7 ways the CARES Act could hurt restaurants

The National Restaurant Association told federal authorities Wednesday at the U.S. Treasury and Small Business Administration that some of the wording in the Coronavirus Aid, Relief, and Economic Security or CARES Act passed into law last week needed to be clarified, modified and perhaps even changed to prevent what the organization said might be negative consequences of well-intended legislation. 

In a letter that NRA Executive Vice President of Public Affairs Sean Kennedy wrote to U.S. Treasury Secretary Steven Mnuchin and U.S. Small Business Administration Administrator Jovita Carranza, he asked for changes in the act's provisions dealing with the so-called "Paycheck Protection Program" or PPP, which gives business — like many restaurant franchises and mom-and-pops — with 500 employees or fewer, funds to pay up to eight weeks of payroll costs, including benefits. Funds afforded by PPP can also be used to pay interest on mortgages, rent and utilities.

The Paycheck Protection Program is a somewhat complex piece of legislation that allows for loans to restaurants and other smaller businesses to be fully forgiven, but at least 75% of the forgiven amount must have been used for payroll. In those cases, loan payments will also be deferred for six months, with no collateral or personal guarantees required, and no fees are charged by either the government or its lenders. 

An industry in real pain

On paper, those provisions look helpful, but Kennedy said there were several problems that needed to be addressed. Before he listed them, however, he explained just how deeply COVID-19 has cut into the economic health of the restaurant industry and its more than 15.6 million employees in the U.S. The NRA said that 3 million restaurant employees have lost their jobs and estimated total loss in coming weeks of 5 million to 7 million. In fact, the NRA projected $225 billion in potential losses as a result of the pandemic and its connected restrictions on life and business as usual in the U.S. 

He wrote that if the issues called to the federal leaders' attention in the letter weren't addressed through the act's "statutory construction," many of the well-intended provisions in the CARES Act will have unintended consequences for restaurant owners and stand in the way of many businesses being able to access the aid needed. 

Kennedy sees the following as problems that the government address:

Employer payroll tax payment 

This section of the act allows restaurateurs to defer payment for Social Security taxes on employers and the self-employed until Jan. 21, 2021, but not including any employers who have had loan forgiveness through PPP. Kennedy said the section needs more clarification. 

"Restaurants, who are running payroll now, are concerned that using the deferral now might make them ineligible for loan forgiveness under the PPP later," Kennedy wrote. "We suggest a clarification that once a PPP loan is granted and later forgiven, deferrals are no longer allowed, but deferrals may be taken until that time."

Kennedy said without that clarification, employers must speculate whether it's worth deferring employment taxes now, if it could mean losing out on the PPP loan forgiveness program later.

Exemptions

Under its Exemptions section, the act gives the Small Business Administration and Treasury, what he called,  "expansive authority on the forgiveness parameters." Instead, Kennedy asked that those parameters be more clearly laid out to help those who need to borrow money better know what their chances of qualifying are. 

Exemption for rehires section

Kennedy asked for clarification regarding the exemption for rehires provision, asking if it actually provided "safe harbor," pointing out that the actions referred to in this section actually didn't violate the regulation. He said if it does provide such a safe harbor, clarification was needed on how many weeks would be required under the exemption to qualify for the full-time employee level, compared to the previous year. 

"Restaurants may need several weeks or more to onboard employees returning from a furlough or otherwise dislocated status," he said in the letter. 

Loan forgiveness

Kennedy asked that the area of the act, referring to the reduction of loan forgiveness based on the number of employees kept on the payroll, be calculated by a sliding scale. 

"In an industry, where recruitment and retention is the top challenge, with 100% turnover year over year, it is impossible for restaurants to maintain the precise number of 2019 FTEs during a massive economic disruption," Kennedy wrote. "The retention level must reflect that reality. The hiring levels also reflect the realities of hiring or rehiring during a pandemic situation where many previous FTEs may elect to care for family members or observe quarantine protocols."

Paycheck Protection Program

Kennedy wrote that as it stands, more definition was needed regarding what the wording around "per location" really means. He said that now, the waiver of the application of affiliation rules is more restrictive than he said might have been intended. 

Payroll costs related to loan forgiveness 

Kennedy said more clarification was needed around specifications of salary threshold limits for loan forgiveness and whether those salary calculations include the value of benefits, like medical insurance or other bonuses and benefits. 

Qualified improvement property or QIP 

Kennedy said the NRA wanted federal leaders to use a method that quickly refunds restaurants for QIP and bonus depreciation-related amendments to their 2018 and 2019 tax returns. In the CARES Act, a correction around QIP allows operators to deduct all their QIP-eligible renovations from 2018 to 2022.

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