Risk Management

Risk Management

Our relationships transcend the typical attorney-client dynamic. Our lawyers become an integral part of a business’s strategic planning and risk management teams, working hand-in-hand with management to grow your business.

We partner with our clients to ensure that legal relationships are aligned with their business goals, working together closely to establish standard operating procedures that will address the everyday risk involved with managing a business. Each step of the way, we’ll weigh the potential costs and benefits of each prospective approach and action – whether it involves developing and implementing strategies for commercial agreements, managing employment and benefits risks, or analyzing and evaluating insurance plans.

We are comfortable operating in industries with long-standing market practices, but we also focus on emerging industries that need a more tailored approach to risk management and resource allocation. For each of our clients, we take a customized, practical approach to risk management, while keeping the company's strategic goals in perspective.

Our Services

  • Entity structuring: aiding in entity selection; structuring to minimize risk and owner liability
  • Commercial agreements: coordinating risk profiles for suppliers and customers, including impacting factors like raw material costs, term lockups, and tooling access and ownership
  • Global project management: devising solutions for the unique and complicated risks that apply in diverse global markets, while utilizing the local intelligence of our alliance lawyers to implement the chosen strategies to grow your business in markets worldwide
  • Licensing agreements: developing strategies for inbound and outbound licensing of IP, including patents, marks, copyrights, processes, branding and know-how; preparing and negotiating inbound and outbound licenses and sublicenses to use, produce, reproduce, or market services or goods incorporating or relating to IP
  • IP analysis and risk assessment: analysis of IP platforms; preparation of IP protection strategies; inbound and outbound licensing preparation; comprehensive IP audits
  • Standard operating procedures: creating processes for managing your internal and external business needs while incorporating “best practices” into financial, commercial, IP and human resource platforms; conducting executive and administrative staff training for the purpose of implementing best practices
  • Employment and benefit risk: drafting and reviewing employment policies and procedures; drafting employment contracts and independent contractor contracts; advice regarding implementation of polices and compliance with federal, state and local laws regarding the workplace; defending employers against administrative and judicial actions alleging violations of employment laws

Our Clients

Our risk management clients range in size from pre-seed start-ups to mid-sized public and private entities. We advise clients across a number of industries, but our service always focuses on the unique opportunities, risk factors, and cost structures that affect each specific client need and goal.

People

Steve Barsotti

Managing Director + Chair, Emerging Business

614-462-5458Email
David M. Wilson

Director + Chair, Privacy + Data Responsibility

614-462-5406Email
Kacie N. Davis

Director + Chair, Business Transactions + Franchising

614-462-5402Email
Vinita Mehra

Director + Leader, Global Business Practice

614-255-5508Email
Luis M. Alcalde

Director

614-462-5480Email
Chuck Kegler

Director + Chair, Corporate Practice

614-462-5446Email

Experience

Providing Strategic Counsel for a Global Online Payment Company

Sale of Food Safety Consulting and Research Business

Exchange of Real Property Between U.S. Army and Private Industrial Park

Creation of Dual-Rail Industrial Park

Publications + Presentations

Article

New Data Privacy Requirements, But Do They Apply to Your Business?

publication

Ohio’s Revised LLC Act - What You Need to Know

Article

Guess What’s Back (Back Again)

E-mployment Alert
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School’s Out for the Coronavirus

