The SBA recently released the long-awaited application to apply for forgiveness of a Paycheck Protection Program (PPP) loan. They also announced they will soon issue regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.
VonLehman held several events this week where we walked attendees through the PPP loan forgiveness application process. Coming out of the events we had many questions which we’ve addressed in the FAQ below and attached above. If you missed the event you can download the slides and watch a recording from the virtual event.
PPP Forgiveness FAQ
If an employee’s hourly wage has not been reduced, but the hours worked has been reduced, would that be considered a Salary/Hourly Wage Reduction in Table 1 of the Schedule A Worksheet?
No, this would not be considered a reduction. This is a part of the loan application instructions and has been confirmed by Interim Final Rule issued on 5/22/2020 however borrowers should still consider their ability to meet payroll cost requirements before reducing employee hours.
See Slide #19 – Relief Example where this Q is addressed.
Owner compensation cannot be higher than in 2019 but, if an owner only started taking a salary in the last half of 2019, would the forgiveness amount be based on an average of the 2019 salary or an average of what the salary was during the months actually on salary?
While there is not specific guidance for this question from the SBA thus far, it would be reasonable to assume that an average of the months while on salary would be used. This would be supported by various language throughout the CAREs Act addressing PPP covered periods and safe harbor periods, as well as historical periods to measure against FTE’s.
As an owner of our CCorp I am also a w2 employee. I didn’t payment last year because I didn’t have to work; this year with the downturn I do have to work, so I am paying myself. Does this mean I can’t get forgiven through the PPP loan? I do not know what my k1s showed for 2019. I think low because we had very little profit.
While the SBA sets a threshold of the lower of 2019 compensation or $15,385 during the covered period, it does not address a situation where an owner becomes an employee in 2020 but was not previously employed by the Corporation (S or C doesn’t seem to matter). Borrower would have a strong position to justify the payroll cost if other FTE’s had to be cut due to various COVID issues and an overall economic downturn. Documentation of these decisions should be paramount. Please note that C Corp owners don’t receive a K-1.
Are bonuses allowable in “compensation?”
See Slide #7 – Schedule A Worksheet Table 1
Am I able to use any of the loan toward performance bonuses or one-time pay raises? Can bonus payments be considered for forgiveness? We pay bonuses quarterly to all eligible employees and bonus payments in 2019 were part of our loan application calculations?
There are no restrictions on bonuses, pay raises, or salary / wage enhancements to employees during the covered period other than for owner-employees. Keep in mind that the $15,385 limit during the covered / alternate covered period apply to all EE’s reported in Tables 1 and 2.
Is “hero” pay allowable? (hourly bonus for hours worked in April)
Yes, subject to $15,385 limit for any individual employee during the covered period.
See Slide #7 – Schedule A Worksheet Table 1
Is there any chance of (the SBA) extending qualifying weeks to meet the 75% payroll test? We have a large number of accounts that are still closed and will not be able to make the 75% test even though we have not laid off any employees.
Yes, there’s a good chance that recent legislation from Congress will either extend the covered period and or reduce the threshold to 60% or other. House bill passed with a 24-week period while a Senate bill provided for 16 weeks to spend the PPP funds and be eligible for loan forgiveness, amongst other business-friendly changes.
See Slide #27 – Congress Addressing
Can anyone better define ‘transportation’ costs as it relates to utilities? Does it include Fuel for Delivery Trucks?
The CARES Act defines utilities in Sec.1106(a)(5) as electricity, gas, water, transportation, telephone or internet access for service which began prior to February 15, 2020. Further guidance released added gas used when driving a business vehicle. Other common utilities such as garbage collection or security monitoring may also be classified as a utility, but a business should confirm with the lending institution.
Borrower’s should also consider mileage reimbursements to employees as a part of transportation. The SBA has not yet addressed this.
See slides #21 and #22 – Non-payroll Costs
Can forgiveness be assured and can the forgiveness application and documentation be simplified by spending all of the loan proceeds on wages during the eight-week period, subject to limitation for highly paid employees?
Yes, as long as the loan was eligible to begin with.
Is the headcount requirement satisfied simply by ending up with FTE equal to or greater than the comparison period? E.g., if there were three employees, one full-time and two part-time, and one-or both part-time position(s) was/were eliminated but FTE met with two full-time employees; or, since FTE is based on wages and hourly rate, can FTE be satisfied by replacing two highly paid part-time positions with a single lower paid position that works more hours? Is FTE calculation for part-time workers who combined total less than 1 FTE based on combining all 2019 part-time hours and dividing by 40 hours with the result being reported as a fraction?
This depends on when the eliminations were made. If during the “covered period” of February 15, 2020 and April 26, 2020, then the safe harbor of rehiring those FTE’s by June 30, 2020 applies. If reductions were made outside of that period, other circumstances will need to be considered.
