DWH has worked successfully to qualify clients to receive Paycheck Protection Program Loans from the SBA.  Now that many have received the loan proceeds, we asked Jeremy Reidy (https://www.btlaw.com/en/people/offices/fort-wayne/jeremy-reidy) with Barnes and Thornburg to address the most frequent follow-up questions about the PPP he is receiving from clients. 

PPP Loans & Payroll Considerations

Q: When does the 8-week period for determining the amount eligible for forgiveness begin?

A: The 8-week period starts on the date of the first disbursement of funds. 

Q: What is the formula for determining the amount of any reduction in the amount of forgiveness based on a reduction in the workforce?

A: The numbers of full-time equivalent (“FTE”) employees are to be calculated by pay period. A salaried employee would count for the pay period in which he/she was hired. If the salaried employee was hired on the first day of the pay period, you could divide one by the number of days in the period and count that employee as that pro-rated amount. If there are two pay periods in a month, the average for each pay period is added together to arrive at the average number of FTE employees for the month. Then the months’ averages are added together to come up with the monthly average for the applicable period.

Q: What if we rehire employees after the 8-week period, but before June 30, 2020?

A: Here is an example of how the amount of forgiveness would be determined with respect to employees rehired after the 8-week period has begun (for purposes of the example assume we averaged 96 FTE employees from 1/1/2020 to 2/29/2020 and we average 71 FTE employees during the 8-week period):

[Actual amount of payroll costs incurred and rent, utilities, and mortgage interest paid during 8-week period post-loan (“Eligible Amount”)] multiplied by ⁷¹/_96.

Or to put another way: Eligible Amount multiplied by 74%

Then to the extent that you rehire any of the differences between 96 and 71 before June 30, 2020, the amount of reduction will be disregarded. So if you rehire 5 FTEs between the end of the 8-week period and June 30, your forgiveness would then be determined by multiplying the Eligible Amount times ⁷⁶/₉₆.

Q: If we do not use 75% of the proceeds for payroll costs during the 8-week period, do we lose the possibility of any forgiveness?

A: No. The 75% standard is not an all or nothing proposition. Rather, only 25% of the loan forgiveness amount may be attributable to non-payroll costs. The amount eligible to be forgiven is determined by adding the actual payroll costs incurred, and utilities, rent, and mortgage interest paid during the 8-week period. The amount of eligible forgiveness will be reduced until the forgiven amount has not more than 25% attributable to other allowable costs. For example, if you spent $100,000 during the 8-week period, but only $50,000 was spent on payroll costs, then only about $67,000 would be forgiven.

Q: Does the PPP impose any restrictions on a PPP recipient’s ability to reduce its workforce or employee compensation?

A: No. Reductions in workforce and compensation may result in a reduction of the amount forgiven, but there are no restrictions on the ability to reduce workforce or compensation.

Q: My business has received a PPP loan, but still has a significant cash burn in the coming months. What payroll reduction options do we have, and what are the trade-offs between these options? Will we maintain loan forgiveness eligibility?

A: If you still need to mitigate cash burn, you have several options that will keep you eligible for at least some PPP loan forgiveness:

To the extent you reduce the workforce through a temporary layoff, furlough, or reduced hours, the amount you will be eligible to have forgiven will decrease. Remember, the amount you will be eligible to have forgiven is determined by your actual costs incurred and paid during the 8-week period beginning on the date funds are received. The amount of forgiveness will also be reduced to the extent your workforce during the 8-week period is lower than your workforce during either the period from 2/15/2019 through 6/30/2019 or from 1/1/2020 through 2/29/2020. With respect to reduced compensation, the amount of forgiveness will be reduced by the amount that any employee’s compensation was reduced in excess of 25% from the first quarter of 2020 to the 8-week period. If an employee is laid off, the employee can collect unemployment. The employer can continue to pay its portion of health insurance premiums and other benefits, all of which can be counted as “payroll costs” for purposes of calculating the amount eligible for forgiveness.

Q: If I have excess PPP loan funds available, how do I best utilize these funds to maximize loan forgiveness?