Smart SummaryWith schools once again switching to remote learning, the FFCRA is once again front of mind for business owners and HR managers.Offering flexibility in telework and intermittent scheduling can help employers avoid having to grant FFCRA leave for working parents.HR departments should monitor the reasons for requested leave because a company is only eligible for FFCRA tax credits for qualified leave.“Out for summer, out ‘til fall, we might not come back at all.” Franklin County is now listed as purple on Ohio’s COVID-19 map, and three more counties are approaching that level. Last week, the city of Columbus and Franklin County issued a Stay-At-Home Advisory “strongly advising” residents to stay home, not travel outside the state, and forego houseguests during the holiday season. In light of these developments and the continued surge in cases, many Columbus-area schools are changing their learning models. Some (like Dublin, Reynoldsburg, and Worthington) have shifted to a full remote schedule for the rest of the year, while others are giving parents the option of in-person or remote learning. But even though school may be out, it doesn’t mean employees have to be. We’ve outlined the FFCRA paid leave options here, here, and here, but as a reminder, parents who are unable to work due to a need to care for children who are at home due to school and daycare closures can qualify for up to 12 weeks of paid leave under the expanded FMLA and emergency paid sick leave provisions of the FFCRA. This leave is paid at ¾ of the employee’s regular rate. As we move into this next phase and leave requests presumably increase, here are some key reminders for employers (with an assist from “School’s Out” by Alice Cooper). 1. “No more pencils, no more books.” (but Mom and Dad may still have to work) Perhaps the most important exception to the paid leave requirements is outlined in the FFCRA itself. It specifies that parents must be unable to work—including telework—due to the need to care for kids who are at home. This means that if you allow employees to work from home and/or on a flexible schedule, they may become ineligible for leave. For example, if an employee has children who will be home and needs to help them periodically throughout the school day, you can instruct the employee work his/her usual number of hours, but on a flexible schedule and outside typical working hours. Then, they are able to work and leave is not necessary. You could also allow the employee to take leave on an intermittent basis. In the example above, this might mean for only a couple of hours a day when the parent needs to help his/her children log on in the morning and in between Zoom sessions. In short, being flexible may help keep your employees working and out of a twelve-week paid absence. While school may have “been blown to pieces,” it doesn’t mean your workforce should be too. 2. “If that don’t suit ya, that’s a drag.” This past fall, the DOL updated it’s guidance on the applicability of FFCRA leave in anticipation of school closures and alternative schooling options. It specified that employees who chose to educate their children from home when the school gives them the choice of either online or in-person learning are ineligible for any form of paid leave. On the other hand, if the school mandates distance learning, whether on a hybrid schedule or full time, FFCRA leave is still available for the days children are at home. As the DOL explained, when parents are given an option and choose to school their children at home, out of concern for contracting COVID-19 at school for example, the school isn’t “closed,” as is required for FFCRA benefits. Given the different approaches taken by different school systems—and even different grades within the same school system—it will be important for HR departments to monitor the reasons for requested leave. Remember, your company is only eligible for FFCRA tax credits for qualified leave. 

E-mployment Alert
publication

Ohio’s New Retail Mask Order Compliance Checklist

