As President Biden begins his term in office, many manufacturers are anxious to learn how his Administration’s policies could affect the industry, especially as the COVID-19 pandemic continues. While we have discussed potential tax policies that the Administration would like to pass, manufacturers know that other key policies could affect their businesses throughout the Administration’s term. Consider three ways that the Biden Administration’s policies could affect manufacturers:

1. Increasing minimum wage.



The Biden administration supports increasing the Federal minimum wage to at least $15 per hour. The President indicated that “no one working forty hours a week should still be below the poverty line”. While this plan could support many who are struggling at their current wages, opponents note that a wage increase of this significance could lead to higher unemployment levels and/or higher prices for consumers.

Manufacturing executives likely have two key concerns: first, how an increased minimum wage would affect the availability of laborers and second, how the policy change could affect their costs. Manufacturers have struggled to hire production workers in recent years, despite industry employment declining by 543,000 since February, according to the December 2020 Bureau of Labor Statistics Report. In addition, the report indicates that production workers earn an average of $23.12 per hour, although this average is expected to rise if an increased minimum wage is passed. As manufacturers continue to seek qualified production workers, their challenges may grow as labor-related cost pressures affect their businesses.


2. Support for “Made in America”.



The Biden Administration believes in the importance of domestic manufacturing, noting that “U.S. manufacturing was the Arsenal of Democracy in World War II, and must be part of the Arsenal of American Prosperity today, helping fuel an economic recovery for working families.” His “Made in America” campaign indicates that the U.S. must “make smart investments in manufacturing and technology, give our workers and companies the tools they need to compete, use taxpayer dollars to buy American and spark American innovation, stand up to the Chinese government’s abuses, insist on fair trade, and extend opportunity to all Americans, many of the products that are being made abroad could be made here today.”

The Biden Administration can build on onshoring momentum created by tariffs and foreign policy by supporting more investment in workforce development, research and development, and domestic procurement as indicated in his campaign plan.

3. Another round, or rounds, of stimulus support.



The COVID-19 pandemic has led to several rounds of relief or stimulus support for both individuals and businesses. Programs including the Paycheck Protection Program, COVID-19 sick and expanded family medical leave, Employee Retention Credit, and Economic Injury Disaster Loan have been used by manufacturers and provided significant relief during the ongoing crisis. President Biden has proposed additional COVID-19 relief, which would include support for small businesses that could continue to benefit manufacturers. While details of the proposed package remain sparse, it is expected that grant and loan programs may be included.

Additional relief would require Congressional approval, which could be a hurdle. The most recently passed package, which was included in the Consolidated Appropriations Act, 2021, came nine months after the CARES Act, which was the last significant stimulus package passed by Congress. Additionally, manufacturers will need to closely review eligibility criteria for any programs passed, as Congress’s most recent efforts focus only on the smallest and most hard-hit businesses.

To discuss your business or the impact the Biden Administration may have on it, please contact a member of HBK Manufacturing Solutions, a team of professionals dedicated to manufacturing clients. Team members can be reached directly or by calling 330-758-8613 or emailing manufacturing@hbkcpa.com.

Manufacturers who hire independent contractors to support their business should be aware of new guidance on how to determine whether a worker is an independent contractor or an employee.

Earlier this month, the Department of Labor issued a final rule providing guidance on when to classify a worker as an independent contractor under the Fair Labor Standards Act (FLSA). The FLSA requires employers to pay non-exempt employees at least the Federal minimum wage for hours worked and overtime for hours in excess of 40 in one week and requires employers to maintain certain records on their employees. It does not mandate the same payment policies or recordkeeping for those who are considered independent contractors.

With the new rule, the Department of Labor has clarified some of the guidance used in classifying a worker as an employee or an independent contractor. First, the guidance reiterates the importance of the “economic reality” test, which determines whether the workers are economically dependent on the employer. This test has two key considerations:

• Does the employer have control over the work to be completed?
• Does the worker have the opportunity for profit or loss based on their initiative or skill and the investments they make in the work?

In addition, the rule addresses additional criteria, which should be used in conjunction with the economic reality test. Specifically, employers may be required to evaluate:

• the skills required to complete the work
• whether the relationship between the worker and employer could be deemed permanent
• whether the work is critical in the manufacture of a product

While the new rule is currently set to go in effect as of March 8, 2021, it is possible that the Biden Administration may prevent it from being implemented. As a result, manufacturers who work with independent contractors, including sales representatives, manufacturing representatives, or other support workers, may consider watching for developments closely and potentially reevaluating the status of their independent contractors. Further, if implemented, it is possible that other rules covering independent contractors, such as guidelines from the IRS indicating whether to withhold payroll taxes or send a Form 1099, may also be changed.

For questions regarding your independent contractors, contact a member of HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com.

