Will the $2 Trillion Stimulus Package Help the Fitness Industry?

On Friday, March 27, President Trump signed the $2 trillion CARES Act, (the “Coronavirus Aid, Relief, and Economic Security” Act) into law. The new law is part of Congress’ effort to shore up the U.S. economy, support American workers, and address shortages in medical supplies as a result of the COVID-19 pandemic crisis.

As the largest stimulus bill in American history, this legislation is aimed at providing relief for a large segment of the country, individuals and businesses negatively impacted by the coronavirus crisis. However, it does not address all of the challenges businesses and workers currently face, nor does it make anyone completely whole.

Congress is well aware of this and has already begun discussing a fourth COVID-19 economic relief bill, likely to come at some point in April. Please know that IHRSA is continuing to fight for relief for the entire fitness industry, both in how the CARES Act is implemented and for additional relief in future stimulus bills. We realize that the CARE Act does not address everyone and we are committed to fighting for our industry.

Before we turn our attention to the next economic relief bill—which our team is already looking into—we want to share what we know about the recently passed CARES Act and what it means for the fitness industry.

Will the $2 Trillion Stimulus Package Help the Health and Fitness Industry?

Since Congress first introduced the bill, our team has been simultaneously lobbying for fitness clubs and their suppliers to be included in the package, while pouring over every piece of information we could get to help health clubs and fitness businesses understand how this will impact them.

We have outlined a few of the most relevant sections of the bill. This is by no means a complete summary of everything covered in the 900-page bill. However, it does highlight provisions likely to be of interest to businesses in and serving the fitness industry.

It is important to note that this is what we know at this moment. A bill this large and complicated will require the federal agencies tasked with implementing it to create new processes, which will take time.

These are uncharted waters for virtually everyone involved. Businesses seeking relief and those charged with providing the relief are both working to figure this out. Here is what we know so far.

Parts of the Stimulus Bill that May Help the Fitness Industry:

1. Small business administration loans
2. Mid-sized business relief
3. Payroll tax relief
4. Unemployment provisions
5. Direct payments to Americans
6. Changes to new paid leave mandate

Small Business Administration (SBA) Loans

SBA loans provide funding for special emergency loans of up to $10 million for eligible small businesses. The maximum loan amount is the lesser of 2.5 times the average monthly payroll costs—which excludes any compensation above $100,000 for any person—for the preceding 12 months or $10 million.

To help you determine if an SBA loan is right for you and your club or business, let's look at:

1. eligibility requirements,
2. loan use, and
3. loan forgiveness.

Is Your Health Club/Business Eligible for an SBA Loan?

Here are the requirements that determine whether your business is eligible for an SBA loan:

1. Your business must have existed with paid employees on March 1, 2020.
2. Your business must have 500 or fewer employees. There are a few exceptions, but this is a total employee count, adding all employees from all affiliates (locations) together.

SBA may waive the affiliate requirements for franchises with codes assigned by SBA—as reflected on SBA franchise registry.

SBA calculates employees as "average number of people employed for each pay period over the business's latest 12 calendar months. Any person on the payroll must be included as one employee regardless of hours worked or temporary status."

How Can the SBA Loans Be Used?

Businesses that qualify for and receive an SBA loan can use it to cover costs related to:

• Payroll costs (excluding any compensation above $100K for any person)
• Group healthcare benefit costs and insurance premiums
• Mortgage and rent payments
• Utilities
• Debt service

What About Loan Forgiveness?

Businesses that maintain employment between February 15 and June 30 may be eligible for loan forgiveness. This forgiveness would cover

• Payroll costs (excluding any comp above $100K for any person)
• Group healthcare benefit costs and insurance premiums
• Mortgage interest and rent payments
• Certain utilities—electricity, gas, water, transportation, phone, internet access for service that began before February 15, 2020

SBA bases the reduction in loan forgiveness on two things:

1. The percentage reduction in full-time employees versus the prior year, and
2. The reduction of individual compensation over 25% for any person versus the most recent quarter.