Smart Summary Governor DeWine’s new order is materially different from the order this past summer and retailers need to adjust.Affected businesses should require masks, provide alternatives to eligible shoppers, post notice, designate compliance officers, promote physical distancing, and discuss how to handle angry customers.Be proactive- a second violation could result in the closure of your business for up to 24 hours.  Governor DeWine’s new mask order went into effect yesterday. If you are a store, retail business, or otherwise offer goods to customers in person, here’s your checklist for compliance. Require Masks The order requires all customers to wear a mask at all times unless they are medically or developmentally unable to do so. This requirement isn’t new. The governor’s original mask order went into effect over the summer, though this order specifies that cloth masks—as opposed to face shields—are what’s required of customers. Another new feature is the requirement that retailers provide those who are unable to wear cloth masks with specific alternatives. First, if someone is unable to wear a cloth mask, the company should allow them to wear a face shield. The only requirement is that the face shield must extend below the chin. As a second alternative, the order requires businesses to provide online and/or telephone ordering and no-contact pickup or delivery. Technically, this “personal shopping” must only be provided to those who can’t enter the store with a mask or compliant face shield. Post Notice Stores must post notice at all entrances requiring customers to wear a mask. Six sample notices are available for download here under the “Face Coverings” tab. Along with the required notice, we also recommend posting notice of your mask accommodations, stating that customers who are medically or developmentally unable to wear a cloth mask may enter with a face shield that extends below the chin. Also encourage individuals who are not able to wear a mask and do not have a compliant face shield to take advantage of remote ordering and pickup/delivery options. Designate a Compliance Officer + Decide How to Handle Tough Situations Each business is also responsible for designating a compliance officer(s). One compliance officer must be on-site at each business location for all business hours. If your employees rotate shifts, this means you’ll likely need to designate more than one compliance officer (though only one is required per shift). Compliance officers are responsible for ensuring that customers wear masks or properly take advantage of accommodations. The compliance officer is also the point of contact for local health department investigators and law enforcement officers. Compliance officers should also be instructed regarding how to address the difficult situation that arises when a customer refuses to comply with the order. If a person refuses to wear a mask (or compliant face shield if they cannot wear a mask), the compliance officer should first offer your personal shopping accommodation. If this doesn’t work, compliance offers can ask customers to leave or be denied entry. If the problem persists, some employers have instructed compliance officers to call local authorities to handle the situation and remove the offender. Of course, if a compliance officer or other employee ever feels that his or her safety is at risk, they should phone the police immediately. There is some ambiguity in the application of the order to those who cannot wear a mask for medical reasons; as a result of this, other retailers have elected to allow disgruntled customers to enter, but are taking steps to move those customers in and out of the store as quickly as possible. Note that the order contains a phone number where members of the public can report a business for not enforcing the order. The Bureau of Workers Compensation is tasked with investigating complaints and the second violation a company receives could lead to closure for up to 24 hours. Miscellaneous The order also requires employers to ensure physical distancing and hygiene. While most employers have already done so, you should mark six-foot separation spots at all check-out lines, designate aisles as “one way,” and limit or stagger the number of customers on the premises at a time. The order also requires retailers to place sanitizer in high-traffic areas, require regular employee handwashing, and disinfect high-touch items, such as carts and baskets after each use. 