Interim Final Rule issued on 5/22/2020 also provides for an alternative method of calculating FTE for part time employees of .5 of an FTE for any PT employee regardless of how many hours they work. Borrowers should consider this method if they have PT’s.
See Slide #17 – Safe Harbor
Can the loan still be forgiven if the company and all employees are making more money this year than last year?
Yes, there are no restrictions on net income or employee wages on loan forgiveness. However, borrowers in this situation should consider whether their loans are eligible and if they meet needs certification requirements. The SBA has considered all loans under $2 million to have met the needs certification.
See Slide # 3 – Review of PPP
Can we pay back rent with the PPP money?
Yes, if that back rent is paid during the covered period it will be considered for loan forgiveness.
See Slide # 22 – Non-payroll Costs
Do loans that are collateralized by “all assets” of the business fall under the “covered mortgage obligations” for purposes of forgiveness on payments of interest?
Most common use of covered mortgage obligations will apply to real property there are many other instances where a mortgage note exits for personal property or other uses and, in those cases, as long as in place before 2/15/2020, it should be eligible for use and forgiveness.
See Slide # 22 – Non-payroll Costs
Do lease payments include operating leases, or office equipment, or just rental for office space?
All of the above.
See Slide # 22 – Non-payroll Costs
What benefits are included in the PPP Loan – healthcare, dental, life, Employer HSA contribution, 401K employer contribution?
All listed except life.
Not addressed in Slides, Payroll cost hasn’t changed since application but we can address this on the onset since it may involve an amount that should be given back before forgiveness calculation is considered.
Please confirm that employee contributions to health, Flex spending, Dependent Care does NOT count.
Correct, since they are already a part of employee gross pay you would not count them twice.
Not addressed in Slides, Payroll cost hasn’t changed since application but we can address this on the onset since it may involve an amount that should be given back before forgiveness calculation is considered.
I have an employee who was laid off March 24th, she declined to come back to work on May 8th (in writing) but has now changed her mind and is returning to work on June 1st at the same wage and hours as before. How is her wage figure on the worksheet? My eight weeks is 4-17 thru 6-12. Thank you.
Figure her wage for however much she was paid between 4-17 and 6-12. This EE would not have a negative impact on loan forgiveness related to either of the loan forgiveness reductions of FTE or salary / wage, however the payroll cost the borrower would use is the actual amount the EE is paid during the covered period under the $15,385 threshold.
Is fuel for service trucks eligible for loan forgiveness? Do we use gross health insurance payments or is it reduced by the employee’s payroll deductions?
Yes, fuel for service trucks is eligible. Health Insurance payments would be reduced by the EE’s payroll deduction.
See Slide # 22 – Non-payroll Costs
Is Gas, as it relates to business travel, field service travel and delivery, considered a forgivable business expense?
Yes, forgivable but subject to 25% limit on non-payroll expenses.
See Slide #7 – Schedule A Worksheet Table 1
Are commissions and bonuses due from 2019 if paid during the covered period forgivable? Is it acceptable to prepay 2020 commissions and bonuses during the covered period and have it be considered forgivable?
Any payroll cost paid during the covered period is eligible for forgiveness. Prepayment of commissions and bonuses not yet earned is not expressly forbidden, however could conflict with certifications borrower made when applying for the loan.
See Slide #7 – Schedule A Worksheet Table 1
Is gasoline for vehicles a forgivable utility? Are cell phones stipends and plans considered a forgivable utility? How is it possible to include severance payouts in forgiveness if you have to maintain headcount for PPP but also have to give a waiting period for employees to accept severance agreement?
Yes on gas and cell phones.
Is shareholder health insurance included in wages and forgivable?
As long as the shareholder is also an employee. The amount of the benefit is limited to the amount paid in 2019.
See Slide #14 – PPP Schedule A
Looking for definitive guidance on cash vs accrual basis – i.e. payroll incurred in eight weeks post loan receipt vs. payroll paid post loan receipt. Our first pay date was one day after loan receipt paying skeleton crew only, so this answer makes a big difference in making the payroll threshold. Similar to rent – landlord deferred our April rent indefinitely. Can we pay three months now in the eight-week period and use all three months’ rent in the forgiveness application? Thanks for doing this session!
See Slide #3 and Slide #20
Most interested in forgiveness for self-employed individuals.
Thus far, it is your 2019 net income * 8 / 52 plus any non-payroll costs such as rent, utilities, mortgage interest. There is not a benefit of health insurance payments or retirement benefits made by the business on your behalf.
Our loan dropped on the day of our first payroll and we can easily move our last payroll one day early so that we would have five pay periods all pull from the 56 day period. Is this allowed? We would not be paying any staff advanced pay. We work one week behind.
This should be okay, as long as paid during the covered period. Also, payroll cost incurred but paid outside of the covered period but on or before the next regularly scheduled payroll are eligible for loan forgiveness.
