Virtual Coffee Series //

Leaders Adapt to the New Normal

Where business leaders can share experiences and ideas to help each other adapt to the new realities we’re all facing on topics, such as virtual work, online sales, the CARES Act, and more.

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4.10.20   What Businesses Need to Know About the CARES Act

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Moderator & Speakers

Ken Fischer

CEO
Atigro

Lane Hornfeck

Partner
Shulman Rogers

Stephanie D. Katz

Founder
CETA Benefit Consulting Group

Stuart H. Sorkin

Founder
Business and Legal Advisors

Wendy Kessell

Chief Executive Officer
CFO ReStart, LLC

Transcript

Ken Fischer:

Hi, everyone. I’m Ken Fischer with Atigro, and welcome to our Virtual Coffee Series, Leaders Adapt to the New Normal. Our strategic partners and Atigro have put together this series because we think that the changes in the business community, and how businesses operate, and how businesses go about finding new clients, et cetera, will be with us for some time to come. So this is the first in a series. We plan to continue this throughout the pandemic, and perhaps even longer than that, as we… Again, the changes will still be with us. So, I’d like to especially thank our speakers for putting this together so quickly. They’ve been working hard to stay really up-to-the-minute on the changes coming out of SBA regarding the CARES Act and particularly the two loan programs we’ll be discussing today.

Ken Fischer:

On our next Coffee, we plan on covering remote workforce, management infrastructure, and cost control, so please keep an eye out for that email. We’re planning these quasi-weekly right now, but we haven’t set the date for the next one, so maybe Friday, maybe just after that. And also, if you feel like we’re providing a service to the business community through this series, please help us spread the word. When you see an upcoming event email, please share it. Send it to your list. Of course, make edits as you see, or just send out the link. And also, if you see our LinkedIn posts, please comment and like, and if you want you could also share. Comment and likes are the most important though.

Ken Fischer:

So just some housekeeping, couple of notes on the process. In order to keep the conversation orderly, I will be asking all the questions of the speakers, which I’ll get from the audience. Please use the chat feature to ask questions. However, if you’ve already submitted a question, we do have those, and I’ll make sure they get asked, so you do not need to resubmit questions that you’ve already submitted. Please keep muted unless you’re asked to clarify your question or have a follow-up. That will happen at the end. So if we miss a question or you need to follow up, at the end I’ll announce it, and everyone can take off their mics and ask their questions. We’ll try and do that in as orderly fashion as we can. Probably use a reaction to raise your hand, and I’ll do my best to call on you at that time, so…

Ken Fischer:

Now to introduce our panel. Stuart Sorkin of Business and Legal Advisors,, he’s an attorney and CPA will give an overview of the CARES Act and comparison of the EIDL and payroll protection loan programs. Wendy Kessell, also a CPA along with a number of other credentials too long to list here of CFO ReStart, will get into the details and how you calculate both the loan amount and the potential forgiveness for it, I’ll just call it the PPP program, as well as some other details that are really relevant to the financial people in the audience. Stephanie Katz, a certified pension consultant and health and welfare broker at CETA, will discuss benefit issues related to the CARES Act. And then Lane Hornfeck, a partner, technically shareholder at Shulman Rogers, will discuss your rights and protections in light of the pandemic. So without further ado, I’ll turn it over to Stu first. [crosstalk 00:04:03]

Stuart Sorkin:

You got to release the screen. Okay.

Ken Fischer:

Yes, I did.

Stuart Sorkin:

Got it. Start with a general [inaudible 00:04:12] legal disclaimer that everything that we’re providing today needs to be looked at from a fact-specific… You need to talk to your own consult or CPA regarding the application of this.

Stuart Sorkin:

So the basic level questions that we need to look at is, how do we compare the two types of loans that are out there right now? The the EIDL program, which is an expansion of the 7(a), program, versus the Paycheck Protection Program, which I will refer to as the PPP program. Basically, both programs are available primarily to persons who have under 500 employees, have been in operation at least since February ’20 15th for the PPP and since January 31 for EIDI. The maximum amount of a EIDL loan is $2 million. However, upon application you will get a $10,000 advance supposedly distributed in three days, but so far I don’t think they’ve quite made that timeframe. And that 10,000 is effectively forgiven. There is no offset for that. However, if you do apply for both, and you can apply for both the EID loan and the Paycheck Protection loan, then the forgiveness on the PPP loan will be reduced by the amount of the EID loan. Maximum PPP loan is $10 million, but per individual, per tax payer, it is two times monthly average payroll, and Wendy’s going to spend a chunk of her section talking about that, so I’m not going to spend any real time on that.

Stuart Sorkin:

The big issue that we’re seeing on this at this point is, because the SBA issued new regulations at 7:30 PM on last Thursday night, and the problem started on Friday morning, they made some changes. The biggest one that was clarified was that independent contractors of companies do not count for purposes of payroll. That has added two major issues to this. One, it is significantly increased the number of applications, and two, it is significantly costing the treasury a whole bunch more money because of the way the loan processing fees the banks get are based on a scale that up to $350,000 is at 5% while over 2 million is at 1%. and based upon that, by making independent contractors apply separately, banks are going to get a lot more in processing fees, but on top of which it’s clearly going to slow the process going forward.

Stuart Sorkin:

The underwriting for the EIDL loan is a waiver of the current rules, like there’s always a personal guarantee on 7(a) loans [inaudible 00:07:54] not more than 200,000, then you do not have to put up a personal guarantee. There is still collateral required for the PPP. There is no collateral or personal guarantee or any proof that you couldn’t get CARE credit elsewhere, which is our typical standards in an SBA loan.

Stuart Sorkin:

Which leads to a question is that if you are a smaller company and you need $200,000 or less, it may make a lot more sense for you to apply for the EIDL loan, because even though the interest rate is higher, 3.75 versus 1%, the big issue is that that can be termed out for up to 30 years, versus one of the other things that came out in the PPP in the rules last Thursday night is that the interest rate is going to be 1% and a two-year payback period. So if you’re on the smaller side and you have concerns, the EIDL loan is probably a better deal for you, because if you have a $10,000 forgiveness under the EID loan, that probably covers the [inaudible 00:09:15] differential for the two-year period that you would get for PPP, but provides you the flexibility that if you need longer… Plus the deferral period for first payment on the EID loan is 12 months versus six for the first for…

Stuart Sorkin:

As you’ve seen, for the PPP loan you have to go to your banks, and the banks are having all sorts of issues in this regard of processing these loans and how much you’re going to get from treasury. I understand yesterday that Wells Fargo got an increased allocation from the Fed, but there are all sorts of issues with regard to actually processing these loans.

Stuart Sorkin:

The other issue of why the EID may be better is that the restrictions on what you can use an EID loan are just any working capital, versus in order to achieve forgiveness it’s got to be spent on salary, employee benefits effectively, rent, and utilities. One of the other things that came out in the new rules is, they put in a new requirement saying that to achieve forgiveness, if you use more than 25% for non-payroll, it will not be forgiven. So this is a real issue.

Stuart Sorkin:

Also, they added in very strict criminal and civil penalties for misuse of these funds. So one of the things that I think you need to consider is, if you’re going to do a PPP loan, it would be probably in your best interest to set up a separate bank account that holds PPP loan so you can track all of the money going in and out, because we have not seen the regulations yet on what the banks are going to use for the approval of forgiveness, because it’s the banks that you do it for, and once you submit for it, they have 60 days to say yes or no. Another clarification is that these forgiven notes are not going to generate taxable income for cancellation of embededness. And with that, I will turn it over to, I believe, Wendy, who will discuss next issues. Where’s stop sharing?

Ken Fischer:

Yes. Just one thing, just a small clarification. You said that you can get both loans, but the forgiveness of the PPP will be reduced.

Stuart Sorkin:

That’s correct. By the amount-

Ken Fischer:

By the amount of the EIDL loan.

Stuart Sorkin:

No, just the $10,000 portion of the-

Ken Fischer:

Just the $10,000.

Stuart Sorkin:

Yes.

Ken Fischer:

And the $10,000 forgiveness is automatic and applies to any expenses? Is that right?

Stuart Sorkin:

That is correct.

Ken Fischer:

Or is it not automatic?