A: If your intent is to maximize loan forgiveness, you may pay bonuses, increase the workforce, or increase compensation in order to take full advantage of forgiveness. One possibility is to provide incentive pay for workers to come back while there is still some risk caused by the pandemic. The incentive pay would be forgivable. The amount eligible to be forgiven is determined by adding your actual payroll costs, utilities, rent, and mortgage interest during the eight weeks beginning on the date of the first disbursement of funds. The forgivable amount can be reduced by a reduction in wages under certain circumstances, but there is nothing the prohibits or penalizes you for wage increases.

Q: Do we still qualify, and can we get forgiveness if we laid off all of our hourly employees even if they are currently collecting unemployment benefits and waiting to be called back to work. 

A: You do not have to be paying all of your employee’s wages in order to qualify for the loan. One of the main purposes of the loan, though, is to encourage businesses to put their employees back to work. The number of employees you bring back will affect the amount you are entitled to have forgiven.

Q: We do not know what our production volumes will look like as things slowly return to normal. How can I be most effective in rehiring labor through the volatility?

A: Bring back your workforce in stages. You can start to bring some employees back on the date you receive funds, then see how things progress before bringing more back. Remember, the terms of the unforgiven portion of the loan are incredible: two years, 1%, unsecured, and with no personal guarantees.

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Please note, a free PPP Loan Forgiveness Calculator can be found “HERE” through the DWH website.

These Q&As are provided for informational purposes only and are not intended to provide legal advice; please consult with legal counsel for advice related to your specific circumstances.

Like any government, a tribal government’s sole purpose is to provide essential services to its members to ensure the preservation of their way of life.  Unlike most governments, tribal governments do this through multiple funding sources, which include public funding (grants) and private enterprise (Casino’s, Economic Development Companies, and Natural Resources).  Given the broad impact the COVID crisis has had on these sources, DWH has compiled a list of considerations that tribal governments should address during these turbulent times.

COMMUNICATION

While communication with all stakeholders is always important (investors, creditors, customers, vendors, and employees), during this crisis, tribal governments need to first and foremost establish a consistent and reliable communication method with its membership.  Communication should include:

• • The actions the tribal government is taking to mitigate the spread of the COVID virus and any actions the tribe recommends members take.
  • The current state of the tribe and its finances, detailing risks and potential pressure points.
  • Outlining the actions that will need to be taken to support key Tribal funding sources (such as a casino operation) and the timing of those actions.
  • Details on relief efforts, programs, and stimulus monies individual Tribal members will qualify for (including how to go about accessing those funds).
  • Actions the tribe is taking to try and reduce the impact on daily life and key programs.
  • Outline any reductions in non-essential government spending and where cuts are likely.
  • How and where access to necessary health care can be obtained.

PLAN FOR BUSINESS OPERATIONS

All businesses should have a COVID 19 response leadership team comprised of executive leadership, Finance, Operations, and Human Resources.  Tribal governments should do the same.  This “cross-functional” team should be meeting daily to discuss:

• • Communication with key stakeholders on the current state of the tribal government, its members, and any investment entities.
  • Review of cash flow, including all inflows from grants and changes to grant funds usage based on recent updates from the Office of Management and Budget (OMB).
  • Review alternate funding sources, including available lines of credit, SBA Payroll Protection Program, and other grants or guaranteed loans.
  • Updates on employment needs, including updates on programs for laid-off employees and communication with those employees about the potential for rehire.
  • A review of cash flow projections, the status of any Accounts Receivable, and necessary payments to key vendors.
  • Communication with and analysis of suppliers & vendors, communication with, and analysis of end customers.
  • All tribal investments (especially casino operations) should be assessing potential recovery levels of the operations and developing plans for reopening once the pandemic is under control.

OTHER ACTIONS TRIBES CAN TAKE

Surviving this crisis will require effective management of the tribe’s balance sheet.  Tribes will also need to maintain liquidity to ensure that necessary payments are being made and services are maintained.  Tribes also need to ensure there is enough capital remaining to restart any suspended operations once things begin to return to “normal.”

Tribal entities can take many actions besides laying off members of the workforce, suspending services, and shuttering operations to preserve liquidity.  The recently passed CARES Act outlined several programs for tribal businesses and tribal governments.  Additionally, there are ways tribes can work with their bank to modify existing credit facilities, provided the tribe can demonstrate a need and outline a plan on how the requested modifications will help ensure survival.