E-mployment Alert
publication

Latest PPP Guidance Provides More Pieces to the PPP Puzzle

After more than a month without additional guidance from the Treasury or the SBA, new guidance was released on August 4th in the form of Frequently Asked Questions on Loan Forgiveness. Many borrowers have completed their covered periods and spent most or all of their PPP funds at this point. Accordingly, this guidance will be most helpful to those who have elected to use a 24-week covered period or have yet to apply for a PPP loan. If you have spent all of your PPP funds already, take solace in the fact that the SBA has clarified that borrowers may rely on the guidance available at the time of their application. With that out of the way, I have outlined some of the new pieces to the PPP puzzle below.Timing Timeline for Applying for ForgivenessBorrowers must apply for forgiveness within 10 months of the completion of their covered period. PaymentsBorrowers do not need to begin making payments on amounts not forgiven until the forgiveness amount is remitted to the lender by the SBA. Interest accrues on amounts owed during the time between the disbursement of the funds and the SBA’s remittance of the forgiveness amount on any amount that is not forgiven. After the lender receives notice from the SBA of the forgiveness amount, the lender is responsible for notifying the borrower of the forgiveness amount and the date on which the first payment is due. After that, the amount not forgiven must be repaid by the maturity date of the loan. Note that the maturity of the loan is 5 years if the loan was issued after June 5, 2020. For loans issued prior to June 5, the maturity date is 2 years, unless a different arrangement is reached between the lender and the borrower.Payroll Costs Cash v. Accrual BasisAccrual basis is reaffirmed for payroll costs incurred prior to the covered period, but paid during the covered period, and payroll costs incurred during the covered period, but paid by the next payroll date after the covered period. Cash Compensation and CalculationAll forms of cash compensation are includable as payroll costs (subject to the $100k annualized limit). This includes: tips, commissions, bonuses, and hazard pay. In calculating cash compensation to employees, it was not previously clear whether this would include the gross or net amount. The newest guidance clarifies that the gross amount before deductions for taxes, employee benefits payments, and similar payments should be used for calculating cash compensation. Group Health BenefitsAlthough not previously clear, the guidance clarified that forgiveness is not provided for group health payments accelerated from periods outside of a borrower’s covered period. However, those group health benefits payments by borrowers on behalf of employees that were incurred or paid during the covered period are still eligible for forgiveness. Retirement ContributionsAs with group health benefits, forgiveness is not provided for employer contributions for retirement benefits accelerated from periods outside of a borrower’s covered period. However, employer contributions for retirement benefits on behalf of employees that were incurred or paid during the covered period are still eligible for forgiveness. Owner CompensationThe guidance has provided detailed guidance on amounts paid to owners that are eligible for forgiveness for owners of C. Corps, S. Corps, Self-Employed Individuals, General Partners, and LLC Owners. Non-Payroll Costs Alternative Covered PeriodFor payroll costs, borrowers may elect an alternative covered period, beginning on their first payroll date after receiving their funds. However, this is not permitted for non-payroll costs. For non-payroll costs, the covered period is limited to the period beginning on the date of the disbursement of the PPP loan. Cash vs. Accrual BasisAccrual basis is reaffirmed for non-payroll costs incurred prior to the covered period, but paid during the covered period, and non-payroll costs incurred during the covered period, but paid during the next regular billing date after the covered period. Prepayments of Non-Payroll CostsPrepayment of all non-payroll costs (except for mortgage payments) is not prohibited. Unsecured DebtsInterest payments on unsecured debts are not eligible for forgiveness. Forgiveness is limited to interest payments on business mortgages on real or personal property (like auto loans). Renewal of Leases and Refinancing of MortgagesPayments on leases renewed during the covered period or mortgages that were refinanced during the covered period are eligible for forgiveness, so long as the obligation under the original agreement existed prior to February 15, 2020. Prepayments on lease obligations are not expressly prohibited. Transportation CostsPrior to the latest guidance, there was much confusion as to what constituted “transportation costs” as a permitted non-payroll cost. The guidance clarified that “transportation costs” refers to transportation utility fees assessed by state and local governments. Forgiveness Reductions Comparison Period for Seasonal EmployersSeasonal employers are to use the same 12-week period used for calculation of their loan amount as the period used for calculation of any reduction in the amount of loan forgiveness. Employees Making More Than $100kBorrowers are to include those employees who made more than $100,000 in 2019 on their forgiveness applications. Reductions to CompensationFinally, the guidance clarified that only decreases to an employee’s salary or wages are to be counted against a borrower for purposes of reductions to its forgiveness amount, as opposed to all reductions to that employee’s compensation.