On December 27, 2020, the Consolidated Appropriations Act 2021 (CAA), also referred to as the Economic Aid Act or Omnibus Bill, was signed into law, providing new COVID 19 relief options for individuals and small businesses, including a second round of Paycheck Protection Program (PPP) loans. Interested borrowers have been awaiting guidance, which the SBA and Department of the Treasury have begun to release.

New Guidance

Two Interim Final Rules (IFRs) were released on January 6. The first, titled “Interim Final Rule on Paycheck Protection Program as Amended by Economic Aid Act,” combines guidance from several previous IFRs with new provisions in the CAA. A second IFR, “Interim Final Rule on Second Draw Loans,” provides guidance on eligibility and loan details for the new round of loans. Highlights of that second IFR include:

Eligibility criteria. In general, eligible entities must employ 300 or fewer employees, have received a First Draw PPP loan that they have used or will use to pay eligible expenses, and must have experienced a gross receipts reduction of 25 percent or greater in at least one 2020 quarter compared to the same quarter in 2019. Other eligibility criteria may also apply.

Defining gross receipts. For eligible nonprofits, veterans, nonprofit news, 501(c), or destination marketing organizations, gross receipts are defined in section 6033 of the Internal Revenue Code of 1986. For other entities, the IFR defines gross receipts per the SBA definition in 13 C.F.R. 121.104, and notes that it includes “all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.” Exclusions include “taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.” Additionally, proceeds from forgiven PPP loans are excluded from the definition of gross receipts.

Determining the loan amount. Eligible borrowers may generally borrow up to two-and-a-half months of their average monthly payroll cost, up to $2 million. Businesses that are entities of a corporate group are limited in aggregate to $4 million of Second Draw Loans. Those with a NAICS code beginning with 72 (generally hospitality industry organizations) at the time of disbursement can calculate their loan amount by using three-and-a-half months of their average monthly payroll cost. Average payroll costs can be based on 2019, 2020, or for borrowers who are not self-employed, a sole proprietor, or an independent contractor, the precise one-year period before the date on which the loan is made.

Other loan details. Second Draw PPP loans will carry a 1 percent interest rate and five-year maturity, with no collateral or personal guarantees required. Loans will be available on a first-come, first-served basis and can be funded through the sooner of March 31, 2020, or when funding is depleted.

Applications

In addition to the new guidance, the SBA also released two new applications and instructions for new First Draw and Second Draw Loans.

For First Draw Loans, the application and instructions can be found at: https://home.treasury.gov/system/files/136/PPP Borrower Application Form.pdf.

For Second Draw Loans, the application and instructions can be found at: https://home.treasury.gov/system/files/136/PPP Second Draw Borrower Application Form.pdf.

As with previous PPP loan applications, many lenders will require borrowers to submit their applications through online portals. Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) are authorized to begin accepting applications the week of January 11 with larger banks to follow.

Take Action Now.

The PPP provisions in this legislation, as well as in other economic and tax relief provisions, are complex and must be used specifically. Interested parties should take immediate action to review their business and financing needs as some options are time-sensitive.

Many of the factors determining whether your business qualifies for these loans or should apply for the new round of PPP funding are organization-specific. There are also legal implications for applying and using PPP funds. We encourage interested parties to consult with their legal counsel regarding questions on eligibility under the terms of this latest round of legislation.

We recognize that the effects of the COVID-19 pandemic on businesses are ongoing and we remain committed to supporting you. If you would like assistance with evaluating your opportunity to participate in COVID-19 tax and/or economic relief measures, please contact your HBK Advisor.

As the new year approaches, we are eager to put 2020 and its challenges behind us and embrace a hopefully much improved 2021. Manufacturers are no different; whether experiencing struggles or business growth in 2020, most manufacturers are anxious to begin the new year. However, before we put 2020 in the past, consider five lessons that manufacturers learned – or were reminded of – in the past year:

• A strong balance sheet can help you weather challenging times. Cash is king. That’s an unalterable principle, but one that took on even more importance in 2020. Having enough cash or cash availability to weather a storm proved vital to ongoing operations, if not survival itself. Government loans and grants supported many manufacturers, but overleveraged companies (or those with a high amount of debt) now find themselves in an unexpected position. Many are working actively to determine how to reduce debt in times of continuing uncertainty, while others face struggles and lender pressures to resolve the debt, as restrictions to capital have become increasingly common.

  Lesson: Actively work on improving your balance sheet in good times to be able to persevere through tough times.

• Relationships are key.

  Technology has been a boon to manufacturing, but in an age of technology and automation, some manufacturers have found that their face-to-face relationships have weakened or have been replaced by email, text messages, and automated communications. Although many relationships may remain more virtual than in the past for some time, virtual technologies such as video calls can create a pseudo-face-to-face environment while reducing the time and cost associated with travel.

