The CARES Act passed last Friday included a few excellent incentives for small employers to retain their staff.
The “Paycheck Protection Program” SBA 7(a) loan:
The loan is equal to 2.5 times your average monthly payroll costs from the 12 months prior to the loan date. New practices without 12 months of payroll history will base the calculation on the average payroll costs for January 2020 and February 2020. Payroll costs include salaries and wages (up to $100k in annual salary per individual), PTO, group benefits, retirement plan contributions, and payroll taxes.
This loan will be forgiven if your practice:
- Spends more for payroll costs and certain facility costs over the 8-week period following when the loan was issued than the amount borrowed.
- Maintains your staffing levels to at least 75% of the employee count as of the start of the 8-week period.
- Does not decrease the compensation by 25% per individual staff member during those 8 weeks.
The rules allow you to re-hire your staff that have previously been furloughed or laid off and still qualify for the full loan forgiveness. According to the US Chamber of Commerce, “Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.”
Please read the US Chamber of Commerce guide at: https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final_revised.pdf
A good strategy if you have already furloughed or laid off your staff:
- Work with your bank (or another bank that can help you out) to get everything in order for this loan.
- As soon as you can safely open your office, rehire your staff. The sooner you hire them after 4/26, the better the calculations will work out for you. (4/26 is 30 days after the enactment of the CARES Act.)
- Take advantage of this loan to pay your staff’s salaries for the first two months back at work
- Following the 8-week period, file the paperwork with the bank to get the loan forgiven.
Please note that the amount of the loan to be forgiven will be reduced by the $10k EIDL grant if you receive that grant from the SBA. (Economic Injury Disaster Loan)
When you rehire your staff, plan to defer your staff’s matching Social Security taxes until 2021 & 2022.
Currently, your employees have Social Security taxes withheld from their pay at a rate of 6.2% and your practice matches those taxes. Under the CARES Act, employers can defer paying the 6.2% match for the remainder of the year. Those deferred taxes will then be paid in equal installments over 2021 and 2022.
This tax break is not available to employers receiving assistance through the Paycheck Protection Program detailed above.
Take advantage of a tax credit of up to $5k per retained employee if your practice is still open and revenue for Q2 2020 decreases by more than 50% from Q2 2019.
This tax credit of up to $5k per retained employee is available to employers whose operations are suspended due to the pandemic or whose practice revenue declines by more than 50 percent from the same quarter of the prior year. You would file for this valuable tax credit on your quarterly payroll tax forms filed.
The credit is not available to employers receiving assistance through the Paycheck Protection Program.
Lots more info about financial topics related to the Corona virus pandemic is available at: https://www.schwartzaccountants.com/covid19resources/