CARES Act – Apply for the SBA Payroll Protection Program – 500 or fewer employees

As part of the CARES Act, the SBA is authorized to provide $350 billion in forgivable loans to help support small businesses through this cycle.

• • These loans are meant to cover payroll, rent, utilities, and interest payments for up to 8 weeks. Up to 100% of the loan could be forgiven if the borrower meets specific guidelines (there are limitations for non-payroll expenses and timing on the use of funds).
  • Applications began with most Banks and lenders on Friday, April 3, and it is recommended that borrowers work with their existing bank to apply and submit applications as soon as possible.
  • Tribal Entities are eligible for the program; however, issues still remain and clarification is needed from the SBA on:
    • Are gaming entities eligible? They are not eligible under the traditional SBA 7(a) program.
    • How should tribally owned entities who do not have a separate EIN (operating as a Tribal Authority or d/b/a) apply for multiple entities? If the tribal entity is chartered under a State or Tribal UCC, or a Section 17 entity, then this concern will not apply.
    • It is highly recommended that tribes work with their legal counsel and CPA’s to determine how to proceed with each unique situation.
  • Program is limited to companies with less than 500 employees; however, tribal entities have been excluded from the Affiliation calculations so each individual tribal business should be able to apply on its own without having to aggregate employee counts with other tribal entities.

CARES Act – Loan Guarantee Program – 500 to 10,000 employees

As part of the CARES Act, the Federal Government approved a $500 billion Federal Loan Guarantee program through the Federal Reserve Board (FRB).

• • $46 billion of these funds are set aside for specific industries such as airlines. The remainder will be open to all industries as long as the companies that are applying meet the requirements.
  • Tribal Casinos and Businesses should be eligible for these loans; however, the Treasury has not listed the full requirements or rules for this program at this time.
  • The processing of these guarantee programs has not been defined either, but clarification is expected in coming days. The FRB was authorized to hire financial intermediaries to operate the newly approved facilities (likely through the existing banking system), which will ultimately define the process for this program.
  • Like the Payroll Protection Act, these guarantees are intended to back loans to keep employees and operations functioning as they were before the COVID 19 crisis. UNLIKE PPP, these loans will NOT be eligible for forgiveness.
  • Like the TARP and HARP programs before it, this program will also come with restrictions, not all of which apply to Tribally owned businesses:
    • Limits a corporate entity’s ability to declare dividends or repurchase stock and permits the government to take warrants or other securities that will eventually be repaid (not likely to apply to tribally owned entities).
    • Companies must make a good faith certification that they will maintain 90% of their current workforce and, if applicable, restore 90% of their workforce as it existed on February 1, 2020.
    • Recipients that are listed on national exchanges will also be restricted from paying dividends to common shareholders and from abrogating collective bargaining agreements (seek input from legal counsel regarding casino distributions to tribal government).
    • To qualify, recipients must certify that they require the loan due to the uncertainty of economic conditions.

Work with Creditors

Casino operations and other tribally owned businesses need to be in constant, proactive communication with their banks and their other creditors (https://dwhcorp.com/covid-19-advice-bank/).  Each business owned by the tribe needs a detailed plan that includes:

• • A detailed rolling 13-week cash flow model,
  • A list of actions being taken to reduce cash disbursements and increase cash receipts,
  • Any planned injections of capital,
  • Any programs, such as SBA lending that are being pursued,
  • Calculations of required capital to start-up operations once the operations are permitted to reopen,
  • And an estimated ramp-up period or analysis of the potential reduction in revenues based on coronavirus outbreaks (will business return to normal or will it come back at a lower run rate for an extended time).

The plan should be created before requesting any modifications to loan agreements, changes to payment terms, or increases in availability.

OTHER KEY SUPPORT AREAS FOR TRIBES

The CARES Act authorized many different programs to assist tribal governments.  We have included a list of the named programs and our current understanding of the mechanics of each program.  We strongly encourage tribal governments to work with their legal teams and government agencies (such as BIA and HIS) to assess these programs and their applicability to each tribe.  If needed, DWH can provide references to our network of trusted partners.

