Morning Update - April 2
FAQs on the PPP and some info on "monetary eligibility" for unemployment
Good morning,
Today feels a little bit like a pause in the action: Federal aid will start flowing really soon, but it’s not flowing yet. There’s a lot of pent up energy to apply for things, but applications aren’t open yet. And after the Small Business Administration’s update late on Tuesday, there was no real additional news yesterday for small business owners or their teams. So today, I’ll loop back on a couple of frequently asked questions from yesterday’s Paycheck Protection Program (PPP) overview and add some additional thinking about timing on PPP loans. Finally because we just entered a new calendar quarter with the beginning of April, I’m going to finish up today’s round-up with some information on monetary eligibility for unemployment.
The information below is accurate to the best of my understanding as of April 2 at 6am and is very much subject to change as the SBA releases additional guidance and expanded unemployment benefits become available.
Am I eligible for a PPP if I have a seasonal business that was not operating on February 15?
I had a number of seasonal business owners reach out to me after yesterday’s update, asking about PPP eligibility. There is good news on this front. If you’re a seasonal business that operated in 2019, you have not been forgotten! You can calculate your maximum loan amount based on 2.5 times your average total monthly payroll costs for the 12-week period beginning either February 15, 2019 or March 1, 2019 (borrower’s choice). There may be other nuances that will impact seasonal businesses in particular, so I recommend talking with your lender and also reaching out to the Maine Small Business Development Centers for advice.
How is average monthly payroll cost calculated for the PPP?
As I mentioned yesterday, there’s some clarity in the statute regarding calculation of average monthly payroll costs, but also some important unanswered questions. Here’s a run-down.
You can include:
The sum of payments of any compensation with respect to employees that is a:
salary, wage, commission, or similar compensation;
payment of cash tip or equivalent;
payment for vacation, parental, family, medical, or sick leave
allowance for dismissal or separation
payment required for the provisions of group health care benefits, including insurance premiums
payment of any retirement benefit
payment of state or local tax assessed on the compensation of the employee
You must exclude:
Compensation of an individual employee in excess of an annual salary of $100,000
Payroll taxes, railroad retirement taxes, and income taxes
Any compensation of an employee whose principal place of residence is outside of the United States
Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act; or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act
The statute also specifies that for sole proprietors, independent contractors, and self-employed individuals, average monthly payroll costs can be determined based on the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.
As I mentioned yesterday, it remains unclear is how exactly working owner compensation at partnerships and LLCs taxed as partnerships is to be factored in to these equations. I read a Washington Post article this morning that asserted that additional guidance would be available on this topic – perhaps as soon as tomorrow.
When should I apply for the PPP?
The SBA has announced that applications for small businesses can start as early as tomorrow and applications for sole proprietors and independent contractors should be available next Friday. Yesterday, I counseled a little patience with regard to applying for the PPP and noted that there may be some advantages to having your loan disbursed a bit later. The advantage would come because the forgivable expenses you pay during the 8 weeks following loan disbursement are the measuring stick for how much of your loan gets forgiven. With us all in stay-at-home mode for at least another month, timing the 8 week period to coincide with a period of higher expenses once your business is more fully operational again may make sense. But then I read more guidance from the SBA that urged folks to apply right away because there may be a limited amount of guaranteed money available and lenders will need time to process applications. I was frankly surprised to hear this – particularly for a program where the rules have not yet been written. But I did want to make sure to share it with you here. I urge you to reach out to your lender, start the process early, and seek their counsel as to the timing of your loan disbursement.
New Quarter, New Hope: Monetary Eligibility in Unemployment
I’ve heard from lots of folks who were laid off over the last couple of weeks and are still struggling to get their unemployment claims to go through. There are lots of different reasons this might be happening, but one frequent reason is what’s called “monetary eligibility.” Here’s how it works: unemployment benefits are based on the idea that your employer has paid in money on your behalf – it’s an insurance program so they are effectively paying your “premiums.” The employer pays in as a percentage of your earnings, so in order to be eligible to receive benefits, you have to have earned enough money so that your employer has paid in a threshold amount on your behalf. That’s the theory of monetary eligibility.
Here’s the rather confusing way it works in practice. To be monetarily eligible, you have to meet two tests:
1) You earned more than about $1700 per quarter in each of two completed calendar quarters out of the preceding five completed quarters, and
2) You earned more than about $5000 total in four of the most recent consecutive calendar quarters.
So why does this matter today? Well, completed calendar quarters are what counts. As of this week, we will have a new completed calendar quarter to look back on, which can make lots more people monetarily eligible.
An example might help: let’s say you had been a student until last fall and then you started a new job in late September – your first job in a while because you’d been in school. September was in the third quarter of 2019 and since you only worked for a couple of weeks at the very tail end of the quarter, you didn’t earn $1700 in that quarter. Then you worked throughout October through December (the fourth quarter) and from January through mid-March of 2020 (the first quarter), and then you were laid off. You earned well over $1700 in each of those two quarters and well over $5000 total so far at your job. Nonetheless, your unemployment claim would likely have been denied last week (or hung up as “pending monetary eligibility”) because the earnings from January through March can’t count toward eligibility until the quarter is complete. So as of next week, you may be eligible for benefits that you were not eligible for this week.
It’s also important to note that the expanded federal unemployment relief that was included in the CARES Act may loosen these requirements. That federal unemployment expansion has not been implemented yet, but the Maine Department of Labor is working on it. So even if the end of the calendar quarter doesn’t fix the glitch that has made you ineligible, the expanded federal programs might help even more. That will likely take another week or two to implement, and I’ll update here when it’s ready to go.
While the unemployment office’s phone lines are still jammed this week, you can leave an electronic message on the unemployment office’s messaging system (which will log the date you reached out and ensure that your benefits due are paid retroactively if customer service is slow) and you can also call the Career Centers for help navigating all of this.
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As the cold rain pours down this morning outside my windows, I’m reminded that “April showers bring May flowers.” So hang in there.
Be well.
With love,
Heather
P.S. Best way to contact me with questions is heather.sanborn@legislature.maine.gov
P.P.S. You can subscribe to these updates at heathersanborn.substack.com.