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Disaster Loans, and Employee Scenarios

Here’s where we are and what we know from Feds, State, the SBA, and banks about disaster loan money, the Forgivable loan, and answers to typical employee scenarios.

#1. For the disaster loan, the SBA now has a streamlined process. This is electronic and takes about 10-20 minutes with limited information required about you and your business:

This is the longer term loan that I discussed Sunday, and is your first option to consider inasmuch as it can be helpful over a long period of time. It also contains some interest and payment deferral of existing SBA loans, and other provisions to assist in this Federal Disaster. It may provide you more options overall with your existing debt, and should be considered. You are supposed to get a fairly immediately $10,000 advance, then receive instructions via email about how to proceed on this loan application. What will be required we don’t know, and for a couple clients who submitted this on Monday; they do not yet have a reply, nor info on how to proceed.

#2. For your Paycheck Protection Program loan, we still have only sketchy information. In a nutshell, it is a Forgivable loan based on your total payroll and outside contractor payments. So far there is a contradiction on what specific info and time range of data is required to determine the amount – which should be about 2.5 times your average payroll and contractor payment. These funds can be used over the following 8 weeks to pay rent, payroll (and contractor payments), health care costs, and certain utilities. The loan must be taken out prior to June 30.

This loan is forgiven based on your business paying out it’s normal rate of payroll/contract labor over those 8 weeks.

The word from the Feds is that banks should be disseminating the details of the loan this week. I’ve heard from Bank of America, and US Bank, no one else, not even my own bank.

From B of A, we have this:

Although details are still being finalized, some documentation may be required when applying for a program when it becomes available. Based on the legislation, it may be helpful for interested business owners to gather the following information about their business:

  1. 2019 Payroll — including the last 12 months of payroll

  2. 2019 Employees — 1099's for 2019 employees and independent contractors that would otherwise be an employee of your business. (Note: Do NOT include 1099's for services)

  3. Healthcare costs — all health insurance premiums paid by the business owner under a group health plan.

  4. Retirement — your company retirement plan funding paid for by the company.

[Provided courtesy of LifeSpring Chiropractic (Newport Beach CA) and Fermentation Farm]

#3. An actual employee scenario for one small business: (business owner in black, my reply is in blue)

…… I need your advice on all this again regarding the assistants and massage therapist….

a. Billing person: comes in 1/2 time currently and is willing to continue to. Should I just have her apply for partial unemployment?

b. Assistant #1: comes in 1/2 time currently and is willing to continue to. Should I just have her apply for partial unemployment?

The Calif EDD and other States have stated that employees who are working less hours can file for partial unemployment.

The Fed’s Stimulus Plan says that you MUST provide PAID LEAVE for time not worked starting April 1 if the employee is not able to work due to COVID.

Because you are an essential business, and you are open and working, but the work just isn't there -- it isn’t that the worker is not working due to the COVID (as is the case with Assistant #2) – therefore, the partial unemployment applies. Those employees should go back to the first date they became underemployed when they apply for unemployment benefits.

If for some reason, they are denied that coverage (but the shouldn’t be denied), you could back that up with PAID LEAVE from the Feds. You would get a payroll tax credit so be sure to contact your payroll processing company well before you issue your first April payroll, to make sure they don’t automatically pay in all the federal tax. You also have an optional deferral on State employment tax, too. I would suggest you ask the PR processing company how they are handling that for you – again, before submitting an April payroll.

c. Assistant #2: was coming in until mid last week and has struggled with the choice to not come in because of a 3 year old at home and asthmatic roommate. I need to find the best way for her to get wages during this time. SHE WILL RETURN WHEN THE VIRUS IS GONE but what is the best way for her to get money right now? And what do I need to do to ensure that?

You have two choices:

  1. terminate her so she can get full unemployment benefits, even if she has already applied. If you haven’t already, as previously stated I recommend terminating her prior to the COVID effective date of April 1. Remember, the benefit is now whatever each State provides plus $600 under the federal COVID, so for most that will be full pay, or very close to it. If you decide not to terminate her/him, the employee can still get unemployment for these past few weeks, and should apply.

  2. Retain the employee and pay her/him under COVID PAID LEAVE, as indicated above. The employee can also get unemployment for the period not working prior to April 1.

d. Massage therapist: chose to stop coming in as soon as the shelter in place was announced. Will return after virus gone. What should he do? What do I need to do?

If this person was being paid as an employee, see c) above. If this person was paid as a contractor, your business is NOT subject to the PAID LEAVE provisions of the federal Stimulus Bill. He/she, under the Stimulus Bill, is to be treated the same as an employee for unemployment insurance however, and can also apply for unemployment benefits with the State.

Once everything is lifted, I want all these employees to continue working for me and that is their plans as well. So any lay-offs/terminations/etc would be temporary.

Is the Payroll Protection plan just for open business and to cover hours worked etc? Would it be used to cover hours not worked for reduced hours employees?

The PPP loan proceeds can be used for all the expenses mentioned above – but to be forgivable the business must pay out within the 8 week period a similar amount to its normal wages/contract labor for an 8 week period. You cannot use this money to pay COVID PAID LEAVE, and then also take the payroll tax credit.

For all the above employee/contractor scenarios, if you have an HR service, you should consult them for your specific circumstances. Making sure your employees get full pay, either via unemployment insurance when applicable, or the COVID PPP loan, or PAID LEAVE will probably keep you safe from being accused of denying any employee rights. This information is basic information I have gleaned from information that is available to everyone. It is always in your best interest to consult an HR advisor.

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