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PPP Loan Forgiveness Webinar Q&As

Tri Counties Bank and Moss Adams hosted live webinars for PPP loan customers regarding the SBA’s Paycheck Protection Program (PPP) loan forgiveness process. The following is a summary of questions and answers from the webinars held on May 29, June 2 and June 4, 2020.

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Applying For Loan Forgiveness

I don’t believe I was emailed the application. Is there a site I can get that from?

Tri Counties Bank customers will be sent an invitation to apply with a link to our online application portal. Invitations will be sent via email and USPS mail in the new few weeks. Please note that PPP loan forgiveness applications will only be accepted through our online application system. This will ensure timely processing of loan forgiveness requests.
To view the SBA’s loan forgiveness application:

https://www.sba.gov/document/sba-form--paycheck-protection-program-loan-forgiveness-application (opens a dialog) (opens in a new window)

The SBA issued revised Loan Forgiveness Application forms and Instructions on June 16, 2020. Depending on certain factors, the borrower may use either the standard Loan Forgiveness Application Revised June 16, 2020 Form 3508 or PPP Loan Forgiveness Application Form 3508EZ.

Form 3508EZ applies to borrowers who meet any one of these three criteria:

  • Applied for the PPP loan as self-employed, an independent contractor or a sole proprietor with no employees.
  • Did not reduce salary or wages for any employee by more than 25%, and did not reduce the number or hours of their employees (excluding laid-off employees who refused an offer to return).
  • Did not reduce salary or wages for any employee by more than 25% during the covered period and experienced reductions in business activity as a result of health directives related to COVID-19.

 

Will the bank give us an accounting template to track these expenses or it is up to the organization?

Tri Counties Bank is developing a loan forgiveness worksheet to assist borrowers in tracking the use of PPP loan proceeds. The worksheet requires additional refinements based on the PPP Flexibility Act, which was recently signed into law. Tri Counties Bank will publish the worksheet as soon as it is ready. In the meantime, borrowers are responsible for keeping detailed records of how PPP loan proceeds are used.


Q:  If I only requested the loan for payroll and nothing else, do I just put zeros on all the lines asking about non payroll cost?

A:  Yes. You only need to keep track of actual expenses covered with PPP loan proceeds. If you only use PPP loan proceeds for payroll, then all other boxes can be filled with zeros.

 

Is there a place on the forgiveness application where any FTE reductions are calculated or accounted for?

The Loan Forgiveness Application does not contain formulas, however there is a worksheet to post data on each employee and their compensation.

SBA issued revised Loan Forgiveness Application forms and Instructions on June 16, 2020. Depending on certain factors, the borrower may use either the standard Loan Forgiveness Application Revised June 16, 2020 Form 3508 or PPP Loan Forgiveness Application From 3508EZ.

 

Does Tri Counties Bank provide a worksheet to record qualified expenses to make it easier to get forgiveness?

TCBK is developing a loan forgiveness worksheet to assist borrowers in tracking the use of PPP loan proceeds.  TCBK will publish the worksheet as soon as it is ready.  In the meantime, borrowers are responsible for keeping detailed records of how PPP loan proceeds are used.

 

Can cancelled checks be copies from the bank as checks are not returned?

Yes, together with other supporting documentation as required.

 

Can we use our quick ratio to determine our liquidity?

The SBA does not specifically address the calculations to measure liquidity. The most recent FAQ from the SBA dated May 27, 2020 addresses the certification on the SBA PPP Application regarding the necessity of the loan request:

  • Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
  • Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.

 

Loan Forgiveness Timing and Application Deadlines

What is the timetable for submitting the forgiveness application? Do I wait until the 8 weeks is up?

As of June 5, 2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

The earliest the borrower may apply for loan forgiveness is after the initial 8-week period.  However, the borrower has up to 10 months after the end of the 24-week covered period to request loan forgiveness. 

If a borrower does not submit its loan forgiveness request within 10 months after the end of the applicable loan forgiveness period, then such borrower will be required to begin making principal and interest payments after such 10-month period.

You should keep detailed records and documents substantiating how PPP loan proceeds are being spent beginning on the day the loan disbursed in order to make the loan forgiveness process that much easier when the time comes.

 

The Tri Counties Bank loan document says to start submitting documentation at 6 weeks. Is this still true?

This was the original guidance, but is no longer required as a result of the PPP Flexibility Act. The forgiveness event may use payroll and other eligible costs for up to 24 weeks.

We recommend you keep track and retain documentation of your expenses for all eligible uses and submit after the application forgiveness amount calculation based on either the initial 8 weeks or the Alternative Payroll Covered Period, which were extended on the newly passed PPPFA.

 

Can we apply at 12 weeks if we've spent all the money on allowable things? Or is it only 8 or 24?

The loan forgiveness period is extended from 8 weeks to 24 weeks. The earliest you can apply for loan forgiveness is after the initial 8-week period.  However, the borrower has up to 10 months after the end of the 24-week covered period to request loan forgiveness.

If a borrower does not submit its loan forgiveness request within 10 months after the end of the applicable loan forgiveness period, then such borrower will be required to begin making principal and interest payments after such 10-month period.
SBA issued revised Loan Forgiveness Application forms and Instructions on June 16, 2020. Depending on certain factors, the borrower may use either the standard Loan Forgiveness Application Revised June 16, 2020 Form 3508 or PPP Loan Forgiveness Application From 3508EZ.

 

Does the new act extend the first payment past 11/1/20 whether forgiveness is granted
or not?