Newsletter

The Post-Pandemic Future for M+A Activity

Each month, Eric Duffee looks at a different piece of The Anatomy of a Deal – a series of easy-to-digest articles that break down complicated aspects of business transactions – helping you better understand terms + processes that can shape the direction of your business. This piece is a collaboration with Bill Levendusky, an associate M+A lawyer at Kegler Brown who is working with business owners and corporate development professionals to plan their post-pandemic deal strategies.Smart Summary There will likely continue to be very little M+A activity in the short-term outside of distressed transactions. Private equity cash, eager investors, a solid pre-pandemic economy, and aggressive government stimulus set the stage for M+A to rebound. A true recovery will be inherent in improvement in economies abroad, progress in the treatment of COVID-19, and the successful re-opening of local economies. With the world economy in free-fall, it seems odd to be talking about the future of M+A activity. But there is reason to believe that M+A activity will rebound in the medium-term. So this month, we look at some of the reasons why deal volume may be poised to rally, and the signs we’re looking for to see when that improvement might occur. Why do we think a rebound is coming? First, let us emphasize that there are a lot of factors at play here. As such, it’s very hard to make any firm conclusions. In addition, we’re looking out a few months; there’s likely not going to be much conventional M+A activity in the short-term. There may be some distressed transactions (as we discussed last month), but many voluntary sellers—and the buyers who are interested in these targets—are waiting for some clarity and stability before jumping in. So with all the bad things happening now, what are the good things we see? A Mountain of PE Cash Private equity funds still have large capital stashes and are required to deploy that “dry powder” within a certain time period. So private equity funds are going to be aggressively looking for good deals. A “First-Mover” Advantage There has been some research as to whether buyers that jump into the M+A market earlier following a recession achieve better long-term results, and, although it’s not entirely conclusive, there is enough reason to believe that this potential will lead at least some buyers to test the M+A markets early on. Solid Pre-Pandemic Economic Indicators The economy was largely in good shape prior to the COVID-19 crisis. And while the timeline isn’t clear right now, the immediate public health threat will subside at some point in time. While there will be lasting damage to the economy, there is some hope that economic conditions could improve later in 2020 and continuing into 2021. Governments Pumping Liquidity into the Economy We’re not economists (but we did stay at a Holiday Inn Express last night). That said, it doesn’t take a Ph.D. to see the massive amounts of stimulus and financial support being provided by world governments to respond to the crisis. Consumer spending in the U.S. (which accounts for approximately 70% of GDP) fell almost 9% in March, but the ongoing government stimulus should theoretically fill in for at least some of that loss. While there will undoubtedly be companies that don’t survive “The Great Pause,” there is hope that the government support will help most businesses weather the storm and be positioned for a rebound. What are the signs we’re looking for in a recovery? After the Great Recession of 2008-2009, we could all look back and agree that we should have invested a bunch of money into the stock market on March 6, 2009. So, if a relatively quick recovery is in the cards as we hope, then how will we know it’s coming? Before we answer that question, it’s worth noting that traditional economic indicators—those charts from 2009-2010 that showed clear trends indicating that the country was emerging from the Great Recession—may not be as useful or as easy to project as they were a decade ago. Unemployment is considered among the most reliable traditional metrics when measuring the strength of the economy. During the week ending April 11, 2020, “Seasonally Adjusted Initial Claims for Unemployment Insurance,” according to the Department of Labor, numbered 5,245,000. The record for Unemployment claims in one week, prior to the COVID-19 crisis, was only 695,000, set in October 1982. During such extreme times, traditional metrics may prove less helpful. If the darkest hour is truly just before dawn, here are some of the signs we’re looking for to see when we’ve reached that point: Improvements OverseasAs many parts of the world—specifically China—began their response to the virus much sooner than the U.S., those regions will provide the first testing ground for determining how and whether economies can start functioning again. As China has begun to “re-open,” there are already reports of an uptick in M+A and investment activity there. At the same time, emerging markets, which often depend on foreign investment and tourism dollars, have been hit hard during this crisis. According to the Institute for International Finance, the economic impact of foreign capital fleeing emerging markets since January 21, 2020, may be three times worse than during the Great Recession. Investor confidence in emerging markets may be a key indicator of recovery, particularly with an eye toward those countries that were more effective at controlling the spread of COVID-19. Progress in the Fight against the CoronavirusOne of the best ways to bring about a quick change in economic conditions is for a medical breakthrough, such as a proven treatment for the virus that can provide a safeguard until a vaccine becomes available. Even if that doesn’t happen, some sustained success in avoiding a spike in new cases will be viewed as a win and start to restore investor confidence. Reopening of States and Local EconomiesWhile some states, such as Ohio, New York, and Texas, have announced plans to gradually re-open their economies, the process will undoubtedly be slow-moving. Ohio and Texas have announced plans to re-open in phases by business sector and New York has announced a plan to re-open in phases by geographic region. As states open their economies, look for consumer spending and wage growth to be on the move. Those factors—and how quickly the changes occur—may provide some insight into the U.S. economy’s health.This is uncharted territory for everyone, but there’s still reason for some optimism as of now. We continue to have numerous discussions with clients who are planning to move forward with transactions in the summer and fall. The coming weeks and months will be critical in determining how successful the rebound will be, and when we can expect it to occur. If fortune truly does favor the bold, then there may be some improvement on the horizon…at least we hope so. In May’s installment of Anatomy of a Deal, we will test this issue’s theories about market rebound and attempt to help owners track their business’s recovery against the economy more generally. Next Month: I'm Still Standing. Now What?Read last month’s piece: Crisis Demands Creativity in M+A

The Anatomy of a Deal Newsletter
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Employer's Guide to Phase 1 of the Re-Opening