Stuart Sorkin:

I’m sorry. With the EID loan, there is no forgiveness other than the 10,000. In order to qualify for the forgiveness, you must spend it on the stated items, and then they said it’s got to be 75% towards payroll costs. I think [crosstalk 00:12:49]

Ken Fischer:

Right. Okay. So the same restrictions on both as to what the forgiveness can be spent on.

Stuart Sorkin:

No, there is no forgiveness on the EID loans. It’s $10,000 that you get. You get up to a 30-year term loan for the EIDL program for the payback period. It’s a two-years pay off if you do not get full forgiveness.

Ken Fischer:

Right, so the 10k gets forgiven.

Stuart Sorkin:

The 10K is forgiven regardless. That’s why most… I’m telling you, most clients, there’s no harm in applying for the EID loan. And there is one thing that’s sort of slightly strange, is that they put in the PPP program that if you [inaudible 00:13:35] EID loan [inaudible 00:13:37] qualify for PPP loan, you can refinance the EID loan with a PPP loan. However, I’m not sure how many people would really do that, because of the two-year term for payoff. I’m not sure that it would make sense at that point.

Ken Fischer:

Okay. Well thank you very much, Stu. And now we’ll hear from Wendy, and we’ll go through questions for the whole panel after everyone has presented.

Wendy Kessell:

Morning, everyone. Wendy from CFO ReStart. Just wanted to share with you some information. We’ve been putting together a lot of different applications for PPP for our clients, and there are some specific blocks on the form that need a little clarity, so I wanted to share that with you today.

Wendy Kessell:

First, there’s a block on the form that’s number of employees, and the number that you put here is determined by whether your company is seasonal, or a new business, or not seasonal and a business that’s been around for greater than a year. So in this block, if you are not seasonal and you’ve been in business for greater than 12 months, you have three choices of what you could put in that block. You could put your average employment over the last 12 months, your average employment just for the year 2019, or you could use something that’s a standard SBA type of calculation, and that is the average per pay period in the 12 months prior to the loan application.

Wendy Kessell:

If you’re a seasonal business, you get two choices for the number of employees blocks, and that is you can put your employee count for the period from February 15th to June 30th or March 1st to June 30th of 2019. And if you’re a new business and you’ve been in business less than a year, essentially you can use the SBA calculation, which is average number of employees for each pay period that you’ve been working, or if you want to you can use the average employee account for January through February 29th of 2020, but that is only if you were not in business from February 15th, 2019 to June 30th, 2019. So if you use this as a guide and just look at the blocks, it should be relatively easy to fill in that block.

Wendy Kessell:

The next big area is, what is my average monthly payroll? So again, there’s three different types of selections you could make based on if you’re seasonal, a new business, or you’ve been around for a little while and not seasonal. So essentially, if you’re not seasonal and you’ve been in business for more than 12 months, in general you’re going to use your average monthly payroll costs for 2019. If you’re seasonal, you’re going to use your average monthly payroll costs between February 15th and June 30th. Notice they don’t give you the opportunity here to start at March 1 like they did on the number of employees calculation. And then if you’re a new business, less than 12 months old, you would use your average monthly payroll costs between January 1st and February 29th. And for each of these, you would exclude any costs to an employee over $100,000 annually.

Wendy Kessell:

Now in practice, a lot of my clients have asked, “Okay, so what if somebody… I’m doing this calculation, and they made 100,000 last year, but it was because it was for a bonus they got at the end of the year.” That still would count. If you have an average, if the person made over a hundred, then you’re going to have to prorate it into the periods and get the calculation. And so the commissions and any kind of bonuses, tips and things like that, would all count into the calculation. So you need to see your CPA about how to make sure you’ve got the right number in there.

Wendy Kessell:

Now those numbers, for the average monthly payroll, you take the numbers and then divide it by the number of months you’re calculating, and then you would multiply it by two and a half, which is basically… It’s two times the cost plus 25%, but the actual calculation is two and a half. And then you also add in the EIDL that Stu was referring to, the $10,000, and there’s some special calculations if you had more of an EIDL as well. So again, talk to your CPA.

Wendy Kessell:

The payroll costs components. This has been something that’s really been tricky, and it’s changed quite a bit in the last week, but essentially what you want to include is any kind of salaries, wages, tips, commissions, bonuses, anything you paid for, any type of leave like PTO, sick, vacation, parental leave, medical leave, any severance pay that you paid to an employee. Any kind of group healthcare benefits counts as a payroll cost, so not… If you’re a small business, there are a lot of owners that have life insurance for themselves, but it doesn’t benefit the staff. That wouldn’t count as group healthcare, but any kind of programs that benefit the entire staff would be included in this number. You would also include any kind of group retirement. If you have a 401k plan or something like that that benefits your whole staff, then you can include that. Additionally, you can include state and local taxes paid. And the way I’m interpreting this is unemployment, not withholdings. And then for anyone that’s a 1099 or a sole proprietor, they can include their wages, commissions, income, and net earnings from self-employment.

Wendy Kessell:

You do want to exclude from payroll costs anything that you paid to a non-US resident, and also, again, make sure that you exclude any compensation over 100,000. Now, there was also another issue for some clients. They were thinking, if someone made more than a hundred, do you take out their insurance? Because does that count as compensation and that comes out? But you don’t. The insurance, as long as it’s group healthcare, if the whole thing is included for the owner or anybody that makes over a hundred, all of it is included. But the salaries and wages and bonuses and those kinds of things that exceed 100,000 are removed. There’s also a $10 million cap on borrowing.

Wendy Kessell:

Now, after you’ve asked for the loan and you receive the loan, there’s a forgiveness component, and a lot of people have wanted to know what goes into this. So basically, it would be the payroll costs that we just described on the previous slide, but in this case the forgiveness period is eight weeks. It’s not the two months plus 25%, or 2.5. So there is a portion that you’re not going to get back of what you’re paying out. And then also you would include any interest on any mortgages that you had prior to February 15th, and you would just use whatever payments you made during that eight weeks. And then also rent. If you were renting space and you had a lease that was in place prior to February 15th, again, you can use that. And any utilities. So the utilities would be cell phones. They would be the telephone bill for the property, your electric, water, gas, those types of things would all be included.

Wendy Kessell:

You would not include any FFCRA wages or benefits. And FFCCRA is probably a whole ‘nother seminar that we could do, and we’ve been helping a lot of clients with FFCRA. But essentially, if you’re paying people under the new Families First Coronavirus Response Act, you don’t include any of those amounts here, because when you pay them out and you pay out the health insurance for those employees, you also get a tax credit. So taking that out is how the PPP is run. You don’t want to include those. The government would see that as double-dipping, and those need to be removed.

Wendy Kessell:

Additionally, the whole point of the PPP program is to provide cash so employers keep people working. That’s the best for the economy and the best for all of us. So essentially, if you have a reduction in your workforce and your headcount goes down, then some of your forgiveness goes away. And also if you decrease the salaries of employees that make less than 100,000 by more than 25%, then some of your forgiveness goes away. And additionally, as Stu mentioned before, you should make sure that no more than 25% is spent on non-payroll costs, and the non-payroll costs are the interest, rent, utilities, and things like that. Okay?

Wendy Kessell:

Additionally, one great little opportunity is that if you let people go between February and April 26th and you hire them back before the end of June and bring them back to full-time employment, then you get an opportunity to basically have your forgiveness increased. So this is really great opportunity for businesses that had to let some people go when the COVID first started hitting.

Wendy Kessell:

Something I wanted to share with everyone is two lines on the PPP, and that’s something that’s Stuart referred to earlier. There’s two lines on the PPP. One says, “I certify that the funds will be used to retain workers and make these payments, and I understand that if the funds are knowingly used for unauthorized purposes, I can be legally liable and charged with fraud.” And then the other important one is that, I will make sure that I have great documentation and provide that to my lender to verify how many employees I have, my payroll, and all the other items like mortgage costs, utilities, et cetera, rent.