Under the Paycheck Protection Program Flexibility Act (PPPFA), the loan forgiveness period is extended from 8 weeks to 24 weeks from the date the PPP loan was disbursed.

The PPPFA revises the payment deferral period from 6 months after loan origination to the date on which the approved loan forgiveness amount is remitted to the lender by the SBA, provided that if a borrower does not submit its loan forgiveness request within 10 months after the end of the applicable loan forgiveness period, then such borrower will be required to begin making principal and interest payments after such 10-month period.

 

I'm a sole proprietor. I pay myself when I have reserves by irregular owner’s draws. Do I need to pay out my max during the 8 weeks? Can I just pay owners draws, i.e. net checks to me?

As of June 5, 2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

Payroll compensation eligible for forgiveness for owner-employees, self-employed individuals and general partners cannot exceed the lesser of either 24/52 of their 2019 compensation or $46,155 per individual. 

Schedule C filers (i.e. independent contractors and sole proprietors) are capped by the amount of their owner compensation replacement, calculated based on net profit for 2019.

 

What should our start date be when we can count our expenses? Would it be the date of when the loan hits our bank account?

As of June 5, 2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.
The 24-week covered period for calculating eligible non-payroll costs begins from the date of loan disbursement.

 

Q: If the period goes from 8 weeks to 24 weeks, are we to assume max comp goes from $15,385 to that times 3?

A: Yes, that is our understanding.  Payroll compensation eligible for forgiveness for owner-employees, self-employed individuals and general partners cannot exceed the lesser of either 24/52 of their 2019 compensation or $46,155 per individual.

The 24 week loan forgiveness period may not extend past 12/31/2020.

 

If you use the 8 weeks, do you still get to keep the 60% on payroll?

The Paycheck Protection Program Flexibility Act of 2020 (PPPFA) that went into effect June 5, 2020, extends the loan forgiveness period from 8 weeks to 24 weeks, and reduces the amount of loan proceeds to be spent on payroll costs to qualify for forgiveness from 75% of proceeds to 60% of proceeds.
If you adhere to the requirements for loan forgiveness during an 8-week period, then the minimum 60% spent on payroll would apply.

 

We originally received our loan on May 9th before the Flex Act. We have planned our staffing to maintain our FTE's  through the 8-week PPP Loan period. Now it looks like we may need to maintain these staffing levels through 24 weeks. Is that true, or does the 24-week period only apply to organizations that received their loans after the Flex Act passed?

The intent of the PPPFA was to provide greater flexibility to the borrower by extending the loan forgiveness period from 8 weeks to 24 weeks.

The act also reduces the amount of loan proceeds to be spent on payroll costs to qualify for forgiveness from 75% of proceeds to 60% of proceeds.

 

Loan Forgiveness Qualified Expenses

Payroll Costs

What all does "Payroll Cost" include?

Payroll costs include the following items:

  • Wages, salaries, tips, commissions, bonuses, with an annualized maximum of $100,000.
  • Payment for vacation, parental, family, medical or sick leave.
  • Employer funding of health benefits.
  • Employer retirement plan contributions.
  • State and local employer payroll taxes.
  • For independent contractor or sole proprietor:
    • Wages, commission, income or net earnings from self-employment, or similar.

 

Must the employer contributions to retirement plan be funded during the 168-day period?

Yes.  Only those employer paid contributions made during the covered 24-week period are eligible for debt forgiveness.

 

Are the fringe benefits part of the $100,000 per employee cap or is that cap the wage only?

The $100,000 annualized cap refers to cash wages or salaries (which would include cash bonus) paid to the employee. Other benefits in the form of employer contributions to retirement and health insurance are not included in the $100,000 cap.

Housing allowance costs for an employee also applies to the $100K cap per employee.

 

Would Aflac® be included in health benefits?

Health insurance costs paid by the employer for the benefit of the employee are eligible costs.

 

Can we pay worker’s compensation with the PPP loan?

Yes.  Employer paid contributions to worker’s comp for the benefit of the employees is considered an eligible health care cost.

 

Are independent contractor payments included?

No. Independent contractors are considered self-employed and amounts paid to an independent contractor on 1099 are not eligible for consideration.

 

Can we change our payroll to a bi-weekly format during the 8 weeks?

As of June 5, 2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.
There is no specific guidance on this question. However, for administrative convenience, guidance states that “Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the twenty-four-week (168-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).”  But again, guidance doesn’t address whether a borrower can change its payroll format during the covered period (either 8-week or 24-week).

 

For the health insurance, we offer and pay 100% of a concierge health center. Can this qualify?

As long as the expense is paid by the company for employee health care, it should qualify as an eligible payroll cost.

 

What about State workers compensation and GL insurance?

There is no specific clarity on workers compensation insurance. General Liability insurance is not an eligible cost.

 

For FTE, we have one department on reduced hours but expanded another department by over 100%. Will we be penalized for the reduction for the reduced department even though our average FTE is greatly increased? More employee hours overall.

FTE is measured by the number of FTE of the business, not individual departments.

FTE Limitation on Loan Forgiveness:

  • Average FTE’s for each payroll falling in the twenty-four-week measurement period are compared with the lesser of:
    • The average FTE’s for each payroll falling in the period 1/1/2020 through 2/29/2020, or
    • The average FTE’s for each payroll falling in the period 2/15/2019 through 6/30/2019
    • Seasonal businesses have additional flexibility in selecting the comparison period
  • A reduction in the FTE levels will result in a pro rata reduction in the loan forgiveness.

