Relief is soon to arrive for restaurants and other foodservice businesses dealing with the financial impact of required Coronavirus (COVID-19) closures. And that’s great news for everyone connected to the foodservice industry, including culinary students or those considering culinary school.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the largest stimulus package in history, at a grand total of $2.2 trillion.
What the CARES Act Means for Restaurant Owners, Employees, and Culinary Students
For restaurant owners, the CARES Act offers direct cash assistance and other benefits to keep things afloat during temporary closures, and even includes incentives for property and equipment upgrades. For employees, the Paycheck Protection Program protects salaries.
For those considering a culinary career or already in culinary school, the entire Act could be the key to bringing restaurant jobs back as quickly as possible.
In the meantime, honing your culinary and business skills just might make sense now more than ever. Restaurants are, after all, businesses, and learning business skills is one of the primary focuses of culinary school. When they begin hiring again, restaurant managers just might prefer those employees with both food and business skills.
What Exactly Does the CARES Act Provide?
The CARES Act and its various programs are designed to help relieve individuals and small businesses struggling with cash flow due to the economic shutdown. Employees are protected by the Paycheck Protection Program, which provides nearly $350 billion in federally-guaranteed loans to incentivize businesses to keep workers on their payrolls.
The key point for restaurant owners and managers is this: Any loan money that goes towards payroll and essential operating expenses for the period between February 15 and June 30, 2020, will be entirely forgiven.
As the National Restaurant Association explains, examples of forgivable expenses include:
- Salaries, wages and/or equivalent cash tips as long as it does not exceed $100,000 per employee.
- Mortgage interest, rent and utilities expenses for your business.
- Any paid leave for employees (medical, vacation, illness, family).
- State and local taxes on employee compensation.
- Employee health insurance.
- Retirement benefits.
As an added bonus, loans provided under the program will not require any collateral or personal guarantees to acquire the funds.
In order to qualify for loan forgiveness, at least 75% of the loan funds must be used to cover payroll expenses.
Which Businesses Qualify for a Loan?
The Paycheck Protection Program is available only to businesses with fewer than 500 employees, based on the SBA’s definition of a small business.
The total amount of the loan that restaurants are likely to receive is based on 250% of the cost of their average monthly payroll, with certain qualifying businesses able to receive up to $10 million dollars.
However, if a food service business has more than 500 total employees, it may still be eligible for a loan. This is because the rule applies to the number of employees registered at each restaurant location, not the business as a whole – as long as the company is classified under NAICS code 72 (Accommodation and Food Services).
For example, a restaurant franchise with more than 1,000 employees will still be eligible for a small business loan if there are fewer than 500 employees at each physical location.
What Other Benefits Can Restaurants Expect From the CARES Act?
Besides support for payroll and loan forgiveness for operating expenses, there is also the possibility of reducing a restaurant’s tax bill, thanks to certain provisions outlined in the CARES Act.
Here’s a summary of some of these additional benefits:
Employee Retention Tax Credit
All businesses that were partially or fully shut down by the COVID-19 pandemic will be able to receive a tax credit equivalent to the lesser of $5,000 per employee or 50% of qualified wages paid from March 12, 2020 until January 1, 2021.
Delay Paying Employer Payroll Taxes
Businesses can defer paying their required portion of employee payroll taxes accrued between March 27, 2020, and December 31, 2020, for up to two years. The first half of the deferred payments will be due on December 31, 2021 and the second half will be due on December 31, 2022.
Property Improvement Tax Credit
If a restaurant owner has been meaning to invest money in upgrading his or her facilities, now may be the best time to make those improvements and save money on taxes. Under the CARES Act, businesses can depreciate their Qualified Improvement Property over 15 years instead of 39 years.
As many restaurants are looking to build trust with patrons, investing in new sanitation upgrades could also be a smart investment to consider.
Five-Year Carryback for Net Operating Loss
Before the CARES Act, if restaurant businesses had a Net Operating Loss (NOL), the loss could not be used to offset income in previous tax years. Now, businesses can carry their NOL from 2018, 2019, or 2020 back up to five years and claim refunds.
Next Steps for Small Business Owners and Managers
If you’re a restaurant owner or manager, your first step might be to reach out to your primary business lender to go over the steps for your loan application. The U.S Small Business Administration website is also a great resource.
You can apply for loans with existing SBA certified lenders such as banks and credit unions.
These loans will be on a first-come, first-served basis. Your best bet is to enter the queue early, considering the millions of other businesses that are getting ready to do the same.
Next Steps for Restaurant Employees
Stay in touch with your employer and team. The intention of the CARES Act is to protect you and the business over the next several months. Ask about the Paycheck Protection Program, and what projected timelines look like.
In the meantime, there are other resources you might consider. The National Restaurant Association Educational Foundation, for example, just released the Restaurant Employee Relief Fund to help displaced restaurant employees.
This fund offers a $500 grant if you can demonstrate that you worked on a part- or full-time basis in the restaurant industry for at least 90 days during the past year, had a primary source of income in a restaurant in the last year, and experienced a significant decrease in wages.
Next Steps for Prospective Culinary Students
Without a doubt, these are uncertain times for the foodservice industry, but those are often the very best times to invest in your own education.
Many of us enter the culinary world because of our passion for food and service towards others. However, running a successful restaurant involves more than just a great culinary mind – it also requires strong business acumen in order to respond to ever-changing forces in the market.
If you are looking to expand your education, consider Escoffier, the only U.S. accredited institution offering 100% online diploma or degree in Culinary Arts or diploma in Pastry Arts. These programs are a great way to learn the business side of the foodservice industry and fine-tune your techniques and knowledge – all in the convenience of your own kitchen.
Enjoyed this article? Here are a few more to consider:
- Will Restaurant Jobs Come Back? When?
- Business & Entrepreneurship: The Other ‘Arts’ of Culinary School
- Business Succession Tips for Multigenerational Restaurants
The information above is subject to change as additional details emerge on how these programs will be implemented. Any linked content is deemed to be reliable, but not vetted or endorsed for accuracy by Auguste Escoffier School of Culinary Arts and should not be construed as tax or legal advice. The information in this article was sourced from the U.S. Senate Committee on Small Business and Entrepreneurship and the National Restaurant Association.