Using all available methods to proactively build and maintain relationships will help manufacturers through uniquely challenging issues that have emerged in the pandemic. Think about the benefits of these relationships, including:

• Relationships with customers can aid in your understanding of their needs, allowing you to anticipate their future needs and make efforts to supply them without disruption.
• Relationships with vendors can help you ensure your own supply chain continuity by understanding potential problems and seeking alternatives, when necessary.
• Relationships with advisors can help you decipher complex COVID-19 regulations and maximize available loans, grants, and tax deductions or credits available.

Lesson: Look for ways to continue relationships in safe, meaningful ways, including through virtual technologies that can actually help us save time and money.

• Diversification and flexibility can build resiliency.

Firms with a diversified customer base were better equipped to navigate the pandemic economy. Even in non-pandemic times, having a handful of large customers or a focus on one end-user market created risk, especially if those customers or if that market faced a business downturn. Further, the pandemic caused markets previously identified as growth markets, such as aerospace, to falter, while some commodity markets, such as consumable products including disposable kitchenware, surged.

Some manufacturers took their diversification a step further and retrofitted their operations to support needs created by the pandemic, such as for personal protective equipment (PPE). They supported their communities while protecting their income by adjusting their operations quickly to respond to immediate demand.

Lesson: While focusing on commodity products and exploring rapid retrofits may never be key parts of your strategic plan, the ability to recognize and adapt to customer needs and diversify your customer base can help strengthen your business, especially in weak economic times.

• The lowest cost might not be the best option.

Many manufacturers work with overseas suppliers to deliver critical products at low costs. However, after some tariffs were implemented, efforts to re-shore (or resource those goods domestically) increased. For those still working with overseas suppliers, disruptions caused by the pandemic and related international shutdowns created ongoing supply chain questions and resurfaced calls for the re-shoring of critical goods

A manufacturer’s supply chain strategy should consider cost, quality, and the potential for disruption. Even firms relying principally on domestic supply chains should have multiple alternate sources for critical supplies or materials before a problem occurs.

As the supply chain is critical to a manufacturer’s ability to supply, a manufacturer should carefully outline its supply chain strategy. Think about the supply chain similar to a succession plan or an IT continuity plan. A problem can occur that interrupts the ability to do business; what can we do to ensure that those interruptions are mitigated?

Lesson: Manufacturers should plan for supply chain continuity for equipment, supplies, and other inputs needed to manufacture their products.

• We can be optimistic about 2021 and beyond.

While there remains uncertainty about how the pandemic will continue to affect us in 2021, there are many reasons to have cautious optimism about the year ahead. First, as additional federal COVID-19 relief programs have been passed into law, manufacturers may find new support options available to them, including a second draw Paycheck Protection Program loan, extended and expanded Employee Retention Credit, or tax credits or deductions. In addition, some states and localities have other programs that can support manufacturers, such as Ohio’s TechCred program. As always, manufacturers should carefully evaluate their eligibility for any programs available and carefully assess those that can support them.

As more people are vaccinated against COVID-19, the stress on our overall economy is anticipated to decline. Further, business opportunities may increase as additional reshoring efforts could result in more domestic production. Advanced technologies, such as robotics, artificial intelligence, additive manufacturing, data analytics, and cloud computing, will continue to make operating more efficient and level the competitive playing field.

Lastly, while manufacturers faced pre-pandemic challenges of available workers, the higher level of unemployment has more potential workers looking for their next opportunity. Manufacturers looking to expand their workforce may want to actively consider their recruiting and training strategy to support their business needs while also aiding those in need of employment. Lesson: Manufacturers planning for 2021 should have cautious optimism, considering multiple economic and healthcare factors that could contribute to a year of recovery and opportunity.

Most economic analysts expect slow but steady economic growth in 2021. It should be a year of recovery and a chance to move our companies profitably forward. The lessons we learned from 2020 will help us prepare for better times in the coming year and beyond.

As Senate leaders continue to progress towards passing a new stimulus package, many business owners and individuals are anxious to learn how a potential deal may support them through the ongoing COVID-19 pandemic. HBK CPAs and Consultants is following these negotiations and will provide details if legislation is signed into law. Proposed changes to the Paycheck Protection Program (PPP) include:

• Clarification of the tax treatment of forgiven PPP loans allowing a deduction for business expenses paid with PPP loan proceeds, and used to substantiate forgiveness.
• *Note that as these changes are not final, PPP loan borrowers should still plan for the possibility that expenses paid with PPP loan proceeds and used to substantiate forgiveness will not be deductible.
• A new round of PPP loans for eligible borrowers. Congress may target smaller businesses impacted by COVID-19, which means that new eligibility criteria may be used. Interested borrowers will need to reconsider whether they are eligible for the next round of loan funding.
• Simplified forgiveness application processes for certain borrowers.

