PPP: A paycheck whether there's work or not

Warwick Beacon ·

Consider the dilemma of Bethany (not her real name), who was laid off in early March when the COVID-19 shutdown hit and is now collecting unemployment benefits plus $600 a week in federal unemployment assistance made available under the CARES Act.

If she returns to work, she would come in greater contact with the public and possible exposure to the virus. In addition, since her pay includes either commissions or tips, she would make less than what she gets in unemployment.

Now consider the dilemma being faced by many small businesses that applied for and have now received forgivable loans under the Paycheck Protection Program funded under the CARES Act.

Under the guidelines of the rescue program, businesses are to spend 75 percent of the money – which is based on 2½ times their monthly average payroll prior to the shutdown – over the next eight weeks. The remaining 25 percent of the money can be spent on rent and utilities.

If the payroll expenditure is adhered to, the business is eligible to have the money treated as a grant. If not, then the amount, or a proportion thereof, is considered a loan, albeit at 1 percent interest rate, and repayable.

As apparent during an hour-long webinar held Friday by the Small Business Administration of Rhode Island with more than 150 participants, while many businesses are delighted to get the funding, they can only partially reopen or not at all.

Nonetheless, PPP recipients are required to start spending the money on salaries immediately, regardless of whether there’s work to be done.

“This is not a work program, this is a paycheck program,” Mark Hayward, SBA regional director, said in a telephone interview last week.

Matt Spoehr, SBA lead economic development specialist, who conducted Friday’s webinar, said there has been a “tremendous response” to the PPP with millions of applications having been filed by businesses, fully accounting for the initial $350 billion in funding and prompting a second tier of $310 billion approved by Congress last week.

He said the number of applications for funding under the program – which is overseen by the SBA – in the 11 days since it was announced exceeded the number of loans the SBA approved nationwide over the past 14 years.

In a press release issued Saturday, the SBA urged businesses to file for funding as of 10:30 a.m. Monday. In less than 24 hours, the SBA had received an additional 1,200 applications from Rhode Island businesses, Hayward reported Tuesday. The program is administered by banks and credit unions that process applications and in the case of the first round of funding places the funds in business accounts if approved.

“We’re not open,” questioned one of the webinar participants, “what do we do?”

“Bring them back off unemployment, regardless of what work [they’re] doing,” Spoehr said.

Lauren Slocum, president and CEO of the Central Rhode Island Chamber of Commerce, has experienced a steady stream of inquiries since the shutdown and the advent of the PPP.

“What’s most confusing is that if they are not open [and have received PPP funding], is what to do with their employees for the next eight weeks,” she said in an interview Sunday.

She said two chamber members that have found themselves in this situation are looking to change procedures to streamline operations. They are also looking to training and cleaning.

“Those [businesses] getting it [PPP] are thrilled,” she said. “They’ll be ready to go when the economy opens back up.”

She has also heard of cases where employees don’t want to return to work because they stand to make more on unemployment. In those situations, she advises businesses to put their offer in writing and notify the Department of Labor and Training to validate the company’s intent to abide by the program. Employees refusing to return to their jobs are likely to lose their unemployment benefits, she said.

However, as Spoehr made clear during the webinar, the program tracks the number of employees, not their identities. Therefore, an employer can hire different people and meet program requirements, provided there are at least the same number of employees.

“Hire your brother, your cousin,” when queried where to find people on such short notice.

And what about laying off employees after the eight-week program is completed?

Spoehr’s answer was, “Yes, that’s permissible.”

Well versed in the program, Slocum said if companies calculated commissions as part of payroll in their PPP applications, then they can be considered as salary in the expenditure of funds. In the case of restaurants when employees also rely on tips, Slocum said there is a factor that is applied to boost the base pay.


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