by Jay Wikum, CPA, CMPE, Partner
On Friday, March 27, 2020, President Trump signed the recently passed Coronavirus Aid, Relief, and Economic Security Act (The CARES Act). This package provides over $2 Trillion in economic stimulus and recovery, which includes relief for all sectors of the economy.
The Healthcare Services Group at HMWC has been working diligently to keep up with the latest news on this act and all of the ramifications it may have on you and your practice. The part of the act that is critical and will be very helpful is the $350 Billion in funding that will be made available as small business recovery loans.
Basically, the government is making loans to small businesses, which are intended to keep your employees employed as opposed to laying them off. The loans will equate to 2.5 times your last twelve months ‘average monthly payroll’ (excluding compensation for any employee in excess of $100,000, which will be most associate providers and owners). For example, if you pay an associate practitioner $130,000, only his or her wages up to $100,000 are included for the calculation of your loan amount. Office rent is also included in this computation to determine the Maximum Loan Amount.
It is anticipated that the loans will be made through banks all across the country. We are talking with several of the practice lenders to provide resources so you can submit your application as soon as possible. However, we do not expect banks to be ready to accept applications until the middle of the week at the earliest. In the meantime, you can begin procuring supporting information.
What makes this program so appealing is that preliminary documentation indicates that for the eight weeks following loan origination, the payroll, health insurance, rent and some other specific expenses incurred during this period will be ‘forgiven’ from the loan balance. Details are still developing on how this will work in practice, but that should be enough of an incentive to strongly consider this program.
Documentation to Gather
- Employee Earnings Report from your payroll company for the last 12 months (after your next payroll is run). You are advised to tell the payroll company specifically what you need, as they may be able to create a custom report. Be sure the report includes the following:
- Gross wages paid to each employee for the time period above. You should be included if you were paid through payroll, as well as any associates you may have in your practice.
- Paid time off, vacation pay, and family medical leave pay you paid out over this timeframe to each employee.
- State or local taxes that were assessed on the employees’ compensation during this timeframe.
- As we are not sure what exactly each bank will ask for, we would also recommend having ready all four quarterly Federal Form 941 forms for 2019, Form W-3, and your employees’ W-2 forms.
- All 2019 1099s issued to those whom you have paid non-employee compensation. This does not include anyone issued a 1099 for ‘overhead’ services, but rather a true independent contractor who would otherwise be an employee of your business.
- Total of all health insurance premiums paid by you for you and your staff under a group health insurance plan for the last 12 months, using the same time period that you are using for payroll as noted above. Your insurance provider should be able to provide this.
- Total of retirement plan funding (401(k) plan, SIMPLE IRA plan, SEP IRA plan) that came from you as the employer.
- This should not include any funding that came from the employees’ paychecks for their deferrals for the past 12 months.
- If your plan administration report is finalized for 2019, we recommend that you use this as your source for retirement plan funding totals.
- If your plan administration report is not going to be complete in the next two months, then you will need to obtain the amount deposited into the retirement fund account(s) for your plan. This should not include salary deferral portions over the last 12 months.
- For now, we assume this will include Defined Benefit plans or Cash Balance plans as well.
Please note that the rules for how these loans are going to be processed are not fully in place and there are many questions even among the banks that will be making these loans.
It is our understanding that most banking lenders, including Bank of America, Wells Fargo, Citibank, Bank of the West, and local banks who deal in SBA loans, will be offering this financing. You should start with your current bank to see if they will be accepting applications for this financing. If you find that in reaching out to your practice’s bank that they will not be processing these loan applications, it is imperative that you find one that will, and begin this process.
The most common question we’re received in the last few days is whether employees should be laid off or furloughed. Laying off your employees would require you to pay out all accrued vacation, PTO and sick time. There are also other ramifications for health insurance and other benefits. If your employees are no longer your employees, you have no obligation to comply with the First Family Coronavirus Recovery Act provisions for Family Leave and Sick Pay.
It is our recommendation that you contact a licensed labor law attorney to discuss your employee-related questions.
Resources for advice on labor law matters include:
- TREDWAY LUMSDAINE & DOYLE: tldlaw.com 877.923.0971 (Shannon Jenkins)
- CARLSON & JAYAKUMAR: cjattorneys.com 949.222.2008
- FISHER & PHILLIPS: fisherphillips.com 949.851.2424
- HR FOR HEALTH: hrforhealth.com 877.779.4747
We are following the situation very closely and will keep you updated. We will do everything we can to help you in these challenging times. Call us if you have other questions, and please stay safe and healthy.