Smart Summary Employers need to start planning for who needs to return and where they will work.Reasonable accommodation will continue to be important, and effective telework policies can create a viable solution to address quarantine and other issues.When travel resumes, employers will need to focus on communication with employees to keep everyone safe and in compliance. Over the past few days, Governor DeWine, Lieutenant Governor Husted and President Trump have spent considerable time discussing reopening. While the precise plans for Ohio have not yet been disclosed, the president unveiled an 18-page phase-in plan called “Opening Up America Again.” While it does not carry any actual obligation for employers, the recommendations it sets forth should be considered as they will likely be incorporated into Ohio’s guidelines. The president’s plan outlines three “phases” of reopening. At each phase, however, employers are advised to take a number of precautions, including observing the six-foot social distancing guideline, checking employee temperatures, and rigorously disinfecting all areas. Phase 1 of the reopening asks employers to make five key considerations: Encourage telework whenever possible and feasible.Return people to work slowly in phases.Close all common areas (conference rooms, lunch and break rooms, etc.) or at least strictly enforce social distancing.Minimize non-essential travel and observe CDC isolation periods following essential travel.Provide special accommodations for personnel who are members of “vulnerable populations,” defined as the elderly and people with serious underlying health conditions.With these recommendations in mind, employers should immediately begin analyzing four actions prior to reopening:Plan for Who Needs to Return and WhereReview Physical Space for Social DistancingEmployers should immediately review their physical workspaces and determine how to implement social distancing, understanding that compliance will likely only be achieved with a reduced workforce on site. For those who will come into the office, consider how you will maintain six feet of separation at all times; you may need to take advantage of closed common areas and temporarily relocate employees to maximize your space. Employers should also review how people enter and exit the facility.As temperature checks will be necessary, plan and communicate your processes now. This can be either at-home monitoring (and provided to HR) or provided by you as employees arrive. Focus on Vulnerable Populations + the FFCRAEmployers should also review their workforce to determine whether any employees scheduled to physically return are members of “vulnerable populations.” Don’t be surprised when these employees receive directives from health care providers not to return to work and to remain in quarantine. If so, the employer should discuss with the employees whether they intend to return and what the consequences of not returning shall be.Remember that employees who are advised to quarantine are entitled to two weeks paid leave under the FFCRA and unemployment benefits under the CARES Act. Employers should also consider whether an accommodation is required and whether allowing the individual to remain off work is reasonable. Navigate the New Telework LandscapeTelework sits firmly at the nexus of two of President Trump’s recommendations, including that employers should (a) encourage telework whenever possible and feasible, and (b) strongly consider special accommodations for elderly employees and employees with serious underlying health conditions. Incorporate Teleworking AgreementsOf course, many employers have already made significant changes to their workforce to combat COVID-19, including enabling remote work. However, many also made these changes rapidly and viewed them as temporary solutions.Since it is unlikely a vaccine for COVID-19 will be widely available before 2021, there will be many employees for whom the best work environment (from a health perspective) is their homes. As a result, employers should consider incorporating formalized long-term teleworking agreements. These agreements identify, among other things, the physical work area for employees, the working hours, and how production will be measured. Remember also that telework can be done on a part-time basis, meaning an employee may only come in on certain days or at certain times. Use Telework as a Reasonable AccommodationFurther, the EEOC has issued guidance confirming that employers are not required to accommodate employees just because they are at higher risk; the employee must be disabled. The threshold for disability, however, is low, and if an employer verifies that an employee has a disability that puts the individual at a higher risk of complications or exacerbates their condition, the threshold is met. If you think an accommodation is necessary, you should engage in the interactive process to identify an accommodation that does not pose an undue hardship. Telework will likely be one such option and should be discussed.Set Clear Expectations for Travel Employers should expect continued restrictions on visitors for some period of time. Likewise, they should remember that the response to the virus is being handled largely at the state level, which means the testing, reporting, restrictions and tracking will vary widely.Have Clear Conversations Regarding TravelThus, employers should make sure that any employees who travel for work will be able to conduct the necessary business activities at their destination. Also, make sure you have updated policies setting forth exactly what is expected of the employee after returning from the trip. If this includes quarantine, that should be discussed in advance. He or she should also be apprised of current regulations governing the travel destination, so that proper arrangements can be made for the employee to comply with those local rules.Make PTO + Other Policy UpdatesMany employers have moved to the “one pot” PTO system, with no distinction between time taken for illness versus time taken for vacations. This has probably worked well for many years, but it could have unintended consequences now. Think about it. With this system, employees are more likely to suck it up and come to work when they are sick so that they can save that time for the fun stuff later. That’s certainly not what you want in the midst of a global pandemic. Of course, you can send employees home if they are sick, but there is understandably going to be hesitation in doing this when managers know that it means taking time away from employees that they set aside months ago to use on a beach vacation. Designating a certain amount of days exclusively for illness encourages employees to stay home when they aren’t feeling well and helps managers make the quick decision to send someone home without regrets. From an administrative perspective, you’ll already have to track FFCRA leave now, so what’s one more pot of PTO? Just because the stay at home order may be lifted doesn’t mean COVID-19 is going anywhere. There will heightened scrutiny on anyone who is sick with flu-like symptoms for at least the next six months. So take a look at your policies, PTO or otherwise, and ask yourself if they work in this new world for the next year. And don’t forget: some of your policies might be out of date. We covered some recent decisions at our annual labor seminar that may impact various policies. If you’re slow, now is a great time to make those updates for when employees return.Brendan Feheley is a director and chair of Kegler Brown’s Labor + Employment practice where he is working with business owners and their HR leaders to navigate the COVID-19 pandemic. He can be reached directly at bfeheley@keglerbrown.com or (614) 462-5482.Danielle Crane is an employment lawyer with Kegler Brown, advising clients on human capital strategies to help navigate the COVID-19 pandemic and prepare for re-opening. She can be reached directly at dcrane@keglerbrown.com or (614) 462-5444.

