The Unprecedented Employer Subsidies This Week To Avoid Layoffs: The Coronavirus Workplace Series

(This is the third in a series on the impacts of the coronavirus on employment and the workplace. The first two are here and here).

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.

·        The amount of loan forgiveness may be reduced if the employer reduces the number of employees as compared to the prior year, or if the employer reduces the pay of any employee by more than 25% as of the last calendar quarter. Employers who re-hire workers previously laid off before June 30, 2020 as a result of the COVID-19 crisis will not be penalized for having a reduced payroll for the beginning of the relevant period. Forgiveness may also include additional wages paid to tipped workers.

·        Borrowers must apply for loan forgiveness to their lenders by submitting required documentation and will receive a decision within 60 days.

·        If a balance remains after the borrower receives loan forgiveness, the outstanding loan will have a maximum maturity date of 10 years after the application for loan forgiveness.

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.”

What to make of this? Will it work?

At its core, the Act incorporates some of the best practices we’ve learned from previous Stimulus efforts. It is private-sector oriented, unlike a number of the previous Stimulus efforts that looked to new public sector job creation. It is focused on averting layoffs, which makes sense given the costs to both employers and employees of new job searches and job placement.

At the same time, these incentives are being launched at a time of economic shutdown for most of the country—far different than the time of the Great Recession and other recent economic downturns. Even if an employer wants to retain employees or bring them back, there is question as to whether there is any work to be done as long as the Shelter in Place and related Orders are in place. The SBA guidelines may be instructive on this point.

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.

The late columnist William Safire liked to tell the chestnut from the 1950s about Princess Margaret and the matchmaker. As Safire recounted: “A Jewish matchmaker had the idea of matching up poor Sammy—a nebbish and a schlemiel—with Princess Margaret, then the world’s most eligible woman. Sammy’s mother would not hear of it: The Princess could not cook and was not Jewish. After weeks of persuading, with the matchmaker showing how the alliance with British royalty would help Israel, the mother gave her grudging approval. The matchmaker heaved a sigh of relief and said, ‘Now for the hard part.’”

The PPP passed last Friday sets the stage for stemming layoffs and even rehiring. Now for the hard part.