- Posted by admin
- On April 21, 2020
- 0 Comments
Your business received the Paycheck Protection Loan. Now what? Do you rehire employees you furloughed or laid off? Do you use the money to pay rent on your office space?
There are a few different loans offered by the Small Business Association in response to Coronavirus, so the first step you should take is to read the fine print on how your loan works.
Many businesses have lost revenue due to the pandemic, whether you had to close your doors temporarily, or if you’re working remotely but lost clients, customers, and so on. Now that you’ve received loan money, you may be unsure how to handle it. We’ll break down the best plan for using your loan, specifically the paycheck protection loan.
How Does the Paycheck Protection Program Work?
The Paycheck Protection Program is a part of the CARES act that gives loans to small businesses so that they can retain or rehire employees, cutting down on unemployment. If you received a loan through the Paycheck Protection Program, some or all of that loan should be used to retain your employees, or to rehire employees that you laid off or furloughed in response to covid-19.
The Paycheck Protection loan must be used for payroll costs (which can include employee compensation, healthcare coverage, retirement benefits, and unemployment taxes), rent, mortgage, or for other loan interest or utilities.
If you use the loan for these permitted purposes, some or all of the loan will be forgiven. The loan money that is forgiven will also be excluded from your federal taxable income.
To receive loan forgiveness, you must either retain employment levels or hire back those that were let go. If you reduced your workforce after February 15th, they must be rehired back to the same number of employees by June 30th, or you may face penalties that prevent the entirety of the loan from being forgiven.
Only 25% of the loan money allocated to your business can be used for non-payroll costs – anything over that 25% for things like rent or utilities will not be forgiven.
Be sure to follow the loan details as closely as possible to avoid any legal fallout, and to ensure that as much as possible is forgiven.
How To Rehire Employees
If you laid off or temporarily furloughed employees due to the pandemic, the loan should help cover costs to rehire them. But how do you go about rehiring employees?
Consider What is Best for Your Business
If your business does not need to rehire those that were laid off, or if you are attempting to game the system by rehiring – don’t. You should rehire those that you need, but do not hire back employees simply to receive forgiveness for a higher percentage of the PPP loan. You can, however, use the loan money to rehire employees and offer them paid leave while your business is closed or scaled back. For some businesses, it may be more beneficial to allow former employees to receive unemployment benefits.
Hopefully, you were tactful and compassionate in how you let your employees go so as to not burn any bridges. While businesses are still hiring through covid-19, finding a job right now is likely difficult. This means that your former employees may be happy to return to their jobs, even if it means working remotely.
When rehiring employees, be transparent about their pay, expectations for work while social distancing continues, and how they’ll be transitioned back in both the immediate sense and once your business is fully open on-site in the future.
If you’ve kept close contact with employees after letting them go, hiring them back should be easy – you may have even let them know that you were looking into loans for just that purpose. Still, rehiring employees shouldn’t be casual. Give them an offer, with specific terms of employment, benefits status, a start date, and details about what has changed since they left in light of the health crisis.
Implement Safety Procedures
While your business may be getting back on track, the pandemic is not over yet. Even post-pandemic, safety practices will likely be forever changed. If your company can work remotely, continue to do so and instruct rehired employees to do so until further notice. If your business is essential and operating on-site, be sure to set new safety and cleaning procedures to protect employees and customers.
When applying for loan forgiveness later, you will have to provide documentation to show how the loan was used and prove that it qualifies for forgiveness. No one has gone through this process yet – loans just started being allocated this month – but it’s best to be prepared.
Keep detailed records showing where the loan money is allocated. You may consider setting up a separate business account so that loan money is not mixed up with other funds. Only use that account for forgivable expenses. However you choose to record your use of the loan, make sure there is a clear tracking system to prove later that the money was used appropriately.
Read the fine print and follow all loan requirements to get your business back on track. Need help hiring? Contact TalentFlex Solutions for advice and assistance recruiting top talent.