• • Unemployment and FMLA benefits were increased, and certain tax credits were provided to offset the costs to companies. Some of these tax credits may not apply to tribes since they are not taxable entities.
  • Of the $150 billion in relief for local governments and municipalities, $8 billion has been carved out for tribal governments.  The funds can be used for any necessary expenses between March 1, 2020, and December 30, 2020, as long as the expenses are related to the COVID 19 emergency and not already planned in the tribes’ approved budget for the current year.
    • The dissemination method for these funds has not been determined by the Treasury at this point. The Treasury is still taking comments and input from tribes at this point in determining the methodology that it will ultimately use.  It is highly recommended that tribes work with their legal and lobby counsel to relay suggestions or concerns to the Treasury as quickly as possible.
  • $1.4 billion to was given to the Indian Health Service (HIS) and Bureau of Indian Affairs (BIA) with $850 million reserved to address the direct needs of tribes.
    • The Emergency Appropriations for Coronavirus Health Response and Agency Operations, included in the Stimulus Act, includes an additional $1 billion for the IHS and $450 million for the Bureau of Indian Affairs BIA.
    • At least $450 million of the IHS appropriation shall be distributed to IHS direct-service health programs. The funds must be used to prevent, prepare for, and respond to COVID-19, including for public health support, electronic health record modernization, telehealth, and other information technology upgrades, health services provided by Purchased/Referred Care programs, Catastrophic Health Emergency Fund reimbursements, and other activities to protect the safety of patients and health program staff.
    • At least $400 million of the BIA appropriation must be made available to meet the direct needs of tribes. The funds must be used to prevent, prepare for, and respond to COVID-19, including public safety and justice programs, deep cleaning of facilities, purchase of personal protective equipment, purchase of information technology to improve teleworking capability, welfare assistance and social services programs (including assistance to individuals), and assistance to tribal governments. Funds distributed from the BIA appropriation shall not be included in the statutory maximum for welfare assistance funds.
  • Other tribal specific stimulus actions:
    • The stimulus package also provides for an additional $125 million in funding for tribes from the Centers for Disease Control, $300 million in housing grants, $100 million for food distribution programs, $15 million for substance abuse and mental health services, and increased eligibility of tribal businesses for small business loans. Tribal schools are eligible for waivers of statutory and regulatory provisions in the Elementary and Secondary Education Act of 1965 and the General Education Provisions Act.

As tribal groups navigate the COVID-19 crisis, remember that there are programs available.  If you or your tribe needs assistance, please feel free to reach out to DWH.  As a tribally owned business, we support and understand the needs of various tribal groups.

DWH | For the Life of Your Business

https://dwhcorp.com/

Nearly four weeks ago, the Families First Coronavirus Response Act was passed. Questions remain despite guidance from the Department of Labor: https://www.dol.gov/agencies/whd/pandemic/ffcra-questions and https://www.dol.gov/agencies/whd/ffcra. 

DWH asked Don Lawless  (https://www.btlaw.com/en/people/offices/grand-rapids/donald-lawless) with Barnes and Thornburg to address the issues now being raised by employers about the FFCRA and managing the current workforce dynamics.

FFCRA and Related COVID-19 Employment Issues

Q: As a starting point, please provide an overview of the Families First Coronavirus Response Act and benefits it extends to employees?

A:  The simplest point of entry to obtain an overview of the FFCRA is to review the posting that covered employers needed to put up on April 1:

https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf

In the private sector, the law applies to employers with fewer than 500 employees.  It remains in effect until December 31, 2020. It provides for 80 hours of emergency paid sick leave for covered reasons.  It provides up to 12 weeks of expanded FMLA (the last ten weeks paid) if the employee is unable to telework because he or she must care for a child.  Employers are eligible for a fully refundable tax credit of 100% of the paid leave.

Q:  How and when do private-sector employers measure their employee count (to determine if they have fewer than 500 employees)?

