What Does a PPP Loan Mean for Employees + FAQs

During these trying economic times, the Paycheck Protection Program (PPP) helps workers stay financially afloat. The PPP loan represents the primary source of support within the CARES Act and — along with the $349 billion funded by the Small Business Administration (SBA) — aims to supply loans to businesses which cover at least eight weeks of payroll. Other costs relevant to business viability can also be covered under some of these loans.

PPP loans are designed to help employees continue to pay their bills even as many businesses have ground to a halt or suffered significant financial losses due to COVID-19. This article will help you understand the PPP loan program and provide information on how to navigate the federal stimulus program as an employee.

In response to the crushing economic consequences of the ongoing coronavirus pandemic, the U.S. government established PPP to cover payroll costs via forgivable loans issued to employers. These loans are aimed at supporting economic stabilization by keeping workers employed during this crisis. If your employer has applied for a PPP loan, the following components of your regular pay and benefits should still be covered:

• Full salary and wages
• Annual commission and tips (capped at $100,000 for each employee based on past averages or estimated by time worked)
• Medical, sick, vacation, parental, and family leave
• Separation or dismissal allowances and severance packages
• Retirement benefits
• Group health care benefits (including insurance premiums)
• State and local taxes assessed for compensation

You may wonder if these PPP loan perks apply to independent contractors and sole proprietorships. The answer is yes. If you are self-employed, any income, wages, net earnings, or commissions that you make annually are provided for under PPP guidelines. These costs are capped at an annualized $100,000 per employee.

You may be worried because your employer did not get approved for the first round of PPP loan funding that was made available. The good news is that the second round, officially called the Paycheck Protection Program and Health Care Enhancement Act, was signed into law on April 24, 2020. The SBA resumed accepting loan applications as of April 27, 2020.

This second round of funding offers $310 billion in supplemental PPP loans designed explicitly for small businesses. This new legislation mandates that a minimum of $60 billion of that money must be directed to small lenders. Another $60 billion must be used for the refreshing of the Economic Injury Disaster Loan (EIDL) program and includes $10 billion for a series of $10,000 grants.

When your employer files for a PPP loan, you can be affected in multiple ways. SBA regulations specify that PPP loans must be funded within 10 days of approval. Starting from the date of the loan’s origination, your employer is granted a total of eight weeks, or potentially more, to disperse the funds if they plan to apply for loan forgiveness unless an extension is put in place. For the loan to be forgiven by the federal government, a minimum of 75% of the loan must be spent on payroll.

Once a PPP loan has been secured, it is up to your employer to decide whether to bring you back to work. Your employer does not have to bring you back for you to keep getting your paycheck. Some states are still under restrictions that can impact whether you are allowed to return to your workplace.

While the Occupational Safety and Health Administration (OSHA) has released safety guidelines that companies are expected to abide by, you don’t have to return to work if you do not feel safe.

However, if you decide not to return to work yet, it is important to realize that you can jeopardize both your employment and any unemployment benefits you may currently be receiving. Unemployment under the CARES Act is steered by each state’s work requirements, and some places specify that if hours are available to be worked, you must work those hours to keep your benefits.

There is a common misconception circulating that companies cannot get a PPP loan if they have already obtained an EIDL loan. This is not the case, and companies can get both so long as they meet the key requirement of not utilizing money from both loans for the same thing.

For instance, if your company has already listed its EIDL funds as going toward keeping payroll afloat, they will not be able to list any PPP loan funds under the same need.

These are the types of businesses eligible for a PPP loan:

• Any “Accommodation or Food Services” business that has 500 or fewer employees per individual location
• Independently owned franchises
• Independent contractors, self-employed workers, sole proprietorships, and gig workers
• Tribal businesses

Company heads must be able to provide documented proof that the coronavirus pandemic has negatively impacted them. The deadline for this second round of PPP loan funding is currently listed as June 30, 2020.

In most cases, employers will notify their employees if they receive PPP funds, as they will need to call them back to work so that the loan is forgiven. Since this loan directly affects furloughed employees, the company will want to adjust its filings with the state’s unemployment office. By not doing so, those workers could receive additional unemployment benefits they’re not entitled to.

In rare cases, employees can demand information from their employers under disclosure laws. This is a contentious option and should be considered only as a last resort. The Washington Post advises consulting a lawyer before taking this step.

Luckily, you might not have to. Under open government transparency guidelines, information on recipients of the $793 billion in forgivable government loans is a matter of public record. Over at FederalPay.org, you can search their database by location, company name, or industry.

Not unless you're the business owner, and even then, the PPP loan's full principal amount and any accrued interest could be either partially or fully forgiven if certain circumstances are satisfied. These circumstances range from what the proceeds were spent on to what extent the business maintained or rehired its employees.

For those who are self-employed and applied and received a PPP loan, you can claim 100% of it (or about $20,000) as payroll under the bill's compensation replacement. However, if you spent more than 40% of your loan on non-payroll-related costs — including rent, mortgage interest, utilities, etc. — then that portion over 40% will not be eligible for forgiveness. A 1% fixed annual interest rate and a five-year repayment term will apply to the unforgivable part.

Otherwise, if you're an employee of a business that applied for this loan, you have nothing to worry about.

If you are considering returning to work upon your company’s acceptance of a PPP loan, there are a few things to be aware of concerning your rate of pay. PPP loan forgiveness guidelines forbid an employer from reducing any employee’s pay by more than 25% if that employer plans to seek loan forgiveness.

On the flip side, a multitude of businesses have already issued hourly workers hazard pay and may consider a similar compensation increase if you decide to go back to work. These pay raises are designed to offset any safety concerns you might have about coming back. Any yearly increases or cost-of-living raises that you are accustomed to receiving should be included in your company’s PPP loan.

Most businesses are trying to keep pay as normal as possible by setting these raise standards on last year’s model or whatever an employee is accustomed to receiving in years past.

Will I Be Furloughed If My Company Receives the PPP Loan?

While many are comforted that a PPP loan means they can still get paid throughout the pandemic, many are still worried about being laid off.

It is unlikely that you will be furloughed if your company has received a PPP loan unless there was some plan for that before the outbreak. Payments on PPP loans are deferred for six months, even for companies that do not seek out loan forgiveness through the federal government. Companies seeking loan forgiveness are responsible for showing that at least 75% of the PPP loan money was spent on payroll. This means employers have little to no incentive for losing staff that can be included in recordable payroll expenses.

My Company Received the PPP Loan, and I Can Return to Work, But I Need Child Care. What Are My Options?

A second consideration many employees worry about when they return to work is child care. As some schools and daycares remain closed, the Families First Coronavirus Response Act (FFCRA) has made paid leave available for qualifying employees.

If your company consists of fewer than 500 employees, its employees will be considered eligible for paid leave benefits if they have children at home due to closed schools. While much of this legislation changes by the minute, and it remains unclear how these benefits will be handled in the summer when schools would normally be closed, but this temporary assistance may buy you some time to figure out when it’s best to go back to work.

For those who do find themselves in the market for new employment, Joblist offers easy browsing across all major career fields, as well as resources aimed at helping you make your best first impression. We know the workplace has been altered for everyone this year due to the global pandemic, and we strive to provide workers with access to the most up-to-date employment information available. So if you’re on the hunt for a new job opportunity, consider Joblist for your search!