Last Monday (August 3, 2020), President Trump signed into law S. 4209, the Catastrophic Cash Flow Strain Act of 2020.
This new law streamlines the process for reimbursable employer relief under the CARES Act. (School districts are among the entities that are deemed reimbursable employers for unemployment insurance purposes.)
This new law aims to ensure that employers such as states and local governments, including school districts, federally recognized tribes and nonprofit organizations that operate as reimbursing employers under state unemployment insurance systems and laid off or furloughed employees due to the Coronavirus pandemic can receive unemployment payment reimbursement relief under the CARES Act without bearing cash flow burdens that threaten their liquidity.
A guidance document issued the U.S. Department of Labor back in April indicated that reimbursing employers “must pay their bill in full” before they can receive the 50% reimbursement available under the CARES Act. The requirement to pay 100% of the bill before getting relief can be very difficult for cash strapped employers during this pandemic. The new law, however, allows states to reimburse local governments and nonprofits without requiring the 100% up front payment.
The bill summary prepared by the Congressional Research Service (CRS) states the following:
“This bill permits certain governmental entities, federally recognized tribes, and nonprofit organizations to make up front payments of 50% of unemployment benefits into the state Unemployment Trust Fund (in lieu of contributions) to be used exclusively to reduce such payments resulting from the COVID-19 (i.e., coronavirus disease 2019) pandemic.
“Currently, the Department of Labor issued guidance on April 27, 2020 (UIPL 18-20), requiring states to collect 100% of such payments up front and then reimburse them by 50% later.
“In addition, the bill allows states to opt to issue such reimbursements or to reduce the amounts required to be paid for weeks of employment after March 12, 2020, and before enactment of this bill.”*
Congress provided the following example o how the law works: If employees file unemployment claims collectively amounting to $50,000, the state workforce agency will first use a federal transfer to the state unemployment trust fund to reduce the bill to $25,000 – then the nonprofit or local government will only be responsible for the remaining $25,000. The law is now P.L. 116-151. You can find the text of the legislation and other information here.
*NOTE: Because this new law only to UI benefits paid for weeks before August 3, 2020, it appears this relief may not apply to the federal unemployment insurance payments issued under the President’s Executive Order issued on August 8, 2020. We will report on this further as more information becomes available.