Wendy Kessell:

So what we would suggest from CFO ReStart is what Stewart said a minute ago. We’re telling our clients that even though it’s a pain for the bank to have a separate account and it’s a little bit of a pain for us, I think it makes great sense to do this and to basically open an account that you put your PPP funds in, and only take money out of that account to pay allowable costs. You’re going to be on the hook for anything you pay that’s not allowable. You don’t want to be in that situation. So essentially, if you’re paying a payroll, instead of having the whole payroll come out of that PPP account, have the payroll come out of your regular payroll or regular operating, and then have your payroll person provide a schedule that shows, here are all the people that got paid, here are the people that made more than 100,000 on an annualized basis, and here’s the amount that would be allowable-

Wendy:

… 1,000 on an annualized basis, and here’s the amount that would be allowable under PPP. And then that schedule should be put in some online repository like your Dropbox or whatever of PPP documentation. Put it in there, make sure you keep all the paperwork. If you pay a utility bill or rent, a copy of the bill should go in that same Dropbox file and make sure you have great accounting for that and that you have a QuickBooks general ledger of that or an Excel if you’re not using QuickBooks, or whatever system you’re using, that you know every dollar that went in, every way that it was spent so when you have to go back and account to your bank for how you had the funds, you’re sure that you’ve done a good job and you have everything together. If you need any help on that, let us know.

Wendy:

Basically, make sure you do not also co-mingle PPP with FFCRA. There’s already documentation requirement on FFCRA and essentially that’s again another topic. But making sure that anything you pay out to your staff under FFCRA is not something that you’re trying to get as an allowable use under PPP is super important. This is just a schedule that’s in those slides that I can share with you guys on FFCRA and the different types of COVID leave and how much the employee would receive minimum and maximum. And that’s it for me. Thank you.

Ken:

Thank you, Wendy. Just a clarification, if you don’t mind, Wendy, the eight week period begins at the application or the receipt of the money? When does that begin?

Wendy:

It would be at the receipt of the money.

Ken:

Receipt of the money. And then the payroll accounts, is any payroll paid in that time regardless of when the employee worked? In other words, if you receive it April 1st and you’re paying April 2nd for last month’s-

Wendy:

Yes, exactly. Yeah, you don’t recognize their [crosstalk 00:26:02].

Ken:

Right. And that higher back issue that you said goes to June 15th, but that’s only if your eight week window also corresponds with the higher back. Is that right?

Wendy:

Yes, that’s correct. So it seems that it’s going to really benefit more people that apply earlier than later. But one of the articles I read in Forbes yesterday was that the money is expected to run out sometime around June 2nd. And I know that clients have been really scrambling to get money quickly. We worked all last weekend getting applications in for people and literally people have been nonstop trying to find the right bank, there’s been a lot of issues with different banks that haven’t been processing the applications quickly enough. So it’s been quite a challenge for small business owners this week and last weekend.

Wendy:

I’m looking forward to seeing that some of the banks now have their processes in place. Last night I was talking to one of the execs at Eagle and he said that he had… I identified a vendor that could help them and they would be starting to process the applications today and over the weekend. So that’s good. I know that for Sandy Spring, another bank that a lot of our clients use, they had the applications going last Saturday and they’ve approved people already. Yesterday morning they had a bunch come through. I had ten come through from Sandy Spring, so that’s great. And then Union Bank has been great as well. Atlantic Union. They had a length that came out last Friday night and we were getting approvals starting on Tuesday from them.

Ken:

Yeah, I know a lot of people have been frustrated with that, but also they’re frustrated with the fact that when their bank isn’t moving, they can’t seem to open new accounts anywhere.

Stuart:

I want to add something else also that I discovered yesterday, which is some people are applying to multiple banks for this PPP loan. SBA is tracking it based on your employment ID number and if your application is disapproved, you go to the bottom of the line, and therefore if you’ve applied multiple banks and one of them gets rejected, and it gets rejected after potentially one that’s been approved by another, you might lose your funding. So if you are trying to apply to multiple banks, be very careful that you don’t end up losing your place in line.

Wendy:

Very good point.

Ken:

Yeah and thank you both. So we have a lot more questions on this. We will get to them. First we’re going to go to Stephanie to discuss the benefit issues related to the CARES Act. Go ahead, Stephanie.

Stephanie:

Okay. I’m Stephanie Katz from SITA and as he mentioned I’m going to go through the employee benefit provisions because the CARES Act did address areas in health, student loan assistance, and retirement plans. And then I’ll end with some practical implications and considerations. I do want to mention, I am not putting up my slides but a copy of my slides will be sent to you after the meeting.

Stephanie:

In the health area, CARES Act expanded the use for health savings accounts by allowing high deductible plans that have HSAs to cover telehealth services for any reason, not just for the COVID related issues before the member has satisfied the deductible. This is really important because as people are home they’re getting telehealth medicine and now people with the high deductible plans and HSAs will be able to take advantage of that.

Stephanie:

The next area is with respect to over the counter products. This goes back to an older law that we used to have. Now you will be able to use flexible spending accounts, health reimbursement accounts and health savings accounts to buy over the counter products without a prescription. And this is going back to January, so for the entire year.

Stephanie:

And then I’m finally all of the COVID testing and any related services would be covered with no member cost sharing. All of these areas are things that you should go back to your insurer or your administrator. In some cases there may be amendments that would be required, so it’s important to see exactly how your plan will be doing it and if you want to allow for those changes.

Stephanie:

On the student loan assistance, there are employers now that have educational assistance plans under section 127 and they’ve been using it for tuition assistance. Some employers were helping with student loan payments but they were taxable. What the CARES Act is allowing is that employers can use those plans to reimburse employees for qualifying student loan payments. Now it is subject to the 5250 that’s on a tax free basis, and if you use it for both purposes, for the tuition assistance and the student loans, it’s one combined limit.

Stephanie:

In the retirement area, participants that are affected by the virus can access funds through hardship withdrawals and loans. In the hardship withdrawal, any distributions that are made this year can now go up to $100,000 without being subject to the 10% early withdrawal penalty or the 20% automatic withholding. And these hardship withdrawals can be repaid over three year period.

Stephanie:

On loans, the amount of a non-taxable loan has been increased from the 50 to the 100,000, or 100% of the vested account balance and payments for loans can be delayed up to a year. What’s important here is that your plan may already allow for loans or hardship withdrawals. You can now allow for these special COVID related distributions in loans. If you want to do that, it will require an amendment. You have time to make the amendment. It’s important to check with your service providers for the rules on administration. I’ve been working with several of the different record keepers, some are making them as a default change, so check with them if you want to allow for that. The other thing is that you as an employer do not need to certify someone’s eligibility. The participant is self-certifying that they are affected by the coronavirus, and that’s them being sick or their spouse or it’s a financial need that’s resulted from this. Also in the retirement area, the minimum required or the 70 and a half distributions are suspended for this year, for 2020, and that applies to the IRAs as well.

Stephanie:

The CARES Act expanded with the Department of Labor’s authority is to postpone deadlines for various notices, 5500s, all of that. It has not been announced that we will have extensions, but the act did give them additional authority. Also with respect to defined benefit pension plans, there’s some relief for funding.

Stephanie:

I’ve been getting a lot of questions in these areas and employers are planning different workforce changes. They’re thinking about furloughs, they’re thinking about layoffs. It’s just very, very important that you consider any of the benefit implications when you make these workforce changes. Do not assume that coverage continues or that it automatically ends. You need to look at the plan terms.

Stephanie:

So in the health area it’s been a problem if an employer might be expanding coverage for ineligible employees that are outside of the plan terms or without the consent of their insurer, or if they’re self funded with their stop loss carrier. You could be resulting in significant financial exposure by doing that. Some of the carriers have already made provisions to allow extensions on coverage, but you need to reach out.

Stephanie:

In the retirement area, if you’re doing the layoff and all of a sudden you have at least 20% of your workforce, it could result in a partial plan termination, and there you would then be having 100% vesting for the effective participants. Also, service might need to be credited for vesting during a leave of absence or a break in service. And for those employers that are paying severance, remember that is not eligible compensation for 401k deferral purposes.

Stephanie:

Other employers are thinking about reducing or suspending employer contributions, say to their 401k plan. You need to review the documentation and consider potential ramifications such as on your discrimination testing, your coverage testing, as well as carefully implementing. Because there is advanced participant communication. So if you think about having your Safe Harbor 401k plan and you’re going to stop making the Safe Harbor contributions, that could affect if people were going to contribute. So there are participant communications. You should be reaching out to your record keepers and administrators, they have a lot of education and materials.

Stephanie:

And lastly, in the 401k area, do not delay depositing your 401k deferrals. You still have fiduciary duty for timely deposit of those deferrals. Thank you.

