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The Unprecedented Employer Subsidies This Week To Avoid Layoffs

By Michael Bernick
March 30, 2020

The Unprecedented Employer Subsidies This Week To Avoid Layoffs

By Michael Bernick
March 30, 2020

Read below

(This is the third in a series on the impacts of the coronavirus on employment and the workplace. Read the first and second part.)

The federal stimulus, approved last Friday, includes unprecedented financial incentives for employers to retain employees or bring back employees laid off after March 1, 2020. Whether they succeed or not remains to be seen. However, these incentives go well beyond the layoff aversion strategies of previous Stimulus efforts dating back to World War II.

The Stimulus overall might be described as a jobs strategy. But the incentives that are at the heart of layoff aversion are contained in Title I—Keeping American Workers Paid and Employed Act. Title I, the Paycheck Protection Program (PPP), provides for loans to small businesses (defined as businesses with fewer than 500 employees) that can be up to $10 million, used to defer the costs of keeping employees on the payroll or adding employees and other expenses, and are eligible to be forgiven up to 100% of the loan.

Title I is not easily understood, and includes a good number of limitations on eligibility, time period and range of expenses covered, and conditions for 100% forgiveness. To understand some of the main guidelines, let’s bring in two experienced attorneys who have closely studied the Act and its interpretations: Ms. Nanette C. Heide, partner in the Corporate Practice Group of Duane Morris LLP, and co-chair of its Private Equity Division, and Ms. Meagan E. Garland, a Duane Morris LLP employment attorney, specializing in the Act’s employee retention opportunities. Below are four main guidelines they put forward.

  • Borrowers are eligible for loan forgiveness for the amount equal to the total amount paid over the 8 weeks commencing from the origination date of the loan for payroll costs and rent payments, utility payments or mortgage interest payments over the 8 weeks commencing from origination date of the loan. Eligible payroll costs do not include annual compensation in excess of $100,000 for individual employees. Basically, a company’s expenses for the eight-week period after the origination of the loan will be analyzed. Every dollar a company spends on payroll, utilities, rent, or interest on mortgage debt will be added together. That amount will be forgiven, up to the total amount the company borrowed through the program.

Heide and Garland emphasize that there are many more details to be filled in, and guidance will need to be tailored to each specific case. However, three additional characteristics of the PPP should be highlighted.

  • First: the speed by which the loan applications are to start. Heide notes that while the Small Business Administration (SBA) will be issuing additional guidance in the next 15 days on loan processes, the SBA-certified lenders will be taking applications this week, and the goal is to get the money out quickly to businesses that are struggling.
  • Second: the speed by which the loans are to be processed and the money released. Heide notes that initial goals are for the loans to be received, decisions rendered, and money dispersed within a three week period. Our loan programs in the United States have never seen anything with this speed.
  • Third, the prioritizing of loans to small businesses and entities in rural and underserved markets. Garland explains, "Many of these businesses and employers are the backbone of the middle class, and a Stimulus that prioritizes them and includes all segments of the small-business community could have a long-lasting positive ripple effect." […]
  • Finally, for the Act to succeed in any way, attention must be given to implementation protocols: balancing the speed with the integrity of fund distribution. The PPP includes certifications of program eligibility that must be taken seriously, as well as the tracking of funds. […]

To read the full article, visit the Forbes website.