Small Business Advisory to clients of Gonzalez and Associates, P.C.

2020 is going to be a trying year. We know this. Already we’ve seen shuttered businesses be pushed to the brink of insolvency. Many of our self-employed clients have reported fears of steeply decreased incomes, if not nonexistent ones. The CARES Act, passed into law earlier this week, was meant to staunch some the financial hemorrhaging small businesses are experiencing, and some economic relief in the coming months of this pandemic. In combing through the fine print of the Act, relief may very well be on the way, but the avenues through which it will be conveyed remain clouded with uncertainty. Many of the new program stipulations remain unclear. As yet, the federal government has continued to unleash a flurry of clarifications concerning over-vague policies introduced in the Act.

All that is to say, what we’re presenting here is what concrete information we could extrapolate from the CARES Act’s text, combined with our own interpretation based on that information. Many of the changes are fluid, and will likely remain so; this is, after all, an emergency bill. There will be kinks to work out. There will be knots to massage. As that happens, we will continue to update this advisory, and offer new informational content to serve as a resource. 

For the out-of-work:

Firstly, if you are self-employed, an independent contractor, or a small business-owner, and you’ve lost work because of the coronavirus’ spread, if you’re a realtor unable to organize showings, a public speaker whose events were cancelled, or a photographer or caterer unable to find work due to social distancing requirements, you are entitled to unemployment benefits. Most states exclude independent contractors and the self-employed from collecting these benefits. Massachusetts, where many of our clients are based, is no different. But the federal government has issued a mandate to each state, in the form of several billion dollars, that you are all now entitled to collect these benefits. There are unfortunately, two hitches.

  1. The first is that this mandate DOES NOT ENTITLE self-employed persons and independent contractors to collect ordinary unemployment benefits. The benefits that you are entitled to collect are provided by the federal government (through state unemployment insurance agencies), meaning that at most you can only collect the maximum $600/week.
  2. The second hitch is that, at the moment, most state governments are still coordinating disbursement issues with the federal government, which could take several weeks. Massachusetts has said it hopes to be ready to field applications sometime next week.

Either way, the funds have been allocated to cover self-employed persons and independent contractors, and should be available to you soon. Several other quick items:

  • Once made available, self-employed persons and independent contractors are entitled to collect
  • Extended benefits may also be available for another 39 weeks, through December 31, 2020
  • There are only two groups of people explicitly excluded from collecting unemployment benefits of any kind:
    • Employees with the ability to telework/work from home with pay
    • Employees receiving paid sick leave
  • Collecting these unemployment benefits will not exclude you from also receiving the planned $1,200 stimulus check the CARES Act has allotted.

For those who own a small business, and have remained in operation:

I. Compensation
  • Be aware that, unless suspended, federal and state workplace laws still apply (OSHA, DOL, etc.)
  • If, in the unfortunate event that employees need to be laid off, they must be paid their earned wages and any accrued vacation time on the day that they are laid off, unless the layoff is temporary and they agree to defer the compensation until a later date.
  • If your business is forced to cease operation, compensation must be paid on the day of the shutdown, or within 6-7 days of the pay period.
  • Employers can require their employees to stay out of work if:
    • They show symptoms of the coronavirus
    • They have family members with whom they share daily contact showing symptoms of the coronavirus
    • They have family members who have been exposed to the coronavirus
    • They have the coronavirus, and are too sick to work
  • If shifts for workers are staggered or split, care must be taken to ensure overtime pay rates and required meal/rest periods are complied with.
  • Rules of confidentiality still apply to employee medical conditions, even in the instance said employee is exposed to or contracts the coronavirus.
II. Working from Home
  • Transitioning employees from working in the office to working from home can be tricky, and can end up costing employers if the proper infrastructure isn’t in place.
    • Pick-ups, drop-offs, and check-ins should all be accounted for and time-logged
    • As should guidelines for what constitutes work and personal time
    • This may seem intuitive, but when working from home, the lines between what does and does not constitute “business hours” can quickly become blurred, especially for hourly (non-exempt) employees
      • Driving to an office’s storage space to retrieve documents and then driving home should be classified as “business hours”
      • Stopping while on the way home from said storage space to stand in line at a Dunkin Donuts for fifteen minutes shouldn’t be classified as “business hours”
      • Determining what constitutes commuting expense should also be considered in the same vein as “business hours”
    • Deadlines and benchmarks should be established for salaried employees to ensure productivity and accountability
  • Liability should also be given due consideration
    • If the work you do involves sensitive client information (medical records, social security numbers, etc.) it is important to consider whether or not the risks of working from home outweigh the benefits
    • To mitigate potential data breaches, ensure employees working from home are operating with:
      • Secure wireless connections
      • Encryption-enabled e-mail
      • Secure, insured file-sharing platforms(no Googledocs)
      • Adequate home security
      • Employers should ensure that the home workspace is safe, or they could be exposed to worker’s compensation claims
III. SBA Paycheck Protection Program(PPP)
NB: The SBA’s Paycheck Protection Program(PPP) is the financial relief service we’re most recommending to our clients that are still in operation, and hoping to continue to do so. There are some strict stipulations about what costs their loan moneys are to be spent on, which we will cover, but it offers far more amenable terms than those of the Economic Injury Disaster Loans(EIDL), while having similar requirements for applicants.
  • They provide 0% interest loans up to $10,000,000
  • Loans are available to cover:
    • Payroll and payroll taxes
    • Health benefits
    • Rent or mortgage interest
    • Utilities
    • Interest on any business loans incurred pre 2/15/20
  • Up to 8 weeks of payroll, mortgage interest, rent, and utility costs can be forgiven
  • Loan forgiveness amounts decrease if:
    • Full-time employee headcount is decreased
    • Salaries and wages are decreased by more than 25% for any employee that made less than $100,000 annualized in 2019
    • June 30, 2020 is the cut-off to restore full-time employment and salary levels for any changes made between February 15, 2020-April 26, 2020
  • Any remaining principal is subject to a 4% interest rate over a 10 year period
  • Payroll costs are capped at $100.000, annualized for each employee
  • Loan payments will be deferred for six months
NB: Loans will not be forgiven if any of the amount is used for anything other than payroll costs, mortgage interest expenses, rent, and utilities payments over the 8 weeks after receiving the loan. You will owe money.
  • Applicants must be, among several other stipulations, either:
    • A business that doesn’t have more than 500 employees
    • An individual who operates under sole proprietorship, with or without employees, or as an independent contractor
  • Businesses that receive loans through the PPP are prohibited from paying dividends or repurchasing stock while the loan is outstanding, and for 12 months after the loan is repaid
  • Loans will not require repayment for the first six months
  • Under the CARES Act, amounts forgiven by the PPP are not treated as “cancellation of debt” income, but are altogether excluded from gross income for U.S. Federal tax returns, and possibly from the states as well.
IV. SBA Economic Injury Disaster Loans (EIDL)
  • Unlike the PPP loans, the SBA does not offer 0% interest rates or cost/loan forgiveness for EIDLs
  • If an EIDL is taken, borrowers CAN apply for PPP forgiveness stipulations
    • It is no guarantee that an applicant will receive PPP forgiveness stipulations for their EIDL, however, so it is a safer bet to outright apply for a PPP
  • EIDLs are available to small businesses, independent contractors, and self-employed persons
  • Approvals can be predicated solely on an applicant’s credit score, or other alternatives that gauge their ability to repay the borrowed amounts.
  • These loans do not offer 0% interest rates or cost/loan forgiveness
  • Instead, the interest rates are 3.75%
  • EIDLs are available to small businesses, independent contractors, and the self-employed, much like the PPP,
  • Offers also a $10,000 advance within 24 hours of applying for the loan, whether it is approved or not
  • The advance does not need to be repaid if the loan is declined
    • It remains unclear how the $10,000 advance will be treated tax-wise
  • If the loan is approved, the $10,000 advance is treated as part of the loan, and has to be repaid
  • Borrowers can still apply for PPP if they have applied for and received an EIDL, but the amount they have received from the EIDL will decrease the PPP’s available loan amount
  • Applications for the EIDL are currently ongoing, and can be processed directly through the SBA website
V. Employment Retention Credit
  • This is a credit that is available to be claimed by employers on one of two conditions:
    • If employers have continued paying employees during such periods that their ordinary place of business is inoperable (i.e. during a statewide shutdown)
    • If the gross receipts earned in a quarter have declined by more than 50% comparative to the same quarter of the prior year
  • It CANNOT BE TAKEN if utilizing a PPP loan
  • The credit is calculated on a maximum $10,000 of salary, including health benefits
  • Good for the period 3/13/20 through 12/31/20
VI. Employer Payroll Tax Delay
  • A section of the CARES Act allows for employers and self-employed individuals to defer payment of their portion of social security tax on employees’ wages.
  • Can be broken into two installments, with 50% due on 12/31/21, and the other 50% due on 12/31/22
  • Employers utilizing the SBA payroll loans are excluded from electing this deferral
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