A:  The employer must count full-time and part-time employees employed within the U.S. at the time the employee would take the leave.  So the count is taken at each time an employee takes leave. The big issue now is falling below the 500 threshold due to layoffs. The temporary regulations state at 29 CFR Section 826.40(a)(1)(iii) that the threshold count does not include workers who have been laid off or furloughed and have not subsequently been reemployed.  No one saw the exclusion of laid of employees from the count. We have clients with many employees on layoff who now have active workforces at fewer than 500 based on the counting rule adopted in the regulations. This language was a surprise and seems counter to Congress’s intent in targeting the FFCRA to smaller employers.

Q: What legal requirement(s) do I have as an employer to inform and educate employees regarding paid leave benefits under the FFCRA?

A:  The only required communication is the mandated posting, which can be found here:   https://www.dol.gov/agencies/whd/pandemic/ffcra-poster-questions.  Many employers are taking a “sufficient notice” approach.  Namely, if an employee provides sufficient facts that indicate he or she may be eligible for paid leave, the employer engages a discussion to determine if the employee is eligible.  Some clients have developed policy statements about the FFCRA, too.

Q: Covered employers want to provide FFCRA paid time off to employees who are entitled to it, but how do they fairly administer the Act?

A: FFCRA Q&A No. 16 lists the information an employee must provide and adds:  “In addition to the above information, you must also provide to your employer written documentation in support of your paid sick leave as specified in applicable IRS forms, instructions, and information.”  IRS guidance requires “written support” for the FFCRA covered reason for the leave.

Q: As an employer, how does FFCRA impact my ability to furlough or temporarily lay off employees? 

A: The FFCRA does not limit an employer’s ability to temporarily lay off workers or temporarily suspend operations.  The FFCRA Q&As at nos. 25, 26, and 27 confirm that emergency paid sick leave and expanded FMLA entitlement ends with a lay off; the employee then seeks unemployment.  Layoffs need to be supported by operational need, not the desire to avoid providing paid leave under the FFCRA.

Q: A big concern of employers is whether they will be able to attract employees back to work post coronavirus while they are receiving expanded unemployment benefits. Do you believe this will be an issue, and if so, how can employers mitigate this risk?

A: If an employee is recalled to work that cannot be performed remotely and that work is allowable under the stay-at-home order, they are no longer eligible for unemployment benefits.  Employers need to lead with credible communication about why the work is essential critical infrastructure work and confirm the steps taken in compliance with all CDC, OSHA, and additional government requirements to assure the workplace is as safe as reasonably possible.  Practically, employees faced with the termination of health benefits or their reinstatement will likely return to work.

Q: We hear in the news that there is a resurgence of unions, or employees seeking to unionize, as a result of the working conditions under COVID-19. For smaller employers in the region, will there be a similar effect?

A:  Smaller employers are most at-risk, statistically, for a union organizing effort.  The primary risk smaller employers face as a result of the COVID-19 crisis relates to the right of employees to engage in protected concerted activity under the federal National Labor Relations Act.  Employees have a right to solicit co-workers and come together to protest or object to terms and conditions of employment – including walking off the job. This right is broadly construed and does not have to relate to an effort to organize a union.  Employees’ objections to their employer’s response to the COVID-19 crisis can fit within this right. The limits are narrowly applied – such as individual gripes and threats. Employees are provided with a fair amount of leeway. Employers cannot discipline or discharge employees for engaging in such protected conduct; they can be asked to leave the workplace if they refuse to work and be advised that they may be permanently replaced.

Q: Is there anything else employers should be aware of regarding employment law or the effects of new federal/state programs?

A: Employers need to make sure their benefit plans allow for the extension of health benefits to laid-off workers (often a plan amendment is required).  There is also the issue of WARN Act compliance if layoffs now look to be indefinite vs. temporary.

As it becomes more available, we also expect that more employers will consider COVID-19 employee testing to determine if it is safe for employees to return to work or to disqualify them for work.

The EEOC issued updated COVID-19 medical examination guidance on April 17: https://www.eeoc.gov/eeoc/newsroom/wysk/wysk_ada_rehabilitaion_act_coronavirus.cfm

It speaks in terms of asking employee COVID-19 related symptom questions and taking body temperature, and not employer administration of a COVID-19 test, which would be a regulated medical examination under the ADA.  Watch for developments in this area.

Q: Don, it has been our experience that companies often wait too long to contact a labor attorney. Are there critical points where you suggest company leadership engages a labor attorney?