 

What if we used a placement agency to replace employees that resigned. Our agreement is that they remain on their payroll for approximately 3 months and then we will transition them to our payroll. Is there any way that those employees can be included in payroll and FTE count? These are critical positions and the most expeditious way for us to fill them was to use an agency.

If temporary workers are paid through business payroll, then yes, they are counted.

If temporary workers paid through the temp agency, they are not counted.

 

In regards to FTE, if an employee works 44 hours one week and 36 hours the following week, totaling 80 hours in the payroll period, what is their FTE value?

FTE is measured for each week during the covered period (8-week period or alternative 24-week period), not by payroll period, therefore:

  • 40 hour per week FTE standard measured at the employee level (not in aggregate). No overtime is included.
  • Two methods, based on actual hours worked:
    • Standard method: Hours for each in individual employee divided by 40 and rounded to the nearest tenth (not to exceed 1.0 for any employee)
    • Simplified method allows all partial FTE’s to be treated as 0.5 FTE’s each

Example: An individual working 36 hours in a week would be 0.9 FTE’s under the standard method, and 0.5 FTE’s under the simplified method.

 

Will grant funded payroll be considered for forgiveness or is that considered double dipping?

Proceeds from any advance up to $10,000 on EIDL will be deducted from the PPP loan forgiveness.

 

Are health benefits and retirements contributions included in the $100,000?

The $100,000 annualized cap refers to cash wages or salaries (which would include cash bonus) paid to the employee. Other benefits in the form of employer contributions to retirement and health insurance are not included in the $100,000 cap.

 

Is the annualized maximum of $100,000 per employee?

Yes, the cap is applied to each employee.

 

Can you please give an example of employer funding of health benefits

Employer paid benefits for benefit of the employee consists of group health care coverage, including insurance premiums, for medical, dental, vision, etc.

 

Can you confirm owner draw is included?

Payroll compensation eligible for forgiveness for owner-employees, self-employed individuals and general partners cannot exceed the lesser of either 24/52 of their 2019 compensation or $46,155 per individual.

Schedule C filers (i.e. independent contractors and sole proprietors) are capped by the amount of their owner compensation replacement, calculated based on net profit for 2019.

General partners are capped by the amount of their 2019 net earnings from self-employment, as reported on their K-1s, line 14a (reduced by claimed Section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.

If the business is an S-Corporation distributions paid to the owners are not eligible.

 

Are disability withholdings included?

Only employer paid state and local payroll taxes and health insurance benefits are included in other eligible payroll costs. Deductions or withholdings from employee wages are not included. This amount would have already been captured in employee gross wages. 

 

Do owners have to pay themselves on a regular payroll/W2? Or do draws under a Schedule C still count toward forgiveness?

Yes, using net profit as reported on your 2019 Schedule C, line 31:

  • Schedule C filers (i.e. independent contractors and sole proprietors) are capped by the amount of their owner compensation replacement, calculated based on net profit for 2019.
  • Payroll compensation eligible for forgiveness for owner-employees, self-employed individuals and general partners cannot exceed the lesser of either 24/52 of their 2019 compensation or $46,155 per individual.

 

What about temp workers? Our company utilizes a significant amount of temp workers based on the nature of our business. Can they be included?

If temporary workers are paid through business payroll, then yes, they are counted. If temporary workers paid through the temp agency, they are not counted.

 

I am looking at my employees paycheck stub. Which are included?

Medicare Employee additional tax – no
Federal withholding – no
Social security employee – no
Medicare employee – no
CA withholding – no
CA disability employee – no

Federal taxes (FICA, Medicare, Social Security, etc.) whether paid by the employer or the employee are not eligible payroll costs; only state and local employer paid payroll taxes.

State and local payroll taxes paid by the employee are not eligible as this amount is already included in wages.

 

Can you briefly go over FFCRA as part of payroll costs?

FFCRA is not an eligible payroll cost.

 

What if your retirement plan has exclusions for certain people who don't work enough hours in a year?

As of June 5, 2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

Specific guidance regarding retirement plans do not get this granular. The requirements for eligible payroll costs apply to those contributions made by the employer for benefit of the employee during the 24-week standard covered period or the alternative 8-week covered period.

 

Are we able to count employees on maternity leave or other FMLA approved areas?

If a borrower pays furloughed employees their salary, wages, or commission during the covered period, those payments are eligible for forgiveness. 

Total amount of cash compensation paid to employees eligible for forgiveness for each individual employee may not exceed an annual salary of $100,000. (a) Prorated over twenty-four weeks (i.e., the covered period) would be a maximum of $46,155 per individual employee.

 

Does the $15,384 amount include wages, health insurance paid for that employee and retirement matches paid for that employee, or does it only include the wages?

As of 6/5/2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

The total amount of cash compensation paid to employees eligible for forgiveness for each individual employee may not exceed an annual salary of $100,000.

  • Prorated over twenty-four weeks (i.e., the covered period) would be a maximum of $46,155 per individual employee.
  • This does not include other employer paid benefits such as retirement and health insurance.

 

What if my employee is taking a week of unpaid vacation during this time so it will cause a lower pay amount for the 8 week period of my loan?

As of June 5, 2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

Another provision reduces the amount of loan proceeds to be spent on payroll costs to qualify for forgiveness from 75% of proceeds to 60% of proceeds.

