• News
• • March 26, 2020

Bulkley Richardson Advises Businesses on Keeping Workers Paid and Employed

The CoronaCrisis has been a rollercoaster for business owners. Starting almost a month ago, the rumblings of disruption began and have now erupted into complete and utter chaos. Business owners have been forced to make stark decisions – restaurant owners laying off their entire workforce; “non-essential” businesses shutting down on 36 hours’ notice; whether and how to support employees facing three, then six weeks of cancelled school; supply chain disruptions; cancelled orders; cancelled events; and more. Business owners have openly wondered, “how will my business survive?”

Fortunately, once the legislation pending in the U.S. Senate becomes law, which is widely expected, business owners – including sole proprietors and gig economy workers – will be receiving a lifeline from the federal government that is unprecedented in scope, speed and breadth.

Coined the “Keeping American Workers Paid and Employed Act,” the proposed provisions would appear to apply to EVERY business and 501(c)(3) organization with fewer than 500 employees (again, including sole proprietors). The Act would allow these businesses (whether a corporation, LLC, partnership or some other form of entity) to obtain a loan up to the lesser of: (a) average “payroll costs” over the preceding twelve (12) month period multiplied by 2.5; or (b) ten million dollars.

Payroll costs include:
• salary, wage, commission or similar compensation;
• payment of cash tip or equivalent;
• payment for vacation, parental, family, medical or sick leave;
• allowance for dismissal or separation (a/k/a severance payments);
• payments required for the provision of group health care benefits, including insurance premiums (i.e., the portion of the premium covered by the employer); and
• payments of any retirement benefit.

Payroll costs do not include the compensation for employees with an annual salary in excess of $100,000 per year and any compensation for employees not residing in the United States.

The loan would be non-recourse, require no security or personal guarantees, and bear interest of only four percent (4%) with a repayment period of 10 years.

But this is not like any other loan ever offered, this loan would be FORGIVEN in an amount equal to the sum of “payroll costs, payments of interest on any covered mortgage, . . . payments on any covered rent obligations; and covered utility payments” incurred by the business for the eight (8) week period following the loan’s origination (the “Covered Period”). The amount to be forgiven would be reduced if the business reduced its workforce or reduced salary and wages to its workforce during the Covered Period.

The workforce measurement is determined by comparing the number of employees during the Covered Period (measured by FTE) compared to either the average FTE during the period from February 15, 2019 through June 30, 3019 or January 1, 2020 and February 15, 2020. Since the borrower gets to choose its measurement period, presumably you would choose the lower of the two. There are special rules for seasonal employers.

The salary reduction measurement comes into play if you reduced the salary or wages of any individual employee by more than 25% when compared to the “most recent full quarter during which the employee was employed before the Covered Period.” However, there is an exemption for “re-hires” which means anyone that was let go after February 15, 2020 but before the end of April (the date isn’t set yet), as long as they are rehired by June 30, 2020 at the same or greater salary or wage, that “re-hire” is not taken into consideration for the salary reduction measurement. In other words, as long as you hire back the same employee that was let go between February 15 and April 27, 2020 (or rehire the same number of FTEs) by June 30, 2020 there is no reduction in the loan forgiveness amount.

And the best part, unlike other debt that is forgiven by the lender, any amount forgiven under this program “shall be excluded from gross income.”

To summarize, if you are a business and are willing to keep your employees on the payroll, pay your rent or mortgage, and stay in business, the Federal Government is prepared to pay your rent, your utilities and your payroll (for employees making under $100K annually) for eight (8) weeks and the payment is tax free. It sounds too good to be true, but the public policy is sound – the easiest and best way to get financial support to the most Americans is through their employers (especially in this time of historically low unemployment).

We expect loans under this program to start being processed by late April or early May, with funding happening as soon as the loans can be closed. The program is relying on banks and commercial lenders to aggressively participate as the primary lenders under the program, so you should be able to continue working with your current bank.

Given the tight timeframe, and the unprecedented scope of this program, we are preparing for an unusually high level of lending in the local market and will be prepared to help our clients navigate this new program, get the necessary loan and submit the backup needed to qualify for the forgiveness.