Your Daily Three: May 7
May 7, 2020
Our Daily 3 has produced such thoughtful engagement and insight into our clients’ most pressing issues. We feel there’s value in taking the time to answer and share those questions in hopes that it helps others who are facing similar challenges. As always, let us know if you have questions you would like answered.
Q1: "Since non-essential businesses in Illinois are closed due to the Governor’s order, how does such a business best utilize the proceeds of a PPP loan? It was funded in mid-April, but employees can’t go back to work yet but are still being paid, now from the PPP proceeds. Is it better for all employees to be furloughed and collect unemployment and then come back to work when the state opens? What impact would that have on having to achieve the 75% threshold for loan forgiveness? Are regular, on-going payments to employees required?"
We’ve received many questions related to maintaining employee compensation with PPP funds. We broke down the question above, which covers some of the most frequently asked questions on this topic.
- Since non-essential businesses in Illinois are closed due to the Governor’s order, how does such a business best utilize the proceeds of a PPP loan?
- LP Answer: Even where non-essential businesses are closed due to a state’s Governor’s order, PPP funds can still be used to pay employees of those businesses, even if the employees aren’t able to physically (or virtually) be brought back to work. This is a decision each business can make once they’ve received PPP funds – however – 75% of loan funds must be used for payroll expenses
- Is it better for all employees to be furloughed and collected unemployment and then come back to work when the state opens? What impact would that have on having to achieve the 75% threshold for loan forgiveness?
- LP Answer: This is a decision that needs to be made on a case by case basis for each business based on a business’ specific facts and figures. As noted above, at least 75% of loan funds must be used for payroll expenses (both as a general rule and to be eligible for loan forgiveness). If a business lays off employees or decreases employee compensation during the forgiveness period (the eight weeks following receipt of the loan), the amount of loan forgiveness a business is eligible for will be reduced.
- As a reminder, the loan forgiveness period only covers the eight weeks following receipt of the loan. Any use of the loan funds after that eight week period are subject to a 1% interest rate and two-year maturity
- Are regular, on-going payments to employees required?
- Ultimately, the main goal of the PPP loans is to support businesses with maintaining their workforce. Businesses should use loan funds to continue regular payments to employees. In order to be eligible for loan forgiveness, businesses will need to provide adequate documentation that shows how the loan funds were used, including for payroll expenses. Refer again to the note above regarding the requirement that 75% of loan funds be used for payroll costs.
- Aria D. Eckersley is an Associate in the firm’s Corporate Group. She advises clients on a variety of corporate matters including mergers and acquisitions, contract negotiation and corporate governance matters. Aria has a particular interest in working with female and minority owned businesses, learning about the particular challenges they face and bridging the information gap for new entrepreneurs in competitive industries.
Q2: "I am concerned about the well-being and morale of my employees working remotely. At the same time, I want to respect their privacy as I am sure many are experiencing some degree of stress and anxiety. I’m not sure this is a question for my law firm, but I am also treading carefully these days with employees, compliance and rules."
It’s not easy. First and foremost, it’s important to establish trust through consistent open and honest communications. In most cases, your employees have already gone to the worst-case scenario and are reading the papers and watching the news, just like you. They will know if you are not being transparent. For most people, this is a life-defining event over which they have no control, and, to the extent you can make them part of the process, it is both the professional and humane thing to do. Recognize and accept that your priorities right now (maintaining revenue, productivity, etc.) may not be the same priorities (in the same order) as someone who is home-schooling their children and concerned about the personal well-being of themselves and their families. That said, you are still running a business and are entitled to have your realistic expectations met while continuing to provide compensation and benefits to your employees.
Maintaining a resilient organization that can prosper from adversity is, of course, easier to do if the organization already had a culture of resilience, accountability and adaptability. But even if it didn’t, and you know who you are, there is no better time to create and enhance your company’s culture than in a time of crisis. Some suggestions include the following: maintain a consistent method of checking in with every employee or team leader – not just about what they are doing but how they are feeling; don’t make every communication or email about work; make sure your employees “work at home experience” is as easy as possible; invest in good video conferencing systems; make sure they have printers and paper and ink; designate someone who understands technology to be “on call” to help employees as needed; have individual conversations with employees about their schedules – some people may need to work different hours or different days depending on their obligations at home; and provide your employees with the resources they may not know exist to help them emotionally manage and navigate this new experience.
You’re right; most clients don’t come to a law firm for advice on employee morale, but we are also a business and happy to share the tools that we accessed during this time. Please use this link to access a collection of articles and resources that we found most valuable.
- Gary I. Blackman, is a partner in the firm’s Litigation Group and the firm’s General Counsel. Gary is a leader in promoting the business case for mindfulness in the workplace and the empowering and liberating effect of transparency and honesty, not only to improve risk management but to reduce stress, increase resiliency and enhance our personal and professional lives.
Q3: "What is the current status of any new workers compensation rules related to employees of essential businesses that contract coronavirus in the workplace?"
As we previously reported, in April, the Illinois Workers’ Compensation Commission enacted emergency rules creating a presumption that employees of essential business that contract coronavirus were exposed in the workplace for purposes of workers’ compensation liability.
Business groups immediately challenged the change, and a judge temporarily blocked enforcement of the emergency rules, saying that the Illinois Workers’ Compensation Commission exceeded its authority when it enacted the rules.
Now, the emergency rules have been rescinded, but both Governor Pritzker and the Commission have indicated that they will renew their efforts to ensure that workers’ compensation is available to employees who contract COVID-19.
Employers should continue to follow CDC and OHSA guidance to maintain a safe working environment for all employees or in planning for reopening.
- Becky Canary-King is an Associate in the firm’s Labor & Employment Group. Joining LP during the onset of the pandemic, she has dedicated her time to keeping up to date on the latest coronavirus-related guidance from federal, state, and local agencies, and advising employers on managing their workforce through the crisis.
3+. Read about our community heroes. In times of uncertainty, it’s easy to allow our metaphorically gray skies to cloud our outlook. Yet we know there are bright spots out there, we just have to look. On behalf of LP, we thank everyone for their part in giving back to our communities. If your business has pivoted to help respond to the pandemic, please let us know so we can showcase you as a client hero.
For more resources and LP's response to COVID-19, visit this webpage.