Can independent contractors take a Paycheck Protection Program (PPP) grant to pay their expenses and also receive Unemployment insurance to cover their salaries? We asked a number of experts in travel, law and finance – and the answers ranged from “probably not” to “no one really knows” to “it’s defensible.”
In the end, though, they all came down to the same happy conclusion.
It’s probably okay.
As a new wave of PPP loans hit the market and Unemployment insurance began to catch up with those who filed in March, the question came to the fore this week among smaller travel advisors and independent contractors.
According to the rules, say the attorneys, you must choose one or the other. If you accept a PPP grant, you must use 75 percent for payroll and the rest for business expenses; since you are paying your own salary with the money, you cannot also claim Unemployment for the eight-week period covered by the PPP. Then you can go back on Unemployment.
“The answer is no,” said Tenley Carp, a partner at Arnall Golden Gregory LLP in Washington, D.C. “The law is that you cannot. You have to do payroll out of the PPP grant or else it is considered fraud. Now look, you are unlikely to be audited for a $5,000 loan. But you would be doing something that is punishable by jail time.”
Still, said one travel agency owner, “Off the record, let’s be realistic: We are into survival mode, folks. We are the hardest hit industry out there, and while the spirit of PPP may be to keep you off Unemployment, at the end of the day, if you are paying back the loan and it’s keeping food on your table, that may be what you need to do.”
At the American Society of Travel Advisors (ASTA), meanwhile, senior VP and general counsel Peter Lobasso had a different take—and it bodes well for cash-strapped travel advisors.
“We at ASTA are of the mind in looking at the guidance that the 75 percent rule does not apply to self-employed people with no employees. If I’m a self-employed person with no employees, the purpose is not to avoid layoffs. Our understanding is that all the money you receive will be forgiven; it’s not a question of paying it back, the whole amount is a grant.”
It’s ASTA’s understanding that to take both the PPP loan and receive UI for the same time period would be double dipping, Lobasso agreed. “But all of that being said, there really isn’t any guidance out of Treasury to say that is, strictly speaking, disallowed. But I think reasonable minds can agree that taking both benefits at the same time kind of violates the spirit if not the letter of the law. We believe you can apply for both in sequence, get PPP and after eight weeks apply for Unemployment.”
But since the 75 percent requirement is waived, does it not follow that one could use it to pay rent and utilities, think of it as a loan you will pay back in two years at 1 percent interest and still accept Unemployment insurance?
“The idea of taking both may well be defensible,” said Lobasso. “When we say an action appears defensible based on our understanding, and if you go in with the understanding that you will repay it, go ahead and do what you need to do. They should, however, proceed with the understanding that some of the funds might have to be repaid."
Still, everyone agrees, the big issue is that everyone has their own interpretation of what you can and cannot do.
Survival vs. Civics
As owner and president of All-Travel in Los Angeles and of TAMS, an industry benchmarking company, and also chairman of the Signature board of directors, Eric Maryanov has been having “an ongoing dialogue with 92 agencies and all the consortia,” he says. His takeaway: You can accept a PPP grant, suspend your Unemployment for eight weeks and then go back on. Or you can accept PPP money and use it as a grant to pay your business expenses, then pay it back, and still collect Unemployment.
“As an independent contractor you can in essence do both as long as you fill out the Unemployment forms honestly," he tells us. "If you treat the PPP as a loan, then it’s legitimate to accept Unemployment. Probably.”
Indeed, says Maryanov, the biggest issue is that there is simply nowhere to turn to ask questions.
“So much of what we’re dealing with is the fact that nobody knows,” he says. “You really need to look at your options, to expect next to zero income and look at what your reserves are and what suits your individual needs. Nobody has clear answers to some of the questions. I got my PPP from a bank; when I went back with questions they said they would have a document available in a week. A week later they still didn’t have it. I keep hearing from Signature members and TAMS members, ‘If a bank can’t get answers and can’t figure it out, how do you expect me to figure it out?’”
On the high ground are the lawyers. Carp suggests that accepting both PPP and Unemployment defeats the rationale for the bill, and defrauds the government and, in the end, your neighbors. The program was designed to help small businesses meet payroll—to keep employees off the overcrowded Unemployment rolls, and help business owners retain their staff rather than having to hire and train new people as the economy ramps back up.
But, she acknowledges, “I’m a lawyer; I’m conservative by nature and I play by the rules. I’ve talked to dozens and dozens of companies and everyone’s scenario is different. I don’t think you will end up in a jumpsuit—but you are taking a risk. Each company will have to decide for itself, based on its appetite for risk.”
In the end, though, says Maryanov, “It’s really hard to follow the rules when nobody knows what the rules are. Everyone is looking for black and white answers when no one has them. There are small, medium and large agencies, ICs and LLCs, each with its own business model.”
His advice? “We’re in survival mode. Apply for everything you can. The important thing is to answer every question as honestly as you can. Then let the chips fall where they may.”
Lobasso noted that the frustration for many travel advisors, and especially ICs, “arises in large part because when you go to apply you don’t see how your situation is captured in the questions that are being asked. It’s extremely frustrating but that’s the way it is right now. Just be sure not to say you are an employee; be sure to say you are an IC.”
In the end, said Lobasso, “I don’t recommend that anyone circumvent the law. But in this case there is a lack of guidance from the federal government, and the added issue is that the states are overseeing the process. The federal government should have known the states didn’t have the procedures in place to deal with ICs. There’s a vast discrepancy in how the states are interpreting eligibility for unemployment, and many aren’t even asking if you have received PPP loan proceeds. It’s likely some states will have no issue with people obtaining benefits while getting a PPP loan that turns into a grant. It’s possible the federal government will issue some guidance about how it’s supposed to work, and the states could change their interpretation and there will be some effort to reclaim some benefits if they decide they didn’t handle it correctly in the first place.”
And yet, he concluded, “It certainly seems like it would make sense for you to proceed with Unemployment to cover your income and consider the PPP to be a grant to cover your expenses.”
As of yesterday, $120 billion worth of PPP funding had still not been claimed. Good luck, travel advisors!