[zaroth]

> The terms of the bailout loans are such that they can lay off people before they apply, get the money, and so long as they don't lay off any additional people after they get the money, the loan converts into a grant.

This is false. The formula for the maximum amount of the loan is based on last years employment levels, or optionally, for companies that were not in business last year, based on January-February employment levels.

Any layoffs now do not help make the loan any larger, they will in fact reduce the size of the loan.

See Section 1102(a)(2)(36)(E) and 1106(d)(2).

The formula for the amount of the loan which can be forgiven is based on the employment levels remaining at last year's levels. There is an exemption in the case of tipped workers, as long as any layoffs are hired back by June 30th. (that is to say, the number of employees, not the same employees)

EDIT:

https://www.congress.gov/bill/116th-congress/house-bill/748/...

  The amount of loan forgiveness under this section shall be
  reduced, but not increased, by multiplying the amount described
  in subsection (b) by the quotient obtained by dividing--

  (i) the average number of full-time equivalent 
      employees per month employed by the eligible recipient 
      during the covered period; by
  (ii)(I) at the election of the borrower--

    (aa) the average number of full-time equivalent 
         employees per month employed by the eligible recipient 
         during the period beginning on February 15, 2019 and 
         ending on June 30, 2019; or
    (bb) the average number of full-time equivalent 
         employees per month employed by the eligible recipient 
         during the period beginning on January 1, 2020 and 
         ending on February 29, 2020;

     (II) in the case of an eligible recipient that is 
          seasonal employer, as determined by the
          Administrator, ...

[qqqwerty]

The max loan is $10M though. And the amount of the loan is based on 2.5x the average monthly payroll costs for the year prior to the application date. So it seems like there are a few loopholes:

a) If you have monthly payroll that is higher than 4M a month (2.5x4m=10M), than you can cut payroll and not have your total loan amount impacted (although it might impact the amount of loan forgiveness)

b) If you hired a ton of people over the last year, your average monthly payroll costs is going to be lower than your current payroll costs. And seeing as how the comparison period for forgiveness is the first half of 2019, this gives companies a free pass to cut employment to those levels without punishment.

So yeah, not all companies would benefit from layoffs (particularly smaller companies that have no little or no employment growth in the past year), but it seems like at least some could. The caveat here is I am not very familiar with the bill, so I may be missing some clauses that protect against the above scenario.

EDIT: Also, its not clear to me how the 25% salary cut exemption and the max $100k clause play into this. It seems like the payroll ratios that are used to adjust the loan forgiveness amount don't get adjusted. So in the above loopholes, instead of laying off employees, you could cut salaries without penalty. Alternatively, you could cut salaries by 25% but add more employees to the payroll to get the same monthly total in order to qualify for the full forgiveness.

[zaroth]

> The max loan is $10M though.

This only pays for employees that make $100k or less for companies with less than 500 employees.

$100k / 12 * 500 = $4.1M.

If you have a monthly payroll of over $4M then you almost certainly don’t qualify for this program in the first place.

[danans]

Just following that section is this:

-----------

(3) REDUCTION RELATING TO COMPENSATION.—The amount of loan forgiveness under this section shall also be reduced by the amount of any reduction in excess of 25 percent of compensation in the most recent full quarter in which the employee was paid in compensation during the covered period of any employee who was compensated—

(A) in an amount less than $33,333 during the period beginning on March 1, 2019 and ending on June 30, 2019; or

(B) not more than $100,000 on annualized basis during 2019.

------------

IANAL, but that sounds like employers can reduce employee compensation by 25% without any reduction in loan forgiveness, for any employee making less than $100k/yr.

Also, unless the individual workers are being tracked, they could also fire the existing workers, and hire replacements at a 25% reduction in compensation. Especially at the more easily replaceable sectors of the labor force, there are a lot of people desperate for employment right now.

EDIT: The Application section states:

-------------

(e) Application.—An eligible recipient seeking loan forgiveness under this section shall submit to the lender that originated the covered 7(a) loan an application, which shall include documentation verifying the number of full-time equivalent employees on payroll and pay rates for the periods described in subsection (d), including—

(1) payroll tax filings reported to the Internal Revenue Service;

(2) State income, payroll, and unemployment insurance filings;

(3) financial statements verifying payment on debt obligations incurred before the covered period; and

(4) any other documentation the Administrator determines necessary.

-------------

So it says they are interested in the number and fulltime-equivalent employees and pay rates, but nothing about the replacement of existing workers, although that information should be available in the payroll, state, and unemployment tax filings. With all likelihood, they are just looking at totals, just for efficiency's sake in processing the number of loan applications. This seems to leave a loophole open for unscrupulous employers to dock employee pay 25% without cause.

This is all an emergency drill of course. We're all going to see how this shakes out.

[zaroth]

Yes, the grant also provides some downside protection on actual compensation, not just employment count.

A vast number companies are hanging on to employees to pay them to do nothing right now. Stores closed, employees who cannot work from home, but still getting a paycheck. These grants basically allow the companies to keep these employees on payroll.

[danans]

Downside protection to whom?

A significant amount of the terms of the loan forgiveness rely on employers "doing the right thing" by their employees: not docking their pay up to 25% while still claiming the full loan forgiveness. So in this case the lender and the employees are holding the bag for that 25%.

Why allow the employers to convert the full loan to a grant while reducing employee pay? Looking at it the other way, why wouldn't an employer reduce employee pay by up to 25% when they can pocket the difference?

Like I said, we'll see how that works out.

[qqqwerty]

The loan can only be used on qualified expenses, roughly rent, payroll, and utilities. And there is a $100k cap on qualifying salaries. So in the hypothetical scenario where revenue goes to 0, the owner can only use the money to pay their own salary up to $100k.

Of course, in the real world, I assume revenue for most companies won't go to 0. So there are probably cases where they could offset payroll costs with the loan while pocketing the revenue that would have been used for payroll. In the grand scheme of things though, the loan is only ~2.5 months of payroll, and the businesses that won't feel the impact of this coming recession will be few and far between.