Important PPP update for 2021
On December 22, 2020, Congress passed a bill renewing funding under the CARES Act, including an additional $284 billion earmarked for America’s struggling small businesses. The rules and application process for PPP loans and forgiveness have been modified, with more businesses eligible for PPP loans, more expenses forgivable, and a simplified application process.
In this 5-minute read:
- Tips to avoid layoffs during COVID-19
- How can Paycheck Protection Program (PPP) loans help?
- Seek out other emergency funds
As a business owner and employer during this crisis, you are likely feeling the all-too-real responsibility of determining whether or not you can keep paying your employees. Whether your business is considered non-essential and required to close or you simply don’t have the demand to keep your entire staff busy and employed, it’s becoming a global problem.
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Fortunately, there are programs and organizations that are working to ease the burden on business owners and their employees in order to keep the national economy moving forward.
But first, there are some things that you, as the business owner, can do to help your employees (either while waiting for your Paycheck Protection Program loan check to come in or to avoid pulling out a loan altogether).
Tips that can help your business avoid layoffs during COVID-19
Before applying for a loan or deciding to cut back your staff, discover if there are other things you can do within your organization.
Find other ways to save money
Your staff should not be the first thing to go when money starts to get tight. You need to get creative and find unnecessary items—or less necessary items—in the budget that you can cut.
This might be things like office lunches, coffee runs, petty cash, gift cards/sales bonuses, or other employee perks that you offer. All these things are great for employee morale, but sometimes sacrifices have to be made under dire circumstances.
Think hard about every place you spend money, and make the tough call.
Get your employees involved
Having trouble thinking of ways to cut back? Get your employees involved. Those that run your business day in and day out likely have some good ideas on what your business can cut back on for a few months while trying to keep them paid.
This will help when it comes to cutting budgets on things that build morale, especially if the idea comes from your employees. This also shows your employees that they are the priority, and they’ll likely respond with increased loyalty in the future.
Review all your options
Depending on where you are located and the nature of your business, you might have to make cuts that you and your employees are not happy about. That’s just the reality of the situation.
But before laying off employees, consider some of the less obvious options that may just allow your staff to keep their jobs.
You might drop your staff down to a 4-day work week, saving 20% of the staffing costs. Yes, their paychecks will likely be less, but if you can manage it, this might save their jobs, and in this market, that can be a win.
Keep open communication
Keep your staff informed of any decisions you make in regards to budget cuts and their jobs. Let them know that they are important and you want to do your best to keep them employed through this crisis.
Allow your staff members to voice their concerns to you and to share their ideas.
Be willing to ask for financial help
It’s time to face the music. You might not be able to get through this crisis alone. If you can, that is wonderful, but many business owners are going to need financial help during this pandemic, and that’s okay.
There are programs and organizations out there ready to help you find the assistance you need to help keep your business running and your staff employed. The biggest source of help right now can be found with the SBA’s Paycheck Protection Program.
How can the Paycheck Protection Program help keep my staff employed?
The federal government recently signed the CARES Act into law, which budgeted $349 Billion in federal funding to allows individuals, families, and business owners to receive financial assistance during these unprecedented times.
Under the CARES Act, business owners can apply for Paycheck Protection Program (PPP) loans that will help them keep their business running. Even if you have to close your doors, this financial aid can be used to keep your employees paid so that you have someone to return to your store or business when things get back to normal.
Each business can acquire a PPP loan up to 2.5 times their average monthly payroll (not to exceed $10 million for first-draw PPP loans, and $2 million for second-draw PPP loans). The idea is to help your business pay essential bills and keep your staff employed.
Note: For 2021, businesses in NAICS category 72 can apply for 3.5X their average monthly payroll for second draw loans only.
The best part is, if you hire back employees you’ve had to let go recently due to the coronavirus crisis, keep your current levels of employment and compensation, and use your money for approved PPP business expenses, the loan becomes forgivable. In other words, you don’t have to pay it back… ever!
Want help applying for a PPP loan or finding the right loan provider? Check out this article: Who can help me get an SBA / PPP emergency stimulus loan?
Seek out other options for emergency funds
You might be able to find additional assistance in the case of the COVID-19 crisis that can help you keep your employees on your payroll.
Beyond the PPP, the SBA offers other emergency loans during times of crisis.
You can also find organizations that are offering quick loans and grants to help business owners during this time.
Check out Emergency funding options for small businesses for more ideas.
Important note for 2021: the requirement to “restore former employment levels” has been dropped
What if I couldn’t keep my employees, they quit, or refused to be rehired? Can I still qualify for loan forgiveness?
For 2021, there are certain exceptions to the “maintaining employees levels and compensation” rule.
If you received a PPP loan of $50,000 or less
If you received a PPP loan that was $50,000 or less, you are exempt from having to maintain your employee and compensation levels in order to receive loan forgiveness. Your loan must still be spent on approved costs and you will still need to document that you spent at least 60% of your funds on payroll expenses.
An employee quit, retired, or was fired (with just cause), or refused your offer to be rehired
If your loan amount is greater than the $50,000 loan threshold but you couldn’t maintain employee levels due to someone quitting or being fired with just cause, then you can still qualify for full loan forgiveness. You can also get full loan forgiveness if you have written proof that you offered to rehire employees, but they refused your offer (if your offer was at their former pay). But, it’s very important that you document each of these instances so that you can verify this when you apply for loan forgiveness.
You’ll need documentation to explain why your employee was fired or other supporting documents to verify an employee’s termination or their refusal to be rehired.
If I apply for my first draw PPP Loan after December 27, 2020, do I still need to restore payroll or headcount to previous levels in order to receive forgiveness?
No. PPP Loans received after December 27th, 2020 are not required to “rehire” any employees in order to receive forgiveness. You will, however, need to maintain current payroll levels during the forgiveness period. (Exceptions to this would include employees who resign or are terminated with cause).
If you’ve kept those requirements for the 8 (or 24) weeks after you received your PPP loan, at that point you may apply for loan forgiveness through the lender that serviced your loan.
In order to request any amount of forgiveness on your loan, you will need to verify that your loan was used for the required expenses, which means you’ll need documented proof.
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