be granted within three days after the applicant is received. The grant can be used to pay for any allowable purposes under the EIDL loan program, including providing paid sick leave to employees unable to work due to the direct effect of the COVID–19 and maintaining payroll to retain employees during business disruptions or substantial slowdowns.

The application process is simple and employers can submit their application directly on the SBA website. The Act also authorized the SBA to approve an applicant based solely on the credit score of the applicant. The maximum amount a business can get is $2 million, the maximum interest rate is 3.75% and the repayment period is up to 30 years. If the loan is approved, the remaining balance of the loan also could be refinanced by the Paycheck Protection Program.

Paycheck Protection Program

Section 1102 of the CARES Act created the new Paycheck Protection Program. It amended Section 7(a) of the Small Business Act and allowed almost all kinds of business concern, nonprofit organization, veterans organization, or Tribal business concern that has less than 500 employees to apply for a loan to cover their paycheck costs and other covered expenses. Small business concerns can obtain this loan if they have more than 500 employees, but they meet the definition of a “small business concern” under section 3 of the Small Business Act, 15
U.S.C. 632.

There is no application fee, personal guarantee or collateral for this loan. Based on the Interim Final Rule, the interest rate of the loan is 1 percent. The most attractive part of this loan is that if employer will uses the loan to cover certain costs in the following 8-weeks after the loan is granted, that amount the loan will be waived and employers do not need to pay the loan back. The remaining balance of the loan shall have a maximum maturity of 10 years from the date on which the borrower applies for loan forgiveness.

The maximum amount of the loan most of the regular employer can get is 2.5 times of the average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made, plus the outstanding amount of the EIDL if the borrower already obtained an EIDL loan, or $10,000,000, whichever is smaller.

Borrower can use the loan proceed to cover payroll costs, costs for health benefit, costs for certain rent, utilities and interests. Because the loan is primarily created for employers to cover their payroll costs, for the total amount of the loan, including the amount used to refinance EIDL, at least 75% need to be used on payroll costs.

Under Section 1106 of the CARES Act, if employer could use the loan proceed to cover payroll costs, payment of covered interest, rent and utilities, within 8-week after granting of the loan, the loan will be waived. There is also a limitation that in the total amount of the loan that can be forgiven, at least 75% has to be used to cover payroll costs.

Because the loan was made for employers to keep their employees, the forgivable amount will be reduced if there is a reduction on the number full time equivalent employees or a substantial reduction on employee salaries. If you are planning to obtain this loan and maximize the forgivable amount, it is better to keep your employees and their salary on the original level.

If you already fire for furlough certain employees or reduced their salary after February 15, 2020, the Act also permit you to hire them back or restore their salary no later than not later than June 30, 2020, without reducing the forgivable amount of the loan.

Employee Retention Credit

Section 2301 of the CARES Act granted a special refundable tax credit against employment tax for employers who are carrying on a trade or business during year 2020 and the trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID–19 or has experienced a significant decline in gross receipts during the calendar quarter.

Qualified wages are certain wages and compensations paid by employers to employees after March 12, 2020, and before January 1, 2021, including qualified health plan expenses. The specific scope of qualified wages depends on the number of full-time employees that the employer had in 2019.

If the employer had more than 100 employees in 2019, qualified wages are the wages paid to an employee for time that the employee is not providing services due to the situations mentioned above. The maximum amount of qualified wage counted for this kind of employees is the amount that employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.

If the employer had averaged no more than 100 full-time employees in 2019, qualified wages are the wages paid to any employee during any period of economic hardship described above.

The amount is equal to 50 percent of qualified wages employer pay to their employees. The maximum amount of credit an eligible employer can get from any employee is $5,000. An eligible employer may be able to claim the credit for qualified wages paid as early as March 13, 2020.

Although employer cannot get PPP loan and claim the credit, for employers who is not eligible under the PPP program, this tax credit could provide huge benefit.

For more information the Saipan Chamber of Commerce is an excellent resource. Also, the SBA office on Saipan can help.

Read our Frequently Asked Questions resource on the CARES Act here.


Anthea Yuan is an attorney with the Dotts Law Office and practices Tax Law. She received an LLM in Tax from Northwestern University, graduating with honors.
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