This applies to what we call rule number four, which is the headcount rule you would have to meet it. I think that the reason why you have two choices.
Have a look back period for headcount. You have the first two months of this year, or you have a period that is, you know, about a year ago. So, the February 15 to June 20 period last year. The reason why you have two choices and can pick the lower headcount is that you know there’s a realization that some of this kind of thing of employees quitting or that sort of thing is going to happen. So they wanted to set a headcount standard that is reasonable. Whatever that headcount is that full-time equivalent headcount, whether it’s the first two months of this year, or it’s that time period of last year, you, you will have them to meet it.
So with respect to what we call rules, four, and five. So the headcount rule and the individual employee reduction of no more than 25% pay rule. There is what people are calling an exception or a safe harbor, that sort of thing to that rule and the way it’s being described, at least in some of the articles. What’s going out is that rules four or five don’t apply if, by June 30, the business brings back the headcount that was in place at that time, or they bring back wages up to at least 75% by June 30, 2020. There are two real big unanswered problems with that quote-unquote safe harbor.
The first is that it’s written in a section of the statute and a manner that is probably the poorest drafted portion of the entire statute, it is incredibly difficult to read. It does appear to say, hey, you could just bring everyone back on June 30, and as long as you do that, you’re fine. But that has inherent to it. Two major problems. One is I just highly doubt that Congress intended to set a rule where you could just bring everyone back for one day. On June 30 and then fire them on July 1 because there’s no kind of limitation in that rule on. You have to keep them around for a certain amount of time, and if the rule means what everyone is sort of saying means, then, that to me, is a very peculiar kind of result, so I hesitate there. T
The second is that in order to meet the 7525 rule of using at least 75% of the funds for payroll costs and the other 25% for non-payroll costs, you’re going to have to bring everyone back for the eight weeks. So if you’re thinking, Oh, I’ll be so smart and get around rules, four, and five by just, you know, waiting to the very end and bringing everyone back on June 30 you likely will not be able to use very much of the money for forgivable purposes. As a practical matter, again rules, four, and five. They get swallowed into the, into rule number three. If you are using the money, you know 75% for payroll and the other 25% for non-payroll.
– Darin Leong (04/23/20)