What Does the Stimulus Package Mean for Restaurants?

    Forgivable loan program, tax credits are two main options.

    Legal | March 2020 | Ben Coley
    Gavel on a wooden background.
    Unsplash/Bill Oxford
    Restaurants are eagerly awaiting aid.

    Restaurant operators across the nation are awaiting the benefits of the $2 trillion stimulus package, also known as the CARES Act, signed by President Donald Trump on March 27.

    The foodservice industry has been hit hard by the COVID-19 pandemic. In the week ending March 21, a record-breaking 3.28 million filed for unemployment, a good portion of which came from the restaurant industry. The NYC Hospitality Alliance said on March 25 that 1,870 New York restaurants, bars, and nightclubs reported laying off or furloughing 67,650 employees since March 20.

    The National Restaurant Association said 5 million to 7 million jobs and $250 billion could be lost in the next three months. Mark Allen, president and CEO of the International Foodservice Distributors Association, said foodservice distributors will lose $24 billion in top-line sales.

    Several restaurant companies have announced major furloughs or layoffs including Ruth’s Hospitality, Chuy’s Holdings, The ONE Group Hospitality, Danny Meyer’s Union Square Hospitality Group, Cameron Mitchell Restaurants, Landry’s, J. Alexander’s, Golden Corral, Luby’s, and Craftworks Holdings.



    So what relief should restaurants expect with the recently passed stimulus package?

    Sarah Kuehnel, a shareholder in the Tampa, Florida, and St. Louis offices of Ogletree Deakins, says there are two primary components to note.

    The first is the Small Business Administration Paycheck Protection Program. The $349 billion program is intended to keep small businesses running and encourage employers keep their workers. Kuehnel says it is modeled after the existing 7(a) program, except the loans are 100 percent guaranteed as opposed to 75 percent.

    Kuehnel says the program provides forgivable loans equal to the amount spent on payroll expenses, rent, mortgage interest, healthcare benefits, and utilities for eight weeks.

    The amount of the loan is based on 250 percent of a company’s average monthly payroll costs in the previous year. The loan does not include salaries above $100,000 and payments covered under the Families First Coronavirus Relief Act.

    "I think a lot of it is going to come down to cash flow because the tax benefits and the credits are something that would not necessarily result in immediate cash whereas a loan is going to give you an influx of cash and you have a little bit more flexibility," says Sarah Kuehnel, a shareholder in the Tampa, Florida, and St. Louis offices of Olgetree Deakins.

    The forgiveness will be reduced in proportion to any reduction in employees and by the reduction in pay of any employee greater than 25 percent. However, the protection program is retroactive to February 15, meaning those companies who have laid off employees in recent weeks can receive a fully forgivable loan if it rehires workers. The deadline to apply for the loan is June 30.

    The program covers companies with 500 employees or fewer. It’s measured by the amount of employees by location, not overall, meaning franchisees of major chains are not excluded from the loan.

    The Small Business Administration is required to implement regulations within two weeks of enactment of the stimulus package, which was Friday, March 27.

    The second option for restaurants is business tax retention credits. Kuehnel notes that in certain circumstances, the CARES ACT provides a payroll tax credit for 50 percent of wages paid by employers to employees, up to $10,000 per employee. Eligible companies include those have been fully or partially suspended due to the virus or can prove a 50 percent or more decline in revenue compared to the prior year period.

    Kuehnel says this a separate benefit and those who participate in the Paycheck Protection Program are not eligible.

    “I would certainly say to consult with their accountant or their tax provider,” says Kuehnel discussing the best option for restaurants. “But I think a lot of it is going to come down to cash flow because the tax benefits and the credits are something that would not necessarily result in immediate cash whereas a loan is going to give you an influx of cash and you have a little bit more flexibility.”

    In addition to those two options, employers are allowed to defer payment of their share of the Social Security tax. Half of the share would be owed by December 31, 2021, and the other half by December 31, 2022.

    The act allows single employer pension plan companies to delay the due date for any contributions until January 1, 2021. It also waives the required minimum distribution rules for certain defined contribution plans and IRAS in 2020, and it eliminates withdrawal penalties for distributions up to $100,000 from qualified retirement accounts for COVID-19-related purposes.

    Right now, Kuehnel says businesses should check eligibility requirements and staffing needs and assess how a loan would impact business.

    The attorney also notes that matters are evolving on a daily basis, so guidance could change in a matter of days or weeks.

    “Hopefully this is something that within a few weeks we can see the process move quickly,” Kuehnel says. “I think we all know sometimes with the government, things can take longer than we ideally like, but I think given the challenges that everyone’s facing, what we are seeing is the government is acting rapidly and as quickly as it can under the circumstances.”

    For individuals, the stimulus package will send $1,200 to individuals and $2,400 to couples filing jointly. For every child 16 or under, the payment will include another $500. Those payouts taper off for those with incomes above $75,000 and $150,00 for joint filers. Individuals who make $99,000 or more, and couples who make $198,000 or more, will not get a check. Those filing as head of household will get full payment if they earned $112,500 or less. Treasury Secretary Steve Mnuchin said the checks could arrive in three weeks for those with direct deposit set up with the IRS.

    The bill also includes $260 billion in expanded unemployment benefits, including $600 more per week for four months under in addition to the customary benefits from states.