Ken:

Thank you, Stephanie.

Stephanie:

Ken, we can’t hear you.

Ken:

Apologize. Technical difficulty. My headphones went out right when you were ending and I was scrambling to get them back. So just to clarify, there will be all the slides, not just Stephanie’s, will be available afterwards, and also video of this presentation will be available so that you can go back, rewind, et cetera, in case you miss something. In the interest of time, I’m just going to move right onto Lane. Go ahead.

Lane:

Hi everyone. I’m Lane Hornbeck and I’m with Schuman Rogers. I am a litigation attorney and I’ve been doing this for over 20 years. What I’m dealing with now are a lot of clients and questions about what your rights and obligations are. And I’m basically dealing with people who are on both sides of issues, whether it’s someone trying to enforce a contract or get out of a contract. The two big areas I’m going to talk about are the, basically contractual obligations and what you want to look at and then some of the protections that are contained within the CARES Act as well as various local or state orders that have been issued by our various governors or mayor.

Lane:

I want to address the contract issue first. A lot of you may have contracts with companies, maybe it’s a lease, maybe it’s a service company that’s providing a service to you that you want to stop, that you don’t have the funds to cover. Or you want to continue to provide your services and someone’s trying to terminate and you want to figure out what your rights are. Some of you may have heard the term force majeure, which is a French term for supervening power or authority. And it basically means that some event has occurred that prevents you from performing obligations. And there are specific things that come to mind when you think of a force majeure provision that’s usually contained in a contract. They’re usually acts of war, certain labor issues. There may be a government order or act of authority from some type of governmental regulation issued. There may be trade issues that happen, maybe a fire or some type of mass destruction of property from some type of event, like a disaster, like an earthquake or a hurricane or tornado. Those are really obvious ones.

Lane:

The thing that’s coming up right now is that a lot of people’s contracts did not include pandemic or virus in the actual defined terms of force majeure. So you really want to look at your contract, see what your force majeure language is, and make sure that you work with an attorney, whether it’s an existing one or find a new one, and make sure that the facts that have evolved for you fall within the definition of your forced majeure language in your contract.

Lane:

You may also find when you look at your contract that you don’t have a forced majeure provision. Ironically, they get cut from contracts because people think they’re unnecessary and they’re not included. If you don’t have one, don’t worry. It doesn’t mean that you’re out of trouble, or you’re out of luck. It means you now have to look to something called common law. And basically what has developed are these doctrines or concepts over time called impossibility. There’s also basically something called frustration of purpose or commercial impracticability.

Lane:

So for example, what if you have a business that was one of the first that was ordered to be closed? What if you operate a gym or a recreational center and you were one of the first because you were viewed as the highest frequency of transmission of the virus and you were early closed? So you were pretty much forced into a situation where you’ve had absolutely no income right away. That’s a probably a great circumstance where you would argue impossibility and that you can’t perform. So then the issue is whether or not you can terminate or whether you can temporarily suspend your obligations for payment or delivery of services. You really want to look at the facts of your situation. Are you completely precluded from doing any type of business or are there circumstances where you could do it? For some, there are some businesses who are doing delivery options if you’re a restaurant or a bar and you’re able to do curbside service. So you may have to be careful and make sure the facts fully preclude you from doing your business completely.

Lane:

That next kind of translates into a lot of people ask me whether or not they have business interruption coverage. Some insurance policies do provide for business interruption during certain circumstances. Many insurance companies, however, rewrote policies before this happened and in conjunction with H1N1 that precluded pandemics or viruses from triggering business interruption coverage. So if you have business interruption coverage and you have losses, you really want to talk to your agent and look at the language in your policy to see if you have coverage, because it isn’t necessarily one way or the other. Really depends upon the specific language in your policy and whether or not you have a rider for coverage.

Lane:

I have a slide deck that I’ve prepared and it will be available in the repository. There is some language, if you have a contract and you don’t have a force majeure provision and you want to include one and you want to add virus or pandemic, there’s a website that has certain language of recommended provisions and then I’ve included that link to that website as well as the language in there.

Lane:

With regard to rights and protections if you are, let’s say you’re a property owner and you have a number of residential buildings and you have a number of tenants, or you are a lender, or on the flip side you’re a tenant, whether it’s commercial or residential and you’re looking to figure out what are your rights or obligations here. There are some specific provisions in the CARES Act that expressly places a moratorium on any type of foreclosure of residential loans and a moratorium on any evictions for residential leases during a particular time period. It’s around 90 to 120 days depending upon whether it’s federally backed or not. So you’re going to want to talk with someone and make sure it applies to you and that you have the protections.

Lane:

But in addition to the CARES Act and the specific provisions within the CARES Act, there are executive orders that have been issued, specifically in Maryland and Virginia and D.C. that apply on in all jurisdictions to residential leases and loans that there will be no evictions of any type of residential properties, either through foreclosure or through lease evictions. So those are absolutely precluded. There is now language in one of the executive orders in Maryland that precludes commercial evictions.

Lane:

So you’re definitely going to want to talk with your landlord and figure out if you can work out an arrangement and avoid litigation and avoid the dispute because you do have protections. And frankly, people like me are just a pain. You don’t want to waste money on attorneys dealing with something and fighting over something that you shouldn’t be fighting over because there’s a clear order in place, they can’t do it. You really shouldn’t have to waste money on an attorney to fight over it. All these orders are online, everything’s available, or talk to someone if you want. There are different organizations that provide free information, pro bono services. Talk to people, there’s information out there to help protect you.

Lane:

And if you’re a landlord, frankly you really want to exercise reasonableness at this time because as a practical matter, and the last thing I’ll say, the reality is that the courts are functionally closed to civil matters. Anything that’s moving forward right now are criminal based on basically speedy trial act and protecting people from being held indefinitely. And then any type of domestic violence or emergency situations where people’s lives and their physical being is at risk. So the courts are not proceeding with anything that’s really just about money and it really has to be something that is based on a criminal proceeding or some type of emergency proceeding. With that, I’ll leave it to Ken to ask questions from our group. But thank you for joining us today.

Ken:

Thanks, Lane. And I would never call you a pain, but then again, I’ve never been in opposition to you in court. So in these orders where you can’t be evicted for commercial space, do you owe money during that time that you’re out of business or is it just like you have to work it out?

Lane:

I think it’s going to depend upon the language in your contract or your lease. If there is some way to argue that your payment obligation can be temporarily suspended because you can’t actually use your space at all, there’s an argument for that. But I think as a practical matter, it’s going to be gray because who should bear the risk of this? Should it be the landlord or the tenant? Or should there be some type of resolution? I really recommend people try to work it out because the end of the day, the only people that are going to win are going to be attorneys fighting over the money that you could probably reach an agreement on to pay some middle ground of what the amount is owed.

Ken:

Yeah, and I imagine there’ll be a huge court backlog as well.

Lane:

There already is.

Ken:

Already is. There are a lot of questions that really focus on Wendy and Stu’s portion, but also want to ask one for Stephanie. So Stephanie, when it comes to benefits, there’s a lot of questions about how this applies to the business owner and are the business owners benefits eligible for forgiveness? Maybe that’s a Wendy question, that’s a Stephanie question. Who wants to address that?

Stephanie:

Yeah, I think that’s probably going to go back to Wendy in the calculation area for the forgiveness. We had talked about benefits that apply overall, like a group health versus just a special health benefit for the executive, or on the retirement side, a general 401k versus a nonqualified that applies to the owner. But Wendy, do you have comments?

Wendy:

With respect to that, it’s done exactly the same as the payroll costs. So if you’re an owner of a company and you have benefits that you’re being paid and they’re group benefits just like all the other staff, then yes, that would be included in the forgiveness.

Ken:

Okay, thank you. So I’m just going to go through the submitted questions before, and I’m not going to go through all of them, but I’m going to try and combine them because we have about 100 questions here. Lane, we’re clear to continue this meeting after 11:00 AM, is that right?

Lane:

Yes. I’m not going to shut it off.

Ken:

Great. Okay, thank you. I appreciate it.

Speaker 2:

Ken?

Ken:

Yes.