 

Can we use PPP to pay for Withholding, Employee Social Security and Medicare? Will this be forgiven? How about Employer's Social Security and Medicare for the 941?

Federal taxes (Medicare, Social Security, etc.) whether paid by the employer or the employee are not eligible payroll costs. 
State and local payroll taxes paid by the employer for the benefit of the employee are eligible.

 

So, EACH EMPLOYEE must have the same FTE compared to the lookback period? What if one employee is at 100% and another employee is at 50% of their former hours? What affect does that have on loan forgiveness?

Subject to certain exemptions, a reduction in the borrower’s fulltime equivalent (“FTE”) employees during the covered period (or alternative payroll covered period) when compared with a reference period (selected by the borrower) would reduce the loan forgiveness amount by the same percentage as the percentage reduction in FTEs.

 

What about an employee who goes out on disability?

The SBA and Treasury guidelines do not specifically address the issue of disability.

The Paycheck Protection Program Flexibility Act of 2020 (PPPFA) signed on June 5, 2020, provides an exception to the requirement that loan forgiveness be reduced if there is a decrease in FTE employees, if the borrower, in good faith, documents:

  • Its inability to rehire an individual who was an employee of the borrower on or before February 15, 2020; and its inability to hire a similarly qualified FTE employee on or before December 31, 2020 or
  • Its inability to return to the same level of business activity at which such business was operating prior to February 15, 2020 due to compliance with government requirements or guidance relating to standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

 

What about an employee who doesn't feel safe to come back to work because parent has COPD? 

The Paycheck Protection Program Flexibility Act of 2020 (PPPFA) signed on June 5, 2020, provides an exception to the requirement that loan forgiveness be reduced if there is a decrease in FTE employees, if the borrower, in good faith, documents:

  • Its inability to rehire an individual who was an employee of the borrower on or before February 15, 2020; and its inability to hire a similarly qualified FTE employee on or before December 31, 2020 or
  • Its inability to return to the same level of business activity at which such business was operating prior to February 15, 2020 due to compliance with government requirements or guidance relating to standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

 

Another source stated that temp agency employees would count, as long as the temp agency didn't have a PPP loan. Is that not correct?

If temporary workers are paid through business payroll, then yes, they are counted. If temporary workers paid through the temp agency, they are not counted.

 

Please confirm that FICA, Medicare, and Worker’s Comp DOES NOT count for forgiveness.

Federal taxes (FICA, Medicare, Social Security, etc.) whether paid by the employer or the employee are not eligible payroll costs. 

Worker’s Comp paid for the benefit of the employees is considered an eligible health care cost.

 

Wage Limitation: What if an employee voluntarily changes position that pays a lesser rate than their original position?

FTE reduction exceptions. A borrower may exclude any reduction in FTE employees attributable to an individual who was laid-off or who had their hours reduced as long as:

  • The borrower made a good faith, written offer to rehire the employee (or applicable, restore the reduced hours of the employee), during the covered period or the alternative payroll covered period;
  • The offer was for the same salary or wages and same number or hours earned by that employee in the last pay period prior to the separation or reduction in hours; and
  • The offer was rejected by the employee.

A borrower may exclude any reduction in FTE employees attributable to an employee who during the standard or the alternative payroll covered period was:

  • Fired for cause;
  • Voluntarily resigned; or
  • Voluntarily requested and received a reduction of their hours.

Note: Borrowers that avail themselves of this exception must maintain records demonstrating that each such employee was fired for cause, voluntarily resigned or voluntarily requested a schedule reduction. This documentation must be provided upon request.

 

An employee requested a transfer to a lower paid position - we have the request in writing.  How will this impact us?

FTE reduction exceptions. A borrower may exclude any reduction in FTE employees attributable to an individual who was laid-off or who had their hours reduced as long as:

  • The borrower made a good faith, written offer to rehire the employee (or applicable, restore the reduced hours of the employee), during the covered period or the alternative payroll covered period;
  • The offer was for the same salary or wages and same number or hours earned by that employee in the last pay period prior to the separation or reduction in hours; and
  • The offer was rejected by the employee.

A borrower may exclude any reduction in FTE employees attributable to an employee who during the standard or the alternative payroll covered period was:

  • Fired for cause;
  • Voluntarily resigned; or
  • Voluntarily requested and received a reduction of their hours.

Note: Borrowers that avail themselves of this exception must maintain records demonstrating that each such employee was fired for cause, voluntarily resigned or voluntarily requested a schedule reduction. This documentation must be provided upon request.

 

What if employee normally being paid salary of $62,400 but the employer says that during this time you'll be paid hourly and you only work now 15 hour week instead of 40, so the employee is receiving $450 week instead of $1,200. Does that count as reduced wages?

FTE reduction exceptions. A borrower may exclude any reduction in FTE employees attributable to an individual who was laid-off or who had their hours reduced as long as:

  • The borrower made a good faith, written offer to rehire the employee (or applicable, restore the reduced hours of the employee), during the covered period or the alternative payroll covered period;
  • The offer was for the same salary or wages and same number or hours earned by that employee in the last pay period prior to the separation or reduction in hours; and
  • The offer was rejected by the employee.

A borrower may exclude any reduction in FTE employees attributable to an employee who during the standard or the alternative payroll covered period was:

  • Fired for cause;
  • Voluntarily resigned; or
  • Voluntarily requested and received a reduction of their hours.

Note: Borrowers that avail themselves of this exception must maintain records demonstrating that each such employee was fired for cause, voluntarily resigned or voluntarily requested a schedule reduction. This documentation must be provided upon request.

