After a brutal month of April that saw business off as much 80 percent from a
drycleaners were witnessing a recovery of sorts in May in which business “improved” to a level of
65 to 70 percent off year ago figures as people began slowly emerging from a
virtual lockdown in
the face of the spread of the COVID-19 virus.
Government ordered shutdowns of business that were beginning to loosen in May
most cleaners directly since they were generally deemed essential and allowed to
But being open did not equate to having business. Many people were working from
perhaps in pajamas and bathrobes, and many others were out of work completely,
so the need
to maintain a professional wardrobe vanished. Gatherings that would draw crowds
dressed people, weddings for example, were not taking place.
Cleaners scrambled to develop new revenue streams, such as making face masks
suddenly became must-have items even for simple trips to the grocery store.
Others tried to
build on existing revenue streams, such as wash-dry-fold services or home
pick-up and delivery.
There was business to be had, but one had to find ways to go get it.
And would there be enough to keep employees busy? That became a key question as
grappled to come to terms with the Paycheck Protection Program that granted
money in the form
of loans to companies to keep employees on the payroll. The loans would be
forgiven if an
employer could show that the money was indeed used to pay employees.
Under the terms of the PPP, if 75 percent of the funds received are used for
payroll costs, the
loan would be forgiven. In addition to payroll, loan money can also be used for
mortgages, rent, and utilities, but least 75 percent of the forgiven amount must
have been used
Therein lies the dilemma for drycleaners. To qualify for forgiveness, they must
staffed, but with business off so dramatically, the usual work is not there for
employees to do.
The PPP loans are intended to cover eight weeks of payroll. An employer who
loans and then re-hired workers previously laid off as a result of the crisis
would not be penalized
for having a reduced payroll, but in some cases laid-off employees might be
reluctant to return
to work. In addition to unemployment compensation, they were also getting an
additional $600 a
week which could make staying at home more profitable than going to work.
If an employee refuses to return to work, the employer may not be on the hook
portion of the loan. The Small Business Administration said that if an employer
makes a good-
faith effort to rehire an employee and can document the employee’s rejection of that offer, the
employee will be excluded from the forgiveness calculation.
Also, borrowers can obtain “safe harbor” from forgiveness reduction if they can show that by
June 30, they restored their workforce to the level in place on Feb. 15.
In May, the SBA released an 11-page loan forgiveness application with
instructions on how to
complete it. While the document clarified a number of administrative queries,
such as when,
exactly, does the eight-week covered period begin, it fails to address several
key issues. Those
include whether bonuses can count as cash compensation, and how quickly
forgiveness will work.
The SBA said it would “soon” issue regulations and guidance to further assist borrowers and
lenders. There's no timeline for this next release.
For businesses that got in early and received their PPP loan in April, the
process of seeking
forgiveness will begin soon. The eight-week covered period begins when the loan
funds reach a
borrower’s account. That may not make sense for businesses whose pay periods do not
correspond to that loan disbursement date.
For example, the SBA said that if a business owner received PPP loan proceeds on
April 20, and the first day of the company’s next pay period begins Monday, April 27, that
constitutes the first day of the “alternative” payroll. The alternative payroll covered period does
not apply to non-payroll costs.
Businesses won’t have to contort their normal bill-paying and payroll processes to conform
For business owners who pay rent on the first of the month but didn’t get their PPP
disbursement until mid-month, the forgiveness loan application says eligible,
must be paid during the eight-week covered period or incurred during that time
and paid on or
before the next regular billing date, even if the billing date is after the
Similarly, eligible payroll costs incurred but not paid during the eight-week
period are covered
if paid on or before the next regular payroll date.
And what constitutes those payroll costs?
SBA said that payroll costs are calculated on a gross basis without regard to
imposed or withheld, such as the employee’s and employer’s share of Federal Insurance
Contributions Act (FICA) and income taxes required to be withheld from
As a result, payroll costs are not reduced by taxes imposed on an employee and
required to be
withheld by the employer, but payroll costs do not include the employer’s share of payroll tax.
For example, an employee who earned $4,000 per month in gross wages, from which
federal taxes was withheld, would count as $4,000 in payroll costs. The employee
$3,500, and $500 would be paid to the federal government. However, the
payroll taxes imposed on the $4,000 in wages are excluded from payroll costs
under the statute.
The process of sorting all this out is likely to be a long one. Cleaners have
been advised to
keep careful records of how they use the PPP money and be ready to report in
great detail when
they apply for forgiveness.
They will not be alone. As of May 16, SBA said more than 4.3 million PPP loans
than $513 billion dollars had been approved. More than two-thirds of the loans
were for $50,000
or less. Overall, the average loan size was $118,000.