Speaker 2:

Before we get into the questions, something that just came out, it’s really hot off the press. There’s a lot of the state insurance commissioners are going back to their legislatures where they have mandated the shutdown of businesses. If you have business interruption insurance, keep posted because a lot of the states that mandated businesses to be shut down may all of a sudden get coverage for business interruption. So they’re actually going back to the insurance companies and tell them they must pay regardless. So we’ll see what happens. But that’s out right now. It’s about seven or eight states are in legislation right now trying to get that covered. Maryland happens to be one of them.

Mark:

Right now trying to get that covered. Maryland happens to be one of them.

Speaker 3:

Great. Thanks, Mark. Mark is one of our partners for those of you that don’t know him, the Virtual Coffee Series. A lot of questions around application distribution. People are going to their banks, and this also applies to the new 1099 program that opened today, and the banks aren’t there and so there’s questions, is this the same form, is a 1099 form that is available today, should people start filling out the form that was available last Friday for the PPP and the EIDL. What do they do if their bank isn’t part of the program and they can’t open an account somewhere? There’s a slew of questions around this. Who would like to kind of talk about those?

Wendy:

I can take that one. Basically if you’re trying to get the application in and your a 1099 [crosstalk 00:49:04] form as we had last week, make sure you have the right version. There’s a version three and if you go and pull the form directly off the SBA website, then you’ve got the right one or the Department of Treasury, there’s links in there that will get you to the right form. With regard to, what do I do if my bank doesn’t take applications, well that has been really an issue. You just have to find someone that’s taking the 7A application.

Wendy:

Like I said, I know Sandy Spring is not taking anyone except existing customers. Eagle has been taking others as well as existing, but there haven’t been getting the applications in. I don’t know if that’s very helpful. What I would say is, I would find out from your existing bank who they’ve been referring to and if they’ve had success, because they know your account and they are your person there. They’ve worked with you.

Wendy:

I mean one of the things that’s really come out from this whole situation is how important it is to choose the right bank. I know a lot of my customers are reconsidering where they’re going to be putting their money in the future because it’s been an issue.

Stuart:

I’d like to add to that that what we’re finding also is that clearly the smaller community banks are moving this project along a lot quicker than the majors. The majors are having all sorts of issues with regard to funding, wanting to do it, what requirements they’re putting on in an addition. I think I agree with Wendy that you’re going to see based on this potentially a shift to more local type banks because the regionals and nationals are not handling the situation very well as far as getting things done.

Wendy:

True. [crosstalk 00:50:57] I would like to add is Wells Fargo was limited because of the trouble they got into, so they weren’t allowed to grow to a certain level. Last night I saw that those restrictions have been removed. Now Wells is going to be jumping in and trying to take on helping small businesses as well.

Speaker 3:

Oh and I think Wendy, was it you that said something about Quicken is going to soon be able to process these loans and one other? I’m sorry, is it Quicken or Intuit?

Wendy:

[crosstalk 00:51:24]. It’s QuickBooks, Intuit … If you guys are QuickBooks, if you have QuickBooks, Intuit’s been doing a lot of good things, I have to say. Last week, and we are QuickBooks Pro Advisors, but last week they had a sheet that they sent out to all of their people that are QuickBooks subscribers that said, “20 different places you could go to get some kind of funding.” There was, Amazon was on there, all these random ones that I hadn’t heard of before.

Wendy:

QuickBooks Intuit was trying to provide that information to its people. Yesterday I got an email from them and it said that they’re going to be jumping in to helping you get your PPP loan. There’s software they’re going to be providing as part of their service that will enable you to apply through there. I don’t know how quick it’s going to happen, but that’s just another avenue that you could potentially go to.

Wendy:

Like I said, they said the money should be running out and very soon. June is not that far and that’s the projection. Perhaps it could be earlier or later. Get it in as soon as possible if you’re looking to go after this money.

Speaker 3:

A lot of questions on how soon this money is released after you submit the application and after it’s approved.

Wendy:

I can take that one, Stu, if that’s all right. Yeah, so basically the clients that I had that I told you were approved on, I had one that was approved on Tuesday, they don’t have their money yet. It’s with Union Bank, Atlantic Union. Essentially what they have to do is there’s some paperwork that has to be taken care of. They have SBA approval, they’re committed. The commitment is all there, but the documents have to be done.

Wendy:

Now that’s the step we’re on right now. The documents they’re expecting should be done Monday, Tuesday, and then hopefully money in hand towards the end of next week. For the Sandy Spring Bank, remember I told you there were 10 that were approved yesterday? Those guys are again stuck in the documentation phase. Sandy Spring is trying to figure out what documents are needed. I think that’s probably going to also be somewhere like Tuesday, Wednesday, Thursday, the documents get signed and then the funding can happen after that.

Wendy:

It is a little bit of a delay. I mean the thought that I originally had looking at everything is if you put an application in sometime in the first two weeks of April, you’ll probably get your funding sometime at the beginning of May.

Speaker 3:

Okay, great. Then I had a question on the underwriting criteria for these loans. Is there any at all or is it your 941s?

Wendy:

You have to certify your number of employees. Then you have to also provide your payroll reports. You show 941s, 940s, payroll reports from whatever payroll system you’re using. One thing I would caution you on is a lot of the payroll companies like ADP, Gusto, Paychex, are providing the calculation of what your average payroll is. I would use that as a guide, but don’t take it as fact because I’ve found a lot of errors.

Wendy:

Also, in particular with one of the payroll companies that will remain nameless, literally I’ve received four emails this week and they’ve been updating what they feel the number is. They’re still figuring out on the fly. You have to verify it based on the slides that we’ve provided and as part of this program, we’ll show you what you should include.

Speaker 3:

Okay. A lot of questions around 1099 eligibility and how does this impact the 1099 staff. I understand they have to apply independently under the program that’s come out today. You mentioned what form could be used, but they also have to have a bank that will accept it as well. Is that-

Wendy:

Yes, that’s correct. Then there was a question that I saw that if you’re a 1099, how does that count if I’m an S-Corp owner. If you’re an S-Corp owner, you would use your net earnings from self employment or basically your AGI on your personal tax return because it would flow from the business into your personal return. If you’re a regular 1099, you could apply directly using your 1099 to the SBA.

Stuart:

One thing to consider again, if you are a smaller contractor, the ID loans may be easier, quicker and less restrictive. If it’s under $200,000 you do not have the personal guarantee, they may be the more viable option than the PPP loan even though it isn’t forgiven.

Wendy:

Very good point.

Speaker 3:

Okay. Another related question is I have ane owner who has been doing draws under Schedule C and is located in the District of Columbia. He or she would like to know if they’re eligible for unemployment and if their Schedule C earnings could be forgiven.

Wendy:

Stu, do you want to take that one?

Stuart:

Well, I’m not sure about the independent contractor status and unemployment. That I would have to look at. I’m not 100% sure that an independent contractor is covered.

Speaker 3:

They’re Schedule C. They didn’t have a 1099. They were getting income from Schedule C just to be clear.

Stuart:

Go ahead.

Wendy:

Sorry. As far as the unemployment, the question that I saw that came over, he said he’s still receiving 95% of his revenue, so he really isn’t unemployed if he’s getting … I don’t think that he would fall under the unemployment rules. However, with respect to the Schedule C, like Stu said, it really is something that you can’t really be 1099 because it’s a Schedule C. It’s not flowing through from the S-Corp return.

Wendy:

I would say his best option would be to file the EIDL and get that funding, or there’s also a lot of programs if you check in your particular area, so he’s D.C., but if you check, I know for Maryland and then also Montgomery County, and there’s so many programs. Like Lane had said earlier, your biggest friend is the internet right now. You’re stuck in your house. Go on the internet and look around and see.

Wendy:

Start to apply for some of these items and see what are the pieces that are allowed, what are the different eligibility requirements, do I have to have under 50 employees, what’s available. There are so many programs that have been released and continue to be released every day. That’s really the best opportunity if you can’t do a PPP or an EIDL.

Stuart:

D.C., yesterday, passed a program, series of programs that I have not been able to study yet for D.C. residents and D.C. businesses. Something came out yesterday that passed the counsel late yesterday, but I don’t have any write ups at this point on it. [crosstalk 00:58:41].

Lane:

[crosstalk 00:58:44].

Speaker 3:

Just a small clarification, on the case they were talking about it was 95% decrease in revenue and not a 5% decrease in the revenue. Go ahead, [inaudible 00:00:58:51].