 

If employees work more than their average for the first quarter, will that cause a problem for forgiveness?

It depends. For hourly workers, forgiveness may be reduced if average hourly wages were reduced more than 25% between the baseline period from 01/01/20 to 03/31/20 and the PPP covered period.  For salaried workers, forgiveness may be reduced if average annual salaries were reduced more than 25% between the same baseline and covered periods. Please refer to the PPP Loan Forgiveness Application for specific instructions on how these wage reduction rules apply and for safe harbor rules that may apply.

 

Do wages reduced by 25% or more count for non-FTE employees?  Part-time employees too?

In general, Borrowers should review the PPP Loan Forgiveness Application to determine how loan forgiveness may be impacted by employee count reductions and pay reductions. In general, forgiveness may be reduced if FTE’s or average pay rates during the covered period are lower than levels experienced in the baseline period.

 

I have an EDD tax delinquency from the first pay period in January 2020. If I pay that during the 8 weeks, can it go toward loan forgiveness?

PPP should be used to cover payroll and other eligible expenses incurred and paid during the covered period – not to bring delinquent payroll current or to prepay expenses.

 

What if I increase payroll to compensate for grant funded payroll and maximize my loan forgiveness?

Per an Interim Final Rule from the SBA and Treasury dated May 22, 2020, hazard pay and bonuses are eligible subject to the $100,000 annualized cash compensation limit. It is worth noting that the recently signed PPP Flexibility Act increased the non-payroll forgiveness limit from 25% to 40%. This change should allow more of a borrower’s PPP loan proceeds to be forgiven to the extent that proceeds are used for covered non-payroll expenses.

 

For bonuses, employers can just decide to give employees a bonus?

Yes, the employer may pay their employee a bonus and hazard pay.

Payroll calculation for the loan forgiveness portion is based on comparison of number of full time employee (FTE) from last year to current, and level of wages from last year to current. Calculation formulas are included in the SBA PPP Loan Forgiveness Application. An updated form will be available soon to address the changes that went into effect on June 5, 2020.

 

What if employer contributions on retirement plan increases one employee’s benefit over $100,000 (wages plus this contribution)?

The $100,000 annual cap applies only to cash wages. 

 

Are corporate dividends included in payroll?

No. A distribution and/or dividend made to an owner of a corporation is not eligible.

 

What if you have monthly payroll, bi-weekly payroll and also bi-monthly payroll? How does that work for alternative payroll period?

Borrower will have to decide whether to use the standard payroll covered period, or the alternative payroll covered period. The borrower cannot blend the two methods.

 

If we have had an independent contractor on the payroll for all of 2019 to present, can they be included for forgiveness?

No, independent contractors are considered self-employed and therefore not eligible to be included in payroll calculation.

 

Is the required payroll related percentage now 60% and not 75%? 

The amount of loan proceeds to be spent on payroll costs to qualify for forgiveness has been reduced from 75% of proceeds to 60% of proceeds.

 

Do we average FTE per week across all the weeks?

Per the slide on page 16 of the Presentation re FTE Limitation FAQ’s:
40 hour per week FTE standard measured at the employee level (not in aggregate).
Two methods:

  • Standard method: Hours for each in individual employee divided by 40 and rounded to the nearest tenth (not to exceed 1.0 for any employee).
  • Simplified method allows all partial FTE’s to be treated as 0.5 FTE’s each.

Example: An individual working 36 hours in a week would be 0.9 FTE’s under the standard method, and 0.5 FTE’s under the simplified method

Per the slide on page 15 of the Presentation re: FTE Limitation on Loan Forgiveness:

Average FTE’s for each payroll falling in the eight-week measurement period are compared with the lesser of:

  • The average FTE’s for each payroll falling in the period 1/1/2020 through 2/29/2020, or
  • The average FTE’s for each payroll falling in the period 2/15/2019 through 6/30/2019

Seasonal businesses have additional flexibility in selecting the comparison period.
A reduction in the FTE levels will result in a pro rata reduction in the loan forgiveness.
SBA issued revised Loan Forgiveness Application forms and Instructions on June 16, 2020. Depending on certain factors, the borrower may use either the standard Loan Forgiveness Application Revised June 16, 2020 Form 3508 or PPP Loan Forgiveness Application From 3508EZ.

 

What is the maximum payroll compensation that may be used for self-employed individuals?

The payroll compensation eligible for forgiveness for owner-employees, self-employed individuals and general partners cannot exceed the lesser of either 24/52 of their 2019 compensation or $46,155 per individual.

 

Agriculture is 60 hours a week (10 hour days). Are we still held to the 40 hours?

Yes, a 40 hour per week FTE is the standard measured at the employee level (not in aggregate).
Two methods:

  • Standard method: Hours for each in individual employee divided by 40 and rounded to the nearest tenth (not to exceed 1.0 for any employee).
  • Simplified method allows all partial FTE’s to be treated as 0.5 FTE’s each.

Example: an individual working 36 hours in a week would be 0.9 FTE’s under the standard method, and 0.5 FTE’s under the simplified method.

 

What if you laid off a part time employee, and he has subsequently gotten another job, but you hired a new full time employee who was not employed at the time of the loan. Is the new full-time employee's payroll forgiven?

The payroll calculations related to loan forgiveness are tied to number of FTE and amount of wages during the covered period as compared to the control period. If there has been no reduction in FTE or wages, then this would have no impact on the eligible loan forgiveness amount.

