As if franchise operators didn’t have enough to worry about. Key forgiveness rules in the Small Business Administration’s Paycheck Protection Program are still in flux—something especially vexing as key dates approach.
The most important rule is how the SBA determines if a company qualifies for forgiveness when it comes to maintaining employee pay. In the original wording of the $2.2 trillion CARES Act, employers had to maintain head count and compensation for eight weeks after receiving their loan to qualify for forgiveness. On top of that, 75 percent of the loan had to go toward payroll expenses.
For businesses that were forced to shut down, that’s been a head-scratcher. It’s been equally confusing for companies that reduced headcount or hours. In both situations, meeting the 75 percent mark has been tricky, not to mention almost impossible given the timeline.
The CARES Act stated companies would receive a reduction in forgiveness for any employee whose compensation decreased by more than 25 percent from the 12-week quarter and the eight-week qualification period. One doesn’t have to be a math whiz to see that eight weeks is already a 33 percent reduction.
There are plenty of other oddities that small-business advocacy groups want to clarify. The International Franchise Association, along with the National Restaurant Association and others, are calling for an extension from eight weeks to 20 and an easing of rules around what forgivable loans could pay for, plus an extension of re-hiring dates from June 30 so they can bring people back as needed, not just to stand around empty restaurants.
The American Institute of Certified Public Accountants also issued guidance that compensation should be determined by an average payroll per employee per week to get around the impossible math (CPAs hate impossible math).
The SBA did offer guidance for employers who couldn’t bring back some workers. If they can prove they provided written correspondence offering an employee their job back and the employee refused, the loss in that compensation would not affect forgiveness. That’s a start, but for those able to tap into PPP help, the confusion is far from over.