Lane:

I don’t know if anyone’s mentioned that the Montgomery County council grant for the Montgomery County grant’s online now. The application went live yesterday so it’s on their website.

Wendy:

Awesome. Ken, if he’s 95% decreased and he fires himself, then yes, under the Cares Act they are expanding it for unemployment for 1099s. That is available.

Speaker 3:

Again, for Schedule C though? [crosstalk 00:11:16].

Wendy:

I think that he could get it. He should definitely try.

Speaker 3:

That’s great, thank you. I think it was she by the way, but go ahead.

Stuart:

[crosstalk 00:59:25] a show and do a significant decrease to unemployment to say, look, I was making this. I’m now effectively unemployed. I think it’s going to be proof of “unemployment” that’s going to be probably a problem.

Wendy:

Good point.

Speaker 3:

A lot of questions on forgiveness. I think you’ve covered most of those. One thing by the way that no one’s talking about, and I know people are confused about, is this payroll tax deferment, could you address that because it doesn’t seem to be happening? Go ahead.

Wendy:

This is really on Stuart. He was sharing with us yesterday, the payroll tax deferment.

Speaker 3:

Now we can hear you, Stuart.

Stuart:

Okay. The payroll tax deferral is it basically says that you are allowed to defer your employment taxes for the period from March 27th through January 1st of this year. The deferral basically allows you to pay half in ’21, and half in ’22. The problem is that if you’re dealing with a payroll company, they’re not going to probably allow you to do that directly because the fact is, they aren’t going to be on the hook for the personal employment liability that is attune to withholding.

Stuart:

With some of the smaller payroll companies out there, if they’re in that position, I think you can say to them, “Look, you want my money, that’s fine. Put it into a separate escrow account, interest bearing escrow account so at least I’m getting the benefit of that money sitting there, that you don’t technically have to pay to the government and I should get some benefit for that period.”

Stuart:

I think with the small ones, we don’t know what ADP and Paychex are going to do on this area yet because I think they’re still trying to figure it out and they’re probably more busy trying to get payrolls out to people so they can apply for the PPP loans than thinking about the payroll credit. This is clearly going to be an issue going forward.

Speaker 3:

Okay, thank you. Lots more questions. I’m moving on to the online question, but just to be clear, a sole proprietorship is eligible for the PPP loans, is that correct?

Stuart:

Yes.

Speaker 3:

Great, thank you. The 25%, we’ve kind of covered that. Then for that 10K, if you get both loans, that’s going to be reduced from the eligibility based on the same criteria, correct?

Wendy:

Correct.

Stuart:

Correct.

Wendy:

I wouldn’t put the 10,000 in a separate account. That was one of the questions that came up. That’s not necessary. Just the PPP.

Speaker 3:

Okay. Then the group health, if your employer, as long as you’re covered under the group part of your employer plan, it’s no problem to include yourself even if you make over 100K. Correct?

Wendy:

Exactly. You just don’t include the wages over a 100K but you can include your insurance.

Speaker 3:

How do you determine if you’re a seasonal business? What’s the definition there?

Wendy:

That’s a good question. I mean basically it’s companies that have workers that they hire for summer. In the past it would be like a pool or landscapers and things like that. Pools aren’t opening, but [crosstalk 01:03:12] anything that would be separate. I mean, ice cream stores could be seasonal. Maybe you aren’t open the rest of the year but Jimmie Cone opens usually sometime in May, up in Damascus and Mount Airy.

Speaker 3:

Okay. If you can show consistent up and down with the season I assume.

Wendy:

Yeah.

Speaker 3:

U.S. citizen versus green card holders. Everyone is eligible or only U.S. citizens?

Wendy:

Well, the specific rule says you cannot include in the payroll costs, people that reside outside the U.S. There’s nothing [crosstalk 01:03:53] that I’ve seen about green card holders. Stu, have you seen anything [crosstalk 01:03:58]?

Stuart:

I think the issue is it’s payroll and employment, so if you are legitimately employed, I think this goes to an issue that hasn’t really been talked about is, what you could do with employees who aren’t really legally allowed to work or don’t have visas. I don’t think you can use those in your PPP costs even if you’re paying them.

Speaker 3:

Okay. Some people are applying and they get a number but it’s confusing to them. The banks are giving out numbers. I know Wells Fargo is now they’re doing a pre-application and giving you a number and it’s not even the SBA basic application. Any comment on how people can follow up other than just asking the bank what’s the next step?

Wendy:

Sure. I mean the best [crosstalk 01:04:53] the number is to, you should have a loan officer that you’re working with and call them repeatedly. Literally I’m on the phone all day long with different loan officers trying to get the PPP moving forward. A lot of them have done the free application and some give you a number and some don’t. When you have the SBA assigned number then usually you’re either told, “Yes, it was approved,” or, “No, it wasn’t,” within a day or two at the most. That’s what I’ve been seeing.

Speaker 3:

Okay. Then some banks are saying we have pandemic relief loans, not Paycheck Protection Program loans. Has anyone seen that and is this, the banks doing something other than the SBA loans?

Stuart:

I saw the question and I did a little bit looked at some stuff and I think that they’re re-categorizing some of it that it’s more what the bank is potentially what some credit unions and others are looking at. They’re willing to look at relief on your interest rates, relief on some of your payments. I’m not seeing that there is any formal program [crosstalk 01:06:19], the SBA program, but you do see a lot of credit unions and banks saying, “We understand you’re hurting and we’ll do certain things for your existing loans.”

Speaker 3:

You should ask specifically if the loan is under these programs it sounds like. Lane, this might be for you. Are there any class action lawsuits by the restaurants against insurance companies regarding this issue of interruption and possibility?

Lane:

I think Stuart had indicated in the comments that one has been filed in Chicago, but none have been filed in the D.C. area.

Speaker 3:

Right, I see. Okay.

Stuart:

In Chicago, they got a group of restaurants together who were insured by a common insurance company to file a class action suit regarding business interruption and coverage. Again, the point that I think Lane made with regard to state, insurance commissions are really looking at this and saying, “Wait a minute, this clearly should be covered by business interruption, especially if it’s mandated by the state.”

Stuart:

Right now the insurance companies are saying technically that they don’t buy. This is going to be a source of litigation I think until the states’ commissioners come out, because unfortunately this can’t be handled by the federal government because this is the one that’s been delegated specifically to the states.

Speaker 3:

Okay. Are credit unions like Navy Federal or USAA eligible to be part of this just like banks are, but not all banks are part of this and not all credit unions are part of this or do I have that mixed up? Are credit unions eligible in general, but not all have been become part of it?

Stuart:

Now the issue is that you have to be an accredited SBA lender. Some credit unions like Navy Federal I believe is an accredited SBA lender, so you can only go to an accredited SBA lender, which is why some banks are not involved because they’re not doing SBA loans. The same thing is true of credit unions, but if a credit union is doing and it is an SBA lender, then they are probably a good place to apply if that’s where you do your banking.

Speaker 3:

Wendy, you said something about Eagle Bank. Could you repeat what you said about Eagle Bank? Because they’re having trouble or they are giving out applications?

Wendy:

Okay. They’re taking applications and they’re taking applications from people that are customers and people that are not. I’ve been sending some customers over to them that have asked me, “Could you give me an introduction?” However, Eagle, they just hired their vendor to do the application. They’ve had the pre-application. You can send all your stuff by secure email to your loan officer, but they haven’t really started sending anything through to the SBA. That’s expected today and Monday and over the weekend hopefully.

Speaker 3:

Okay. Wendy, you send a couple of your clients had to submit additional documentation. Can you comment on what that is, other than the 941? I think if they also have management interest in other businesses, they have to explain that, the owners have this.

Wendy:

Yeah, so what they have to provide, when you have your application, if you own several companies, and this was a big issue last Saturday because there were a few customers of mine that own a couple of businesses and so their tax ID number, their social security number is on a few different businesses and so it was causing a hangup in some of the bank systems because it looked as if you’re submitting two applications. It’s the same person, but it’s really two businesses.

Wendy:

Maybe one, you own 10%, and one, you own 50%. There’s an addendum to the application that you would include and it would list all of the people that are in your business that have ownership in other companies. That would be an addendum A. You’d list the name of the business, what your percentage ownership is and what your role is in these other companies.