Other stimulus discussions include:

• Direct stimulus payments of $600 to eligible individuals
• The renewal of certain unemployment benefits
• Other support for COVID-19 protection and prevention programs, such as funds for vaccine development and testing

Congress has indicated negotiations may continue into the weekend. Therefore, these changes are not yet law, and those using current stimulus funds, whether through the PPP program or other COVID-19 relief funds, should continue following the rules that are available. For legislative updates, visit www.hbkcpa.com/covid19 or contact your HBK Advisor.

Last month, Paycheck Protection Program (PPP) borrowers learned about Loan Necessity Questionnaires (SBA Form 3509 and SBA Form 3510) that were released from the SBA to lenders. SBA indicated that these forms would be provided to borrowers that, together with their affiliates, received loans of $2 million or more in an effort to evaluate their good-faith certification that current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”. Because no guidance was issued and the forms were initially not published with other PPP guidance on the SBA or Treasury websites, many borrowers raised questions about these forms and how they would be used by SBA.

While the SBA and Treasury have now posted these forms, they also released a new Frequently Asked Question (FAQ). In the answer, SBA confirms that a request to complete these forms does not indicate that the SBA is questioning the borrower’s certification of economic uncertainty or need for the loan.

SBA continues by explaining that “this certification is required to have been made in good faith at the time of the loan application, even if subsequent developments resulted in the loan no longer being necessary.” SBA may review the borrower’s “circumstances and actions both before and after the borrower’s certification to the extent that doing so will assist SBA in determining whether the borrower made the statutorily required certification in good faith at the time of its loan application.” SBA reserves the right to request additional support, which may allow borrowers to provide more detailed responses or narratives regarding their circumstances.

Borrowers expecting to receive these forms may consider the following actions:

• Review the available forms and prepare your responses.
• Consider additional narratives that may be important for the SBA to consider.
• If you receive the form from your lender, submit your response within 10 business days of receipt.

For questions regarding the PPP or Loan Necessity Questionnaires, please contact your HBK Advisor.

The Office of Workforce Transformation in Ohio will open a new round of TechCred applications from January 4 through January 29, 2021 at 3:00 PM.

Since the program’s inception, TechCred has completed six rounds of funding. In the most recent funding round, which ended in October, 246 Ohio employers were approved, which allows funding for 3,000 credentials.

TechCred provides employers with the opportunity to support employees through the advancement of their technological skills. Employees can earn credentials in subject matter including manufacturing technology, construction technology, business technology, cybersecurity, robotics, and information technology fields. A list of eligible credentials is available at https://techcred.ohio.gov/wps/portal/gov/techcred/about/credential-list/.

Employers may also request approval for credentials not included on this list. Eligible credentials must meet the following criteria:

• Industry-recognized
• Short-term (the program must be able to be completed in less than one calendar year and consist of fewer than 900 clock hours or 30 credit hours)
• Technology focused
• Includes certificates, which are earned by successfully completing training or courses, or certifications, which are earned by passing a standardized test recognizing an individual’s competency in a particular field.

Due to the ongoing status of the COVID-19 pandemic, online and distance-learning programs are encouraged.

Interested employers should visit https://techcred.ohio.gov/wps/portal/gov/techcred/apply to apply for the TechCred program. The Ohio Development Services Agency reviews applications and awards funding. Businesses can be awarded up to $2,000 per credential and $30,000 per funding round, which is reimbursed to the employer when the employee obtains the approved credential or completes the approved program.

To learn more about Ohio’s TechCred program, visit techcred.ohio.gov. For questions about this program or other support for manufacturers, contact a member of HBK Manufacturing Solutions by calling 330-758-8613 or emailing manufacturing@hbkcpa.com.

For the third time this year, the Board of Directors of the Ohio Bureau of Workers’ Compensation (BWC) has approved relief in the form of a dividend for Ohio employers. The payments are intended to support businesses experiencing financial pressures related to the COVID-19 pandemic. This round of dividends will total approximately $5 billion, bringing the total COVID-19 relief payments issued by the BWC to nearly $8 billion.

The year’s first dividend payment, announced in April, provided $1.6 billion to the state’s eligible employers. A September dividend delivered an additional $1.5 billion in payments.

Eligible private employers are expected to have the payments first applied to unpaid balances with the Ohio BWC. The agency said it will likely distribute checks for the remaining balances by mid-December.

To read the news release announcing this dividend, visit: https://info.bwc.ohio.gov/wps/portal/gov/bwc/news-and-events/news/bwc-board-approves-5-billion-dividend. To review frequently asked questions regarding this latest dividend, visit: https://info.bwc.ohio.gov/wps/portal/gov/bwc/for-employers/all-employer-resources/5BillionDividend-QandA.

To discuss this dividend or other COVID-19 relief options, please contact your HBK Advisor or call 330-758-8613.