A: Qualified labor and employment counsel can add the most value before a legal claim develops.  So get us involved in the up-front strategy decisions before the facts are finalized.  If one claim can be avoided, the cost of legal counsel and the disruption to the organization is substantially reduced.

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These Q&As are provided for informational purposes only and are not intended to provide legal advice; please consult with legal counsel for advice related to your specific circumstances.

Practical Advice for Communicating with Your Bank During a Crisis

As a follow-up to our communication on practical considerations regarding COVID-19 (https://dwhcorp.com/covid-19-advice/), we thought it would be helpful to offer a perspective on how companies can best communicate with their bank in this unprecedented time of crisis.   Since many DWH clients have been referred to us by banks, we are in a position to have concurrent relationships with both – and we have been talking extensively with many banks in recent weeks about the COVID crisis and the banks’ responses.

Every bank has had to adapt to the same challenges facing other businesses; uncertain forecasts, employees working remotely (if able to at all), financially challenged customers, and understanding government stimulus programs.

As you work with your bank, remember that it’s in the bank’s interest to work with you to maximize value and minimize risk in your business.  Your bank is a critical stakeholder in your business and can be a tremendous resource to you as you navigate this crisis.

Here are some practical things to consider as you communicate with your bank:

1. Demonstrate emotional awareness – now more than ever

We are all people. We all have concerns about our family’s health and livelihood. This is a difficult time for everyone, including your lender.  As such, communication with your relationship manager and his or her team is more important than ever.  We no longer have the ability to meet in-person, so we must work even harder to convey concerns, ask questions, express gratitude, and calibrate our communication in an emotionally intelligent way. Doing so in a way that anticipates how messages and  shared information will be perceived can make a significant difference.

2. Understand and clearly define your company’s situation

As we stated in our last publication (https://dwhcorp.com/covid-19-advice/), a detailed, rolling 13-week cash flow forecast (CFF) is the best tool to use for managing liquidity, especially in times of distress.  A good 13-week CFF will allow you to see how changes in sales, receivables, payables, payroll, and future expenses impact your liquidity and will let you take action.  A good model will also be easy to use and repeatable, so you can update it every week to adapt to the ever-changing world.

Take the time to build a 13-week CFF and use it to model out different scenarios based on your company’s situation and available options.  Be as honest and realistic as possible.  This will allow you to clearly define what your company is facing and will give you a great tool to communicate with your stakeholders, including your bank.

3. Define sources of cash and risk

It is important to remember that banks are a source of liquidity, but they cannot be the only source.  Your lender’s ability to support your business in these times remains based on your ability to repay your indebtedness over time. In preparation for a productive virtual meeting with your lender, we recommend that you evaluate your 13-week CFF to identify “levers” or actions you can take to increase cash.  These may include:

• • Additional owner’s equity
  • Reduce customer receivable terms
  • Push payment terms with vendors
  • Reduction of labor costs
  • Negotiate deferral of rent or lease payments
  • Sale of unused assets

Determine how much cash each of these actions will generate and how long it will take for actions to impact your cash flow.

You should also identify risks in the forecast and actions you are taking to mitigate risks.

Taking these steps will ensure that when you talk to the bank, you are presenting a well thought out plan.

4. Clearly define your request from the bank

Before you speak with the bank, you should be able to answer the following questions:

• • What is the exact ask?
  • What impact will this have for the company?
  • What is the company giving up in return (this may be additional collateral, increased interest, or personal guarantees)?
  • When does the company need it?
  • How long will the company need it?

These are questions the bank will ask to determine what they can and cannot provide.  Having answers ready will speed the process up.

5. Pick up the phone

Don’t wait for your lender to call you. Also, don’t just shoot off an email. Make a personal connection over the phone and stay in touch as you learn more together. Together, you can work through this.

At DWH, we’re here for you, even remotely. Let us know what we can do to help. A lot of our clients have questions about what this all means for them, what options and conditions for support or exemptions apply, what implications are for employees, how to mitigate business value erosion, how to manage communications with banks/creditors/vendors/customers, etc.  Although we don’t have all the answers, we are here to help you.  Please feel free to reach out.