E-mployment Alert
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Strategies to Maximize Your PPP Loan Funds + Forgiveness

Smart Summary PPP forgiveness is valuable, but there are certain conditions that businesses should take care to avoid.Businesses should be documenting their payments meticulously and planning re-hires strategically to fully realize loan forgiveness.Employers may need to get creative with payroll in order to incentivize employees currently receiving unemployment while meeting their quotas for forgiveness.When the CARES Act passed on March 27, 2020, the Paycheck Protection Program (“PPP”) provided an opportunity for small business owners to receive an injection of cash while their businesses are subject to government-ordered shut downs. Those businesses fortunate enough to receive funds now face a myriad of issues as they spend their PPP funds while also trying to plan for forgiveness to the greatest extent possible. The most pressing issue is one of time. The funds must be spent within 8 weeks of the loan’s funding, yet many businesses are still closed to the public or working with limited revenue potential. To that end, this article provides some FAQs and examples to show how forgiveness works so small business owners can plan accordingly.Forgiveness Like anything else, forgiveness under the PPP comes with conditions. What is the limit on forgiveness? The full principal amount of the loan, plus accrued interest. What expenses can be forgiven? It depends on the total amount spent over the covered period. We’ve prepared a worksheet that helps you understand and calculate all of this, which can be downloaded for free here. Are there restrictions on forgiveness? Yes. 75% of the amount forgiven must be attributable to payroll costs. How can my forgiveness be reduced? There are two ways your total forgiveness amount can be reduced: a reduction in number of employees or a reduction to employees’ salary or wages. Refer to our worksheet for help on your specific situation. If there is a reason my forgiveness amount may be reduced, are there any second chances? Yes. The PPP provides a grace period. If, from February 15 to April 26, 2020, you had: (i) a reduction in the number of FTEs as compared to February 15, 2020; and/or (ii) a reduction in the salary or wages of one or more employees as compared to February 15, 2020, but you eliminated the reduction in FTEs and/or salary or wages by June 30, 2020, then the amount of loan forgiveness will be determined without regard to any reductions.Employment Concerns Once you have your PPP money and a plan in place for forgiveness, it’s time to spend. But many employers are finding it hard to allocate 75% of their spending to payroll when employees have been laid off and are happy collecting employment. With the CARES Act’s additional $600 benefit, employers may need to get creative to compete with the expanded benefits. Options include a one-time “recall” bonus, temporary raises, partial unemployment, or any combination of the three. The best strategy will depend on your recall needs and PPP spend plan. ExamplesTo better understand your options, here are three common scenarios to consider.Company A – No LayoffsOn February 15, 2020, Company A had 10 FTEs. From February 15 – June 30, 2019, Company A had an average of 10 FTEs. Over the 8-week period after receiving loan funds, Company A had an average of 10 FTEs. Result: Company A will have its loan amount entirely forgiven with respect to covered expenditures, provided that at least 75% of the forgiveness amount is attributable to payroll costs. Company B – 60% Layoff with Full FTE Re-Hires Before June 30On February 15, 2020, Company B had 10 FTEs.From February 15 – June 30, 2019, Company B had an average of 10 FTEs. Company B operated on a skeleton crew of 4 FTEs over the 8-week period after the disbursement of the loan funds. Company B hired 6 additional FTEs on June 15, 2020, as their business ramped back up. Normally, Company B’s forgiveness amount would be reduced by 60%, but because Company B eliminated