Good morning everybody -
It is certainly a goal of mine to keep these emails informational, but not so frequent as you feel like it is spamming up your email. However, there's been a whole bunch of things that have changed over the last few days so I'm going to send emails out today and tomorrow. Today is more of a summary of the current stimulus plan and tomorrow we will start talking about some cash flow tools.
It is very very important to note that final rules (and ultimate passage) have not been set yet. In other words, we simply do not know the details of most of this relief plan. We have insights into some things currently in the plan, and I will spend some time today giving you an update that is garnered from several sources. The goal is that you simply don't have to spend the time searching around trying to make sense of it today – you have a business to run. Let me be your funnel for this info. The numbers in this plan are a bit crazy, and hard to comprehend, but here are the highlights of how the plan affects your business. No opinions or suggestions in today’s letter, just a reporting of what is generally known of the package.
The latest on the stimulus package
Employer payroll loans/Employee retention tax credit: OK, this one is a little bit different depending on which source you read. That is just a further indication that these things are not yet set in stone. In general, it appears that there is a bucket of $350 billion for loans to small businesses with the specific purpose of covering employee wages. It also appears that employers can apply (not sure how yet) for a loan of up to 250% of your average monthly payroll - up to $10 million. Tied to keeping employees, there is also appears to be a tax credit or loan forgiveness. Depending on the source, employers retain/build back up between 50% and 80% of their workforce over the next several months, some of this loan will be forgiven or the business will be issued tax credits to offset the loan.
Payroll Taxes: Companies will be allowed to pay their 2020 payroll taxes over time - through the end of 2022. Currently both workers and employees pay 6.2% Social Security and 1.45 Medicare from each check. So, think of this as a 7.6% reduction in your payroll cost in the short term.
One-time payments to individuals: One of the most talked about (and unusual) parts of the plan are one-time direct payments to individuals. The payments are $1200 for individuals ($2400 for couples) with $500 per dependent child. The information of what you are eligible for will be based on your most recent tax return filed. There is a phase out, however. Payment amounts to individuals who reported income greater than $75,000 will be reduced, and any individual who reported over $100,000 will not be eligible. (Go ahead and double those phase-out numbers for people who filed their return jointly with their spouse.)
Unemployment Insurance Benefits: A $600 increase per week for up to four months in unemployment insurance benefits, over the top of what is already available in each state. In addition, self-employed, independent contractors, and gig workers will be eligible. In a state like my home state (South Dakota) this is significant as the state currently caps weekly benefits at 50% of your former wage up to $414 per week. It is worth noting that this has received blowback from some people in the House.
Stock buy-backs: Companies that use the federal loans or grants will be banned from stock buybacks for a period of time after the loan is paid back. It is not yet clear to me, for those of you who are working on a full or partial sale of your business, if this will extend to certain types of internal transfers or stock redemptions.
Timing of funds: On top of not knowing what the specific rules for each of these programs will be, it is unclear when these funds will become available to businesses or individuals. In fact, it is not yet clear who will issue the funds - whether it be banks, the federal government directly, state governments, etc.
Other stuff: As you can expect with a package this size, there's a bunch of other things that do not apply to the readers of these updates. That includes bailouts for airline industry, replenishment of funds for national medical supplies (NY disagrees that this even exists), funds for hospitals, and other Federal Reserve funds to support local governments. But we all need to keep blinders on and focus on the things that are within our purview.
Focus on what we can control, right?
Employee Town Halls: I’ll just put this out there. Let me know if your business would like me to join your employee Town Hall/All-Hands meetings to be able to answer questions they may have. There is no reason for you to be an expert at the stimulus plan – focus on running your business in a challenging time.
Let’s be careful out there.
Sergeant Phil Esterhaus
I mean, Brian Gramm
bgramm@seemorehawk.com
Mobile: 605-929-6740