 

How do you calculate an employee who happened to go on maternity leave during this period? Will that impact our numbers?

Payroll costs that may be forgiven include payment of vacation, parental, family, medical or sick leave, as well as allowance for separation or dismissal.

 

How do we report these denials of the job offer to EDD?

You will need to contact EDD for guidance.

 

If we had an employee resign before COVID-19 (we have letter on file), but then we did not rehire for this position, do we need to count those FTE's against our forgiveness?

A borrower may exclude any reduction in FTE employees attributable to an employee who during the standard or the alternative payroll covered period was:

  • Fired for cause;
  • Voluntarily resigned; or
  • Voluntarily requested and received a reduction of their hours.

Note: Borrowers that avail themselves of this exception must maintain records demonstrating that each such employee was fired for cause, voluntarily resigned or voluntarily requested a schedule reduction. This documentation must be provided upon request.

 

What about commissioned salespeople?

Forgiveness will be reduced when the wages of individual employees are reduced by more than 25%.  This only applies to non-highly-compensated employees. 
Compensation to employees may be from salaries, wages, bonuses, or other cash-compensation. 

If employees receive compensation as an independent contractor or other 1099 income, these employees compensation is not eligible.

 

If salary increases, are there any issues for forgiveness? For example, I have had to temporarily increase hourly wages in order to keep my employees coming to work.

An increase in hourly wages during covered period would not impact loan forgiveness. The loan forgiveness portion may be impacted by reduction in FTE and/or reduction in wages.

However, maximum annualized wages cannot exceed $100,000, or $46,155 per individual over the 24 week covered period.

 

If partners have historically taken compensation as guaranteed payments, will that qualify for forgiveness?

Payroll compensation eligible for forgiveness for general partners cannot exceed the lesser of either 24/52 of their 2019 compensation or $46,155 per individual. The payroll calculation is based on the partners 2019 K-1s, line 14a “self-employment earnings”, less Section 179 expense reduction claimed, multiplied by 0.9235.

 

When we are comparing FTE's during the comparison period, how does that change affect our forgiveness percentage since we're looking at it on an individual by individual basis? For example: say 9 employees are at the same FTE's that they were at during the comparison period. But one employee is at 50% of their previous FTE. What would the forgiveness % on the loan be?

It depends on what the reduction is attributed to. If the employee requested to have their hours reduced, then it would not have any impact on the forgiveness, as long as it is documented.
If the FTE employees during the covered period (or the alternative payroll covered period) is less than it was during the selected reference period, then the eligible forgiveness amount is reduced based the percentage reduction in FTE employees.

For instance, a reduction from 10.0 FTE employees to 8.0 FTE employees would represent a 20 percent reduction. Thus, only 80 percent of the otherwise eligible expenses would be available for forgiveness.

 

Is the calculation based on the hours worked or hours paid?

There are two criteria: employees retained and employee wages. A borrower’s eligible amount of forgiveness may be subject to a reduction if it reduced its employees or wages paid to employees (or both).

 

What about sick time or vacation time? Do those hours count toward FTE?

Payroll costs that may be forgiven include payment of vacation, parental, family, medical or sick leave, as well as allowance for separation or dismissal.

 

Our work week is normally 37.5 hours. During this period we put everyone on salary. Would they count as 0.9?

40 hour per week FTE standard measured at the employee level (not in aggregate).
Two methods:

  • Standard method: Hours for each in individual employee divided by 40 and rounded to the nearest tenth (not to exceed 1.0 for any employee).
  • Simplified method allows all partial FTE’s to be treated as 0.5 FTE’s each.

Example: an individual working 36 hours in a week would be 0.9 FTE’s under the standard method, and 0.5 FTE’s under the simplified method.

 

Transportation Costs

What is the definition of transportation?

We are still waiting for additional guidance from SBA/Treasury regarding transportation.

 

Is garbage considered a utility?

Yes, garbage collection should be eligible to be included in utilities, as long as this service was in existence prior to February 15, 2020.

 

When referring to "transportation", if your business is heavy construction, can the funds be used for fuel?

Transportation costs are included under business utilities. There is no specific mention of fuel in the guidelines. We are waiting for final guidance from SBA and Treasury regarding the Loan Forgiveness aspect and this may be addressed then.

 

What about a car lease/transportation and gas?

Rent and lease payments are eligible to be included in the loan forgiveness portion as long as the minimum requirement of funds used for payroll costs is met.

We are still waiting for additional guidance from SBA/Treasury regarding transportation and fuel.

 

Does transportation include vehicle loan payments on company owned vehicles?

Eligible transportation costs have not yet been defined by the SBA/Treasury. We are waiting for final guidance. However, principal payment on any loan is not an eligible non-payroll cost.

Interest portion on a business vehicle loan payment obtained prior to February 15, 2020, is an eligible non-payroll expense.

 

Utility Costs

Would regular refuse disposal and/or telephone answering service be considered as utilities?

Yes, garbage collection and a telephone service should be eligible to be included in utilities, as long as these services were in existence prior to February 15, 2020.

 

We pay NCR to manage our software in our stores. Is this considered a utility?

The PPP Loan Forgiveness Application defines covered utility payments as “business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.”  If NCR is your internet provider and is used by your company to gain access to the internet, then it would be considered a utility.  Conversely, if NCR is used as a retail software vendor or POS vendor, then it constitutes a software vendor and would not be considered a utility for PPP purposes.

