What a week that was! The stimulus package signed into law presented some very intriguing opportunities for our clients leading to a frenzy of activity. The most popular and discussed part of the package was the Paycheck Protection Program (PPP) Loan. Further discussion isn’t warranted in this blog as many of our agency owners are aware of the details. After the world turned a few times, a new line of questioning has come our way, particularly surrounding the Employee Retention Credit. Here we go, but some facts first:
- A business claims the Employee Retention Credit if the business is fully or partially suspended by government order due to the crisis OR the employer’s gross receipts are below 50% of the comparable quarter in 2019. Given this criteria, we view this credit as much more applicable for clients with extreme business disruption.
- The amount of the credit is applied against the employer’s share of payroll taxes, up to 50% of wages paid from March 12, 2020 through January 1, 2021. The credit calculation is limited to $10,000 in wages per employee. In other words, the credit can reach up to $5,000 per employee that is retained.
- You can’t get both a PPP Loan and claim the Employee Retention Credit.
The last item is what is being wrestled right now. Some agency owners are questioning if they made the wrong decision by taking the PPP Loan instead of the Employee Retention Credit. From a cash perspective, it’s a legitimate question, but absent a crystal ball, is difficult to answer. In our view, a majority of our clients are better off exploring the PPP Loan. Even if disruption exists, the forgivable portion of the loan is a nice buffer for whatever the 3rd and 4th Quarter brings. Even if the PPP Loan proceeds do not become available, there is an alternative in the Employee Retention Credit to assist with cash-flow.
Here are the difficult questions we’re attempting to answer to create a model for our clients to make an educated decision:
- If you are shut-down (or partially), when do you anticipate revenues ramping up to a level you were at before the crisis?
- If you plan to accept the PPP Loan and are in a disruptive state, what is your head-count going to be for the weeks and months to follow acceptance of the loan?
- Can you afford to wait to apply for the PPP Loan, knowing the funds may not be available?
These are certainly difficult questions to answer as they’re prospective and can only be projected. The PPP Loan, of course, brings with it certainty (ha!) in terms of calculations on retroactive payroll costs, which brings some level of comfort in decision-making. We will continue to post updates on our website or you can call us at 1888-497-9761.