Speaker 3:

Okay. I’m sorry. For people who have paid themselves as a 1099 or as a sole proprietorship and they don’t have a payroll company, they’ve kind of done it by hand or they paid themselves at the end of the year, how do they go about figuring out how to document it properly to make sure they don’t get in trouble?

Wendy:

Well, they definitely need to have 1099s for sure.

Stuart:

Well, I [crosstalk 01:10:58] say if they don’t get a “1099” and they’re a Schedule C, then I think that their 2019 Schedule C of what they’re reporting for self employment tax purposes on the 1040 SE, would probably be their payroll number. I think that’s probably the safest number to use would be whatever you’re paying social security taxes on, that’s your payroll if you’re a Sched C.

Speaker 3:

Okay. We have a last question I can find that’s been submitted. Stephanie, how are HR leaders addressing these changes? How do you communicate effectively with your employees? How do you talk about the possibility of payroll reduction or furloughs defining these things? I know that’s a lot, but briefly, what are your thoughts?

Stephanie:

Okay. You’re dealing very carefully with all-

Ken:

Briefly, what are your thoughts?

Stephanie:

You’re dealing very carefully with all of those issues. Thinking through it, working with their employment attorney to talk about the different ways that it would be presented. They are also working, as I mentioned, you need to see how it will affect the different benefits. So you want to know is health insurance going to be continued? What happens to 401k? Is the loan going to automatically have to be paid? So you’re working there. A lot of the record keepers and the insurance companies have great resources and communications, so they’re doing that. But we’re also finding the leaders need to be empathetic because their employees are dealing with so many different things. Employees are working remotely now, they may not have been. Or even if they were working remotely before they have added stress, maybe they have their kids. So a lot’s going on.

Stephanie:

I’m also am recommending an employee assistance program may be a benefit that they have and they should be tapping into. There’s a lot of great resources in that with counselors. So that will help employees. So if someone is laid off and it’s very traumatic to them, they can be getting help on the counseling side and mental health as well. But clear over communicate is what you’re going to want to do. It’s got to have a lot of communications for them.

Ken:

Thank you. Stephanie. So, I’m going to start opening us up to everyone now. Christina, you’re asking about documentation. Have we not answered your question for 1099? Christina if you could raise your hand, we’ll try to get you unmuted if you need our help. Oh, there she is. I just saw her. Okay. Unmute. Okay, go ahead Christina. How can we help you with your documentation question for 1099? Okay. She’s not responding. Okay. Who else? If you could raise your hand, I’ll try to scan there’s a reaction button.

Stuart:

Let me see if I can answer her question the best. I would take, if you do get a PPP loan, I would put it into the separate account. I would only draw out any pay based on your what you calculate based on your net and earnings of self employment. I would have basically have a draw check cut to you as “Payroll.” At the same time I would cut the check for your taxes, self employment taxes. Then obviously the other ones of rent, and the other legitimate expenses. So it’s the same documentation the big issue is going to be is not taking out more from the PPP loan then what you’ve shown your average payroll is during the period of time. Because that was where you might have an issue. Wendy you have something to add to that?

Wendy:

Sure. I wouldn’t use the self-employment taxes just the salaries, not the taxes.

Stuart:

Right. Not the tax but I’m saying I would show that you’d be able to pay it because you are treating it as payroll in a sense.

Wendy:

Definitely. Definitely that. I think that’s really important.

Ken:

I think maybe the issue is people who have paid a lot of expenses before they pay themselves. Maybe the issue is their show showing a low payroll in the past and that’s what the concern is. Now they throw all the expenses so I’m thinking that’s the concern. But-

Wendy:

Right. The thing is when you’re self-employed and you’re a small or an LLC, you can do your distributions right? Distributions for taxes. So basically you write yourself a check, or if you have multiple partners then they get checks based on their ownership percentages. So that’s not really ever included as part of your income because the money from your S-corp is put on your personal return as income to you. So that’s the number that you’re going to want to use on the PPP. That’s the number that you would want to pay yourself out on like Stuart said. So whatever’s on your income tax return on your personal income tax return as your net earnings from self-employment will be what you would want to pay yourself out through the PPP.

Ken:

Okay. Someone’s asking, where do we look for information on the legislation for DC insurance commissioner? Does anyone have any suggestions where you find this insurance information as it evolves?

Stephanie:

Well the National Association of Health Underwriters has a lot of great resources and every Friday sends out updates on things that are going on. There’s also, each state Department of Insurance has their own website. So there would be alerts and all there. Stuart, do you have something to [crosstalk 00:05:16]?

Stuart:

I’m right now trying to get a hold of seeing if I can get the actual legislation that was passed yesterday. I’m trying to get it up on the screen. It says it’s loading so let me see what I get.

Stephanie:

Okay.

Stuart:

Then I can maybe [crosstalk 01:17:31] share it with everyone.

Ken:

Okay. Does anyone have any other questions for the panel? Raise your hand or just take yourself off mute. Okay.

Jessica Probst:

Can I ask a question?

Stuart:

I don’t see anything? Sure. Go ahead.

Jessica Probst:

So just thank you so much. So just to clarify, so if I have a small business and I have four employees, I can apply the PPP for the wages for them. I can include group coverage that also applies to me for health insurance for example. But am I correct that through the PPP because I cannot apply for two, I can’t send two different applications into it that I’m not eligible to get any personal relief in terms of wages. Is that correct?

Wendy:

Well for your personal money, do you receive the money, like distributions from your S-Corp or things like that? Or how do you-

Jessica Probst:

Their owner’s draws through my LLC. So I have documentation of that, but I, it seems like I would be an ineligible to include that from the PPP unless I’m misunderstanding.

Wendy:

Well, what I would include is on your… So the owner’s draws are paid, but then basically on the company, whatever is left at the end of the day, at the end of the year when you go get ready to file your tax return, your personal tax return, you’ll get a K-1 from your company. That K-1 has a figure that is how much you earned on that business. Right? That’s passed through to you personally. That’s essentially your [inaudible 01:19:00] so I would include that also.

Jessica Probst:

So I can include that?

Wendy:

[crosstalk 01:19:04] I would include that as well. Stu, would you agree?

Stuart:

I completely agree.

Ken:

Amy I think you had a question.

Amy:

Yes.

Ken:

It looks like you were raising your hand.

Amy:

I was. Yes. So my accountant just told me this morning that if we have applied for or expecting to get PPP or EIDL then we don’t qualify to defer our payments in. So she’s telling me I still need to pay a big chunk in for taxes. Does that sound right to you?

Wendy:

I’m going to leave that for Stu. That’s what I’ve read but I don’t know Stu might-

Stuart:

[crosstalk 01:19:45] Let’s put it this way. I know there’s no double counting, but I’m not aware that says that you… Can’t claim the refundable credit if you’re more than 100 people, except for furlough. My understanding is the deferral of tax means any portion. The deferrals doesn’t seem to limit the payment. Doesn’t seem to be tied to PPP or EIDL. But have not seen anything on that level.

Wendy:

Now I know for sure, if you want to defer some of your taxes the whole state of Maryland is allowed to not pay in withholding’s until June 1st. All your federal income taxes can be held back until July 15th so you could take that. But the part that Stu was talking about where you can defer into 21 and 22.

Amy:

Mm-hmm (affirmative).

Wendy:

I’m not sure. I think that your accountant is right and that you can’t do both because I think they were leaving that as a special opportunity for the companies that don’t do PPP.

Amy:

Mm-hmm (affirmative).

Wendy:

I’ll have to look for the exact citation on that.

Amy:

So if I don’t know if I’m getting PPP yet, I’m just applying.

Wendy:

Yeah, you just have to wait until your application comes back and then you’ll know.

Amy:

Okay.

Wendy:

Yeah. Hopefully you have a bank that’s going to reply quickly.

Amy:

Really? Yeah. I just switched to a new one because Wells Fargo was, they’re still going slow.

Wendy:

Yeah, I can imagine.

Amy:

Mm-hmm (affirmative).

Ken:

Any other questions, please mention in the chat so I can see you.

Speaker 4:

I have a question.

Ken:

Not everyone’s on video. Go ahead.

Speaker 4:

Hello. Can you hear me?

Ken:

Yes, go ahead.

