[danans]

Just following that section is this:

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(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.

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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:

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(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.

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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.