If you meet one of the three scenarios listed below, the SBA says there will be no reduction in loan forgiveness.

1. Full-time employees laid off between February 15, 2020 and 30 days after the enactment of CARES Act, are rehired before June 30, 2020
2. Employees whose wages were reduced between February 15, 2020 and 30 days after enactment of CARES Act are restored before June 30, 2020
3. Additional forgiveness for additional wages paid to tipped employees.

Relief for Mid-sized Health Clubs (500 - 10,000 Employees)

We are currently looking into more information on what resources and relief are available to fitness industry businesses with more than 500 employees. We will also continue to lobby on behalf of and fight to get the fitness industry included in future relief.

This provision of the stimulus package creates a loan program for "a United States business that has not otherwise received economic relief in the form of loans or loan guarantees provided under the CARES Act."

There are four conditions recipients of these loans must follow.

1. The funds received must be used to retain at least 90% of the recipient's workforce, with full compensation and benefits, through September 30, 2020.
2. The recipient will not outsource or offshore jobs for the term of the loan plus an additional two years.
3. The recipient will not revoke existing collective bargaining agreements for the term of the loan plus an additional two years.
4. The recipient must remain neutral in any union organizing effort for the term of the loan.

It is not clear at this point how this will work. Unlike small business loans, this loan program is not directed through an existing program. Therefore, a process will have to be created for administering this portion of the relief bill. We are seeking additional information on this provision.

How Health Clubs Can Use the Payroll Tax Relief

The payroll tax relief in the stimulus package can be broken down into three categories.

1. Employee retention credit for employers subject to closure due to COVID-19
2. Delay of payment of employer payroll taxes
3. Unemployment provisions

Employee Retention Credit for Employers Subject to Closure Due to COVID-19

The provision provides a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis. This credit is available to health clubs whose:

1. operations were fully or partially suspended, due to a COVID-19-related shutdown order, or
2. gross receipts declined by more than 50% when compared to the same quarter in the prior year.

This credit is based on qualified wages paid to the employee and covers the first $10,000 of compensation, including health benefits. Eligible wages include:

• For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances.
• For employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shutdown order.

The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

Delay of Payment of Employer Payroll Taxes

Employers are generally responsible for paying a 6.2% Social Security tax on employee wages. The provision allows employers and self-employed individuals to:

• Defer payment of the employer share of the Social Security tax, and
• Pay the deferred employment tax over the following two years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.

Unemployment Provisions

The three most significant provisions for unemployment are:

1. Most individuals will receive an emergency increase in traditional unemployment insurance (UI) benefits of $600 per week through July 31, 2020;
2. The Pandemic Unemployment Assistance program, which provides up to 39 weeks of UI to people not otherwise eligible for regular unemployment compensation—including the self-employed and those who have exhausted their regular and extended benefits; and
3. The Pandemic Emergency Unemployment Compensation program, providing 13 weeks of emergency UI for people who remain unemployed after they have exhausted their benefits or are not otherwise eligible.

For more information about how the revised unemployment provisions will work, please see your state’s unemployment office website.

Direct Payments

Direct Payments of $1,200 to every adult earning up to $75,000—or $2,400 for joint filers earning up to $150,000—plus $500 for every child.

Changes to the New Paid Leave Mandates

Changes to the new paid leave mandates lower the amounts that employers must pay for paid sick and family leave under the Families First Coronavirus Response Act (enacted March 19) to the amounts covered by the refundable payroll tax credit—i.e., $511 per day for employee sick leave or $200 per day for family leave.

So, What’s Next?

While the CARES Act does not address all of the challenges or needs of the fitness industry, it does provide a variety of support for fitness businesses.

We will continue to work to learn more about how the government will implement the CARES Act and where you can go to take advantage of these programs.

Finally, IHRSA will continue to lobby for relief for the fitness industry now and in all future economic stimulus packages.