Springtime normally signals the start of the busy season for country clubs. Golfers eager to take advantage of nicer weather and club members who enjoy other facility amenities will have to wait longer. By now, one thing remains clear: it will be several weeks and maybe months before clubs and other businesses can be fully operational again. It will be important for clubs to not only get creative with how they make ends meet, but also be aware of federal relief packages that will help keep the lights on.
The CARES Act was made law on March 27, 2020, and is considered to be Phase II in federal stimulus efforts; read more about Phase I, or the Coronavirus Families First Coronavirus Response Act, here.
This new, $2.2 trillion piece of legislation contains numerous provisions aimed at providing emergency relief to businesses and individuals. At this time, tax-exempt clubs are not included in federal stimulus packages, but taxable clubs with less than 500 employees are included. Tax-exempt clubs could be included in future stimulus relief efforts.
The elements of the CARES Act that membership-based clubs should pay close attention to are:
- Paycheck Protection Program
- Loan Forgiveness
- Payroll Tax Relief
- Employee Retention Credit
Shutting down the golf course, or adhering to strict tee time guidelines, combined with a ban on in-person dining and severely restricted or shuttered amenities means that clubs had to cut back on staffing. Questions remain, like how to pay them, and for how long, and what happens when there isn’t enough money to extend even partial salaries or benefits. Recent National Club Association survey results indicate that most clubs are still paying all or at least some employees through the end of March, and into April. Most clubs only have enough cash reserves to meet payroll for about three months.
Now, the CARES Act is giving clubs and other businesses some relief measures to keep employees on the payroll.
The Paycheck Protection Program is for businesses with less than 500 employees. Loans are available to cover payroll costs from February 15, 2020, through June 30, 2020. The loans are limited to the lesser of average total monthly payroll costs for the one-year period ending on the date of the loan, multiplied by 2.5, or $10 million.
Paycheck Protection loans can be used to cover payroll, payments for mortgage, rent, utilities, or debt service. Items not included in payroll costs are:
- Individual employee compensation more than an annual salary of $100,000
- Payroll taxes
- Compensation for employees whose primary residence is outside the U.S.
- Qualified sick leave for family medical leave under the Families First Act, considered Phase II of coronavirus relief
Applications are available now. Contact us for assistance in calculating the total amount of payroll costs, as there are other considerations that go into how the loans can and cannot be used.
Clubs that are approved for Paycheck Protection Loans are limited to a loan period of ten years. Interest rates will not exceed four percent.
There is a loan forgiveness provision, too. Clubs can apply for tax-free loan forgiveness for the amounts they pay in payroll costs or mortgage in the first eight weeks the loan is disbursed. Loan forgiveness is reduced if the club takes certain actions in the first eight weeks the loan is disbursed. These include reducing its workforce or lowering salaries or wages by 25 percent or more for employees who earned at least $100,000. There are exemptions for re-hires.
Other than loan forgiveness, Paycheck Protection loans also come with the option of EIDL grants. These grants are awarded to borrowers that already qualified for a Paycheck Protection loan and are awaiting disbursement. The EIDL grants max out at $10,000 and are available immediately before the rest of the loan is disbursed. The amount of the grant reduces the total amount of the loan.
In addition, loans can be deferred between six months and one year.
Requirements for Paycheck Protection Loans are currently as follows:
- The club must have been in operation as of February 15, 2020
- Rent and certain utility payments must have been incurred before February 15, 2020
Payroll Tax Relief
There’s another incentive to keep club employees on the payroll. Section 2302 of the CARES Act allows for clubs’ share of social security taxes to be split over two years. Half must be paid by December 31, 2021, and the remaining 50 percent by December 31, 2022. Payroll tax relief is not available to clubs that receive SBA disaster assistance loan forgiveness.
Employee Retention Credit
For clubs that have to close, the Employee Retention Credit provides financial relief for clubs that continue to pay employees. It is a refundable credit against employment taxes for half the wages clubs pay during the coronavirus crisis. Clubs are eligible if:
- Their operations area suspended due to government orders or regulations OR
- They experienced at least a 50 percent reduction compared to the previous year’s quarter
Qualified wages depend on whether the club employs more than or less than 100 full-time or full-time equivalent (FTE) employees.
≥ 100 employees: wages paid when an employee is not working due to the club’s closure
≤ 100 employees: wages paid during any period described above, even if the club is open
The Employee Retention Credit is limited to the first $10,000 of compensation per eligible employee, including health benefits. The timeframe is after March 12, 2020, and before January 1, 2021, calculated by quarter.
There is also carryback provision for Net Operating Losses, modifications to pass-through losses, and several other business provisions that clubs should know about. Read more in our previous post on the CARES Act.
Phase III coronavirus relief packages are likely, but not until Congress is back in session at the end of April. For now, clubs can look into how the above relief measures can bridge the gap and keep the lights on.