 

If we have solar and pay at the end of the year, can we divide our true up charge by 12 months and send PG&E a check for 2 months?

The borrower is eligible for forgiveness to the extent its Non-Payroll Costs were either:

  • Paid during the covered period; or
  • Incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period ends.

Please note, under the PPPFA that went into effect on June 5, 2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

 

Mortgage/Rent Costs

If an owner has a note on a corporate office owned by the entity and you make monthly mortgage interest payments to the owner, does this mortgage interest payment qualify?

Pending additional guidance from Treasury.

 

Does CAM (Common Area Maintenance) count in the rent?

Guidance is unclear on whether CAM charges qualify as rent. If CAM charges are wrapped into one large monthly rent payment, it would be reasonable to treat CAMs as rent. That said, we are awaiting additional guidance on whether CAM charges are an eligible rent expense for PPP loan forgiveness purposes.

 

I understand that mortgages can be included in PPP forgiveness. You mentioned though, that a mortgage can include a mortgage on equipment or automobiles -- but by definition a mortgage is a loan that is secured by collateral of real property. I know several people thinking their vehicle/fleet loan payments are covered, but these loans do not meet the legal definition of a 'mortgage'. Any further thoughts on this?

Per the PPP Loan Forgiveness Application, mortgage interest includes any business mortgage obligation on real or personal property incurred before February 15, 2020. In this case, as long as a Borrower’s business loan was in place prior to February 15, 2020 and is secured by real or personal property, interest on the loan would qualify and would be eligible for forgiveness up to the 40% non-payroll forgiveness limit. The term “mortgage” does typically imply a real estate secured loan, but PPP guidance and the corresponding Loan Forgiveness Application do specifically include obligations on “personal property” as well. This would include any business loan secured by business personal property.

 

Will we be able to pay the portion of a rental/lease expense incurred but not fully incurred during the last month? Example: If a company has a rental that runs from the 1st to the end of a month, but the 8-week period expires at the end of 21 days into the month, can the company make a payment for the 21 days incurred?

As of 6/5/2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

Yes, the borrower may claim credit for the bills paid during the covered period plus the prorated portion of that portion during the covered period not due to be paid until the following month.

 

What about interest paid to individual (outside of rent/mortgage)?

Certain non-payroll costs may also be eligible for forgiveness, which include Interest payments on any business mortgage obligation on real or personal property that was incurred before February 15, 2020 (not including any prepayments of interest, or any payments of principal). 

The guidance does mention specific instructions as to who the lending party/creditor has to be. However, supporting documentation and verification of payments will be required.

 

I am still unclear on what interest is included. Only Mortgage interest, or is interest on Vehicle loans and LOC included?

Interest paid on an LOC would not be included. Only interest payments on any business mortgage (or debt) obligation on real or personal property (including vehicle loans) that was incurred before February 15, 2020 (not including any prepayments of interest, or any payments of principal) are eligible.

 

What about CAMS on leases?

Guidance is unclear on whether CAM charges qualify as rent. If CAM charges are wrapped into one large monthly rent payment, it would be reasonable to treat CAMs as rent. That said, we are awaiting additional guidance on whether CAM charges are an eligible rent expense for PPP loan forgiveness purposes.

 

Initially, for our office rent, we did not pay April with agreement from the landlord to split out that rent over the following 8 months (added to the regular rent). Now, can we go ahead and pay our April rent and have that be counted in addition to paying May and June's rent? Our loan originated April 25-June 20.

As of 6/5/2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

Non-payroll costs, including rent, must have been paid during the 8-week covered period; or incurred during the 24-week covered period, and paid on or before the next regular billing date, even if the billing date is after the covered period ends.  If the billing date falls beyond the covered period, that amount of rent is pro-rated. 

The rental agreement must have been in place prior to February 15, 2020 to be considered.

 

Can we review the part on page 12 about the limitations on self-rentals and being the landowner please?

Rent must be reasonable and based on market. Lease agreement must have been in place prior to February 15, 2020.

 

Sole Proprietorship

Is there a difference between employee compensation and sole proprietor owner-employee?

Employee compensation usually means compensation paid to hired employees. Owner-employee compensation may refer to sole-proprietor, self-employed, or an independent contractor.

 

Are there any changes to how sole proprietor (Sch C) loans are repaid? I believe the current is 2 months of Sch C net income, which excludes everything. Corp forgiveness allows for much more room for write offs vs sole prop.

The payroll compensation eligible for forgiveness for owner-employees, self-employed individuals and general partners has been increased from the 8-week covered period to 24-week covered period, and cannot exceed the lesser of either 24/52 of their 2019 compensation or $46,155 per individual.

 

My business is an LLC and each partner receives a guaranteed draw. Can you clarify the FTE calculation that allows the number to be looked at 12/31/2020? Is this a comparison with the FTE based on the avg during the entire year through 12/31/2020 or simply FTE on 12/31/2020?

General partners are capped by the amount of their 2019 net earnings from self-employment, as reported on their K-1s, line 14a (reduced by claimed Section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.

The payroll compensation eligible for forgiveness for owner-employees, self-employed individuals and general partners cannot exceed the lesser of either 24/52 of their 2019 compensation or $46,155 per individual.

 

Qualified Expense Timing

If you have already made a prepayment on rent for 3 months, can you still claim the amount of one month per your suggestion not to pre-pay?