the discrepancy in FTEs before June 30, 2020, the reduction amount is calculated without regard to such reduction. Note in this example that it is unlikely Company B will have spent all of their available funds because they operated on a skeleton crew during the 8-week payment period. Thus, there would likely be some funding remaining which can be repaid or retained as a loan. Result: Company B will have its loan amount entirely forgiven with respect to covered expenditures, provided that at least 75% of the forgiveness amount is attributable to payroll costs. Company C – 100% Layoff with Re-Hires and Bonus IncentivesOn February 15, 2020, Company C had 10 FTEsFrom February 15 – June 30, 2019, Company C had an average of 10 FTEs. Company C was forced to completely shut down operations. To make matters more difficult, most of Company C’s employees make less than $50,000 per year, such that its full-time employees were making more on unemployment than if they returned to work. In order to incentivize employees who would otherwise qualify for continued unemployment, Company C decides to implement temporary raises. It did not bring back any of them until week 6 of the 8-week period, at which point, Company C re-hired all 10 FTEs and gave them temporary raises in an amount equal to the entire loan amount, dispersed evenly among them. Result: Although Company C’s average FTE over the 8-week period was equal to 2.5 FTE, Company C’s loan amount will be entirely forgiven with respect to covered expenditures. This is because Company C eliminated the discrepancy in FTEs before June 30, 2020. Further, all payroll costs, including the incentives, were paid during the 8-week period. What You Should Do Now Document Everything. When you apply for forgiveness, you will need to provide documentation of payroll records over the covered period. Such documentation may include Form 941, state quarterly wage unemployment insurance tax reporting forms, or equivalent payroll processor records that best correspond to the covered period. You must also submit evidence of business rent, business mortgage interest payments on real or personal property, or business utility payments during the covered period if you used loan proceeds for those purposes. Accordingly, you will want to document all expenses with these important categories in mind. Project and Plan. As with Companies A, B, and C above, each borrower will be in a unique situation. You should project your FTEs over the 8-week period against both your designated historical comparison period and February 15, 2020. You will also want to plan how and when funds will be expended with forgiveness in mind. Know the categories of expenses for which forgiveness is permitted and that the expenditures must occur over the 8-week period after you have received the funds. Watch for Reduction Traps and Don’t Forget About Grace. If your projected average of FTEs over the 8-week period is less than your historical comparison period, then you should look for creative ways to receive 100% forgiveness. As long as you can eliminate any discrepancies prior to June 30, 2020, then you may be able to take advantage of the grace period to receive full forgiveness. Work with Your Advisors. Given how quickly everything has developed with the PPP, it is important to take the time to plan for how you will comply with forgiveness requirements. The earlier you bring in your financial and legal advisors, the greater chance you have of making the most of your PPP funds.Danielle Crane is an employment lawyer with Kegler Brown, advising clients on human capital strategies to help navigate the COVID-19 pandemic and prepare for re-opening. She can be reached directly at dcrane@keglerbrown.com or (614) 462-5444.Brendan Feheley is a director and chair of Kegler Brown’s Labor + Employment practice where he is working with business owners and their HR leaders to navigate the COVID-19 pandemic. He can be reached directly at bfeheley@keglerbrown.com or (614) 462-5482.

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