Speaker 4:

Hi. So I applied early on as soon as they announced the EIDL and there was a complete different application format, and I received a number. Then when I was able to log back in and re-open and see status, and then that disappeared once they put out the updated application. Which was the emergency $10,000. So I have no way of going back and seeing status or finding out anything about the original application. Does that immediately get eliminated? Or the new $10,000 application that I re-submitted takes over that?

Wendy:

Stuart, do you have this?

Stuart:

No. You take it Wendy, I’m not really sure.

Wendy:

So you didn’t receive any kind of rejection or anything on the original application you put in? Nothing came back?

Speaker 4:

Nothing. Nothing.

Wendy:

You checked your spam and there’s nothing in there? Because they’ve been rejecting them is by email.

Speaker 4:

I just received confirmation of receipt.

Wendy:

Huh? I haven’t heard of that situation.

Stuart:

The other thing though I would be really concerned about is as I said this multiple applications from banks, because they are tracking it from multiple banks. If you get to sent in at the same time you may get kicked out of the deal.

Speaker 4:

But the EIDL is directly with SBA. It’s not through the banks.

Stuart:

Yes, exactly.

Speaker 4:

So I didn’t apply through a bank for EIDL. I applied through Ecobank for the PPP.

Wendy:

Right. Then you went directly with SBA on that?

Speaker 4:

Yeah.

Wendy:

I don’t know if it’s possible to get somebody from SBA on the phone either.

Speaker 4:

That’s what I’ve been [crosstalk 01:23:41] trying.

Wendy:

Yeah. I wonder. Stu have you had any customers get SBA on the phone?

Stuart:

Not yet. I’ve had a whole bunch of clients trying to call and get answers, but they haven’t.

Wendy:

Right.

Speaker 4:

Thank you.

Ken:

Okay. Yes. Becky. Becky you had a question? So far. We can’t hear you. Becky.

Becky:

No question, but two comments. This morning I was on another Zoom meeting and was told that Capital Bank is accepting loans. Even if you’re a new client, they’d like to talk to you if you don’t have any loans with them. So that’s out there. But also I was on a call yesterday and I can’t remember the guy’s name, but if you wait a second, I’ll find a number where you can call him directly. He’s with the SBA and he does not mind taking your call. So he’ll answer his phone. It’s his cell phone.

Wendy:

That’s awesome.

Ken:

Great. If you can send me that information. [crosstalk 01:24:48] Right if you could… Becky, if you could email me that information, I’ll make sure it goes out into distribution.

Becky:

Okay.

Ken:

That’s great.

Wendy:

Yeah. Great news.

Ken:

Yeah. So I won’t see any more questions we want to… And I know we’re running late, we want at the end to have a mental health moment. Because this is a busy business form, but we’re people too. I know Wendy has a list of distractions, and things you could be doing to help you cope with everything that’s going on. Wendy do you want to talk about that and-

Wendy:

Sure.

Ken:

… During the free-for-all if anyone else have any suggestions?

Wendy:

Well this isn’t anything fabulous or professional or put together. Really it’s just that one of my clients we do some HR work for, and they have a lot of people that are age 25 to 35 at home by themselves, in their apartment can’t leave. So that can be really debilitating on your good mental health. So they had said, “Hey, could you just put something together for us that we can share with them the different places they could go.” So I’m going to share my screen and then I’m going to give it to Ken that he can drop in the doc and C sharing. So hang on one sec. Let me just show you. Here’s some cool things and hopefully I can hit these sites.

Wendy:

But one of the things that I found in my research that was really great is National Institute of Health has this awesome guide that you can get. If you click the link in this, basically it’s got all kinds of information about I’m having an issue, I’m having anxiety, I’m having stress, et cetera. It’s got different links and places that you can go. Where you can get a free therapist, things that you can try to do like make your bed get dressed. I know some of us have heard this on the news already, but there’re all kinds of sites about like meditation, different apps that you could use for meditation, breathing exercises.

Wendy:

I just thought this was really awesome and I am a huge fan of NIH and Dr. Fauci and any of the institutes and centers there. We’ve done a lot of work with them over the years in my different, so this is one of the sites. Then there’s some other cool things too. Let me see if I can get back to where I was really quick and hold on one second. Let me try to get back to that document. Then can you guys still see my screen?

Ken:

Yes. We can.

Wendy:

Then there’s a free Dale Carnegie class, it’s kind of cool that you can get and it’s about communication. So that’s pretty neat that you can sign up and learn a little bit about communication. That’s always good. Then there’s other things like field trips this was really cool. I saw this on Facebook. Field trips to different places you can even see the great wall of China and look at the Louvre Museum in Paris, do a farm tour, check out some things on Saturn’s V’s rocket. All kinds of cool things that I thought were pretty neat. Let me get out of there. Then there’s also-

Ken:

Well you know your screen, we can see your document but we can’t see if you’re opening-

Wendy:

Oh you can’t see-

Ken:

[crosstalk 01:27:58] We’re stuck on the screen [crosstalk 01:28:00] Yeah. We’re stuck on the screen. Sorry I didn’t realize you we’re opening them.

Wendy:

[crosstalk 01:28:04]There were some cool things I was showing you. Let me see if I can stop it and-

Ken:

Yeah. Yeah.

Wendy:

Hold on one second.

Ken:

I think. Yeah, if you share desktop it will follow you.

Wendy:

All right. So then, so this is the thing for the mental health it’s pretty cool. Just all kinds of different things that you can see, different links you can go to that I was talking about. Then let me go back. Since it’s just a Word doc, that’s why it’s hard to make sure that you see everything. Then the Dale Carnegie class field trips, this is really cool. So you can see San Diego zoo go to look at animal cameras and different places like the Panda Cam at the zoo in Atlanta. You can see at the surface of Mars, how cool is that? Check that out. You can go in enter 360 and see what’s going on there. It’s pretty cool.

Wendy:

And all kinds of information about Mars. Pretty neat. Okay? Then we’re going to exit out of there, but lots of cool things there. You could probably entertain your family for a while. There’s free guitar lessons you could get online on Fender for the next… You can get 12 weeks of free guitar lessons. That’s pretty cool and go through the first few levels, so that’s pretty neat. Then free classes at Yale. This was pretty cool. There’s a class on wellbeing at Yale that you could get. There’re all kinds of other… Supposedly the most popular class that Yale has is this class about wellbeing. There’s this lady that teaches it and her class is for free online. She’s been on CBS this morning, so that’s pretty neat.

Wendy:

So lots of just different things you can check it out. I don’t want to keep you guys all day. There’s also free therapy, free guitar lessons. There’s free comic books on here. You can go look at online games, and streaming services like HBO, Fast Company Magazine had a bunch of services that you could get for free. Amazon Prime, Apple TV Plus, Disney Plus, HBO, Hulu, all these great things. So stay safe and hope you guys take advantage of some of these things. I’ll give it to Ken so that he can put it in the the block, put it in the documents that we’re sharing.

Ken:

I will-

Stuart:

Thank you. I will try and get a copy, I will probably email Ken a copy of the DC legislation that came out yesterday, which is not real definitive on a lot of things. It’s more on at this point builds of you have to wearing masks in restaurants, and masks if you go out, et cetera. I did not see a lot on the economic grant side of it. But I will keep the group posted and as they find stuff I will forward it to Ken.

Ken:

Okay, well thanks everyone for joining. I hope you found it informative. If you have comments, I think everyone has my email address, let us know. I’ll pass it on to the group, how we can improve these in the future. I hope you found this useful, I feel like… Again there’s a reaction button so please give a round of claps or applause for our speakers who really worked hard to prepare for this and keep on top of this very fast changing subject. So thanks so much. I see the claps coming through. Thank you.

Wendy:

Thanks for coming guys.

Stuart:

Yeah.

Wendy:

Thanks for coming today, guys.

Ken:

We’ll adjourn. By Monday, you’ll be getting an email with the documents, if not sooner. Then by Tuesday or so, we’ll be posting this online. We’ll be announcing the next Coffee. So we have to figure out how quickly we can put that one together. So thank you all again and have a safe day, a good weekend, and just stay safe. Thank you.

Stephanie:

Thanks you.

Wendy:

Thanks Ken for organizing.

Stuart:

Thank you.

Stephanie:

Thank you.

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