As of June 5, 2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

Non-payroll costs, including rent, must have been paid during the 24-week covered period; or incurred during the 24-week covered period and paid on or before the next regular billing date, even if the billing date is after the covered period ends. If the billing date falls beyond the covered period, that amount of rent is pro-rated. 

The rental agreement must have been in place prior to February 15, 2020 to be considered.

 

Regarding the employer funding of health benefits, when does the group health plan need to have started by in order to qualify? What if an employer switched health group plans to a new company such as Blue Shield to Anthem Blue Cross effective June 1, 2020?

As of 6/5/2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums are eligible if paid or incurred during the 24-week covered period.

 

If my covered period ends prior to June 30, do I have to keep my FTEs through June 30?

As of June 5, 2020, the covered period has been extended from 8 weeks to 24 weeks from the date of disbursement. Additionally, the revisions to the SBA PPP that went into effect on June 5, 2020 reduces the amount of loan proceeds to be spent on payroll costs to qualify for forgiveness from 75% of proceeds to 60% of proceeds.

It is anticipated that businesses will make good faith efforts to retain their employees beyond June 30, 2020.

 

Qualified Expenses - Miscellaneous

If a heavy road construction business rents equipment from another company; i.e., United Rentals or I-5 rentals, can these funds be used for that?

Lease payments on operating leases which were in place prior to February 15, 2020 are an eligible non-payroll cost.

 

What about an example loan of $300,000 with interest at 6% ($1,500 per month). Include or not?

Per the PPP Loan Forgiveness Application, mortgage interest includes any business mortgage obligation on real or personal property incurred before February 15, 2020.  In this case, as long as a Borrower’s business loan was in place prior to February 15, 2020 and is secured by real or personal property, interest on the loan would qualify and would be eligible for forgiveness up to the 40% non-payroll forgiveness limit (NOTE: The non-payroll forgiveness limit was increased from 25% to 40% through the passing of the PPP Flexibility Act).

 

Were there any updates on whether COVID-related costs for personal protection able to be charged against the PPP loan?

Nothing specific has been posted regarding costs related to personal protection being included as an eligible cost. However, final guidance and instructions are still pending from the SBA and Treasury.

 

Miscellaneous

Do non-profits have to pay California tax on the PPP loan?

Loan forgiveness is tax-exempt federally, but is currently taxable to California. However, California is said to be providing additional information on its treatment of loan forgiveness related to the CARES Act.

 

Has there been any legislation about the regulation issued that any loan forgiveness will then be counted as income?

Loan forgiveness is tax-exempt federally, but is currently taxable to California. However, California is said to be providing additional information on its treatment of loan forgiveness related to the CARES Act.

Feedback we received is that taxable impact is a “wash” under both State and Federal income tax calculations. Please seek the professional advice from your CPA or Accountant.

 

In March, our income was only half of normal. Now business has picked up and is at normal.  Will this be a problem? Should I pay some back?

Not necessary. The purpose of the CARES Act is to assist small business owners impacted by the Coronavirus by providing assistance for payroll and payroll related costs, as well as other eligible non-payroll costs. If you determine that not all the proceeds of your loan will be necessary, any funds not needed may be repaid without penalty.

 

If we use QuickBooks, do we need to record the PPP as a loan or grant?

As of June 5, 2020, the loan forgiveness period has been extended from 8 weeks to 24 weeks.

SBA PPP is a loan from your Lender, guaranteed by the U.S. SBA.  If the all the proceeds were used for eligible purposes during the 8-week or 24 week covered period, then SBA will pay off the loan with your lender.

 

Is it possible to obtain another PPP under the Flex Act if the initial request was incorrectly calculated lower than eligible?

No. Unfortunately, only one SBA PPP loan is allowed per borrower.

You may however, qualify for additional financing directly from the SBA under one of their Disaster Assistance loans.

 

We received $27,000 for 3 employees. We did not apply for my sole proprietor husband or include any retirement benefits or employer's share of State taxes. Can we apply for more funding?

The PPP loan cannot be increased once the loan has booked and funded.

 

Are the loans still based on 2.5 months or 5.5 months?

There has been no change to how the SBA PPP loan amount is calculated. 

 

How do we prove that we called an employee to work?

A borrower may exclude any reduction in FTE employees attributable to an employee who during the standard or the alternative payroll covered period was either: fired for cause; voluntary resigned; or voluntary requested and received a reduction of their hours.

Borrowers that avail themselves of this exception must maintain records demonstrating that each such employee was fired for cause, voluntarily resigned or voluntarily requested a schedule reduction. This documentation may be in the form of written correspondence between the employer and employee. This documentation must be provided upon request.

 

Can you address the EIDL advance of $1,000 per employee and how it applies to the PPP Loan?

If an EIDL loan was received between 1/31/2020 and 4/3/2020, and it was used for payroll costs, then the EIDL loan must be paid off with the SBA PPP loan.

If the EIDL loan was not used for payroll costs, then there is no impact on the SBA PPP loan.

Proceeds from any advance of the EIDL loan up to $10,000 will be deducted from PPP loan forgiveness.

If the Borrower received an EIDL loan before 1/31/2020 or after 4/3/2020, the EIDL loan cannot be refinanced with the PPP loan.

 

The material appearing in this presentation is for informational purposes only and should not be construed as advice of any kind, including, without limitation, legal, accounting, or investment advice. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although this information may have been prepared by professionals, it should not be used as a substitute for professional services. If legal, accounting, investment, or other professional advice is required, the services of a professional should be sought.

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