See Slide #7 – Schedule A Worksheet
The calculations utilized to apply for the PPP would have included end of year bonuses. Those bonuses are obviously not occurring at this time. Separately, possible bonuses may never occur. How do I receive the 100% forgiveness in lieu of this?
Hope that they extend the covered period beyond eight weeks.
We have a consultant that is paid via 1099 and not “ON” payroll. Do I include his costs as well as part of my 75%?
No, 1099 independent contractors are not eligible costs for loan forgiveness and should have not been counted towards the loan amount to borrow.
See Slide #7 – Schedule A Worksheet
We pay quarterly bonuses on a regular basis and have for years. It was part of our loan application calculation. Can we include our regular quarterly bonus in our loan forgiveness application?
Yes, any and all bonuses paid and incurred during the covered period count as long as they are under the $15,385 amount for any individual employee as well as other restrictions for owner-employees.
See Slide #7 – Schedule A Worksheet
What is an owner 2% 5% 20% – does attribution apply?
This is not specified – assume owner is any owner and at a minimum would be required to submit documentation on any owner over 20%. Attribution is likely applicable.
What is the time frame for applying for the forgiveness?
Borrowers can apply for loan forgiveness to their lenders after their covered period ends but should also keep in mind the safe harbors available through June 30, 2020. Borrowers must apply for loan forgiveness before 12/31/2020 and may want to do so sooner than that in order to avoid any required interest or principal payments. For example, if you received your loan in April, it is likely that payments would begin six months from that date, unless the loan is forgiven. The loan forgiveness process can take up to five months from the date borrowers submit their application for forgiveness.
Are temporary employees calculated differently or do they fall under the FTE calculation?
If temporary employees are paid through a staffing agency and therefore are employees of the staffing agency then they would not fall under the FTE calculation, and their payroll would have not been eligible to apply for the loan to begin with. However, if temporary employees are hired, employed, and paid by the Borrower then they would be subject to the same rules as other employees.
As a 10% owner I have not taken pay for accounting until 2020. Does that mean my payroll cannot be counted toward forgiveness calculation?
That is correct, due to the stipulation in the interim final rule that owner employees’ payroll cost is limited to the lower of $15,385 or their 2019 wages prorated over the covered period we do not believe that you would be able to count the owner payroll paid during the covered period. However, this should be discussed with your lender.
Is there a recommendation for monthly or greater payroll cycles? For example, should payroll be changed to be paid bi-weekly?
Changing payroll to bi-weekly would not yield a better result, as even in a monthly payroll the borrower would be able to achieve full 56 days’ worth of payroll cost. We recommend not changing the payroll cycle, particularly if borrower is already within their covered period.
How are those employees that qualified and went on FMLA where we as the employer were required to reduce the employee’s salary apply in regards to how we calculate forgiveness?
While this is not specifically addressed in the guidance thus far, we believe that an employee on FMLA would continue to be counted as an FTE if they would normally be working 40 hour weeks. The reduction in salary would not have to be considered in the salary / wage reduction calculations as a reduction to loan forgiveness however the payroll cost associated with those employees would be the amount they are being paid while on FMLA and not their full salary / wage. There are additional considerations for employees on expanded leave through the Families First Coronavirus Response Act.
What if an employee worked overtime in the lookback period and did not work overtime during the covered period. Would this be a reduction in hourly rate when compared to lookback period?
The borrower must reduce the total forgiveness amount by the total dollar amount of the salary or wage reductions that are in excess of 25% of base salary or wages between January 1, 2020 and March 31, 2020. Therefore, a reduction in wages resulting from an employee working more overtime in the 1st quarter 2020 than during the covered period is a reduction in hours and not in rate and would not be applicable for purposes of the salary / hourly wage reduction test.
Can bonus be paid after the eight-week period expires and still apply toward to forgiveness calculation?
If the bonus was incurred during the eight-week period and paid on or before the borrower’s next regularly scheduled payroll pay date, it can apply towards forgiveness.
For sole-member LLC organizations where the owner has no defined payroll, is a transfer between company and private bank accounts required to demonstrate use, or is this simply understood?
It is not required. Sole-member LLC owners would use their Schedule C net profit * 8 / 52 to calculate the amount of loan forgiveness relative to their pay. Consult with your lender on whether or not they will require more evidence than is required under the guidelines.
What if your PPP Loan amount is less than the eligible payroll and non-payroll costs……Can you submit for another PPP Loan to make up the difference?
Yes, the SBA allows for borrowers to adjust the amount of the loan they received, however this should be addressed directly with your lender.
How are non-payroll costs being viewed for Schedule C filers?
Same as for other businesses. Business mortgage interest, business rent, and business utilities including gas and transportation costs are all eligible costs.
If you were billed during the time period, is that covered regardless of if you paid the bill already, or do payments have to be made during the period?
Payments can be made after the covered period ends for expenses incurred during the covered period and will count towards loan forgiveness as long as they are paid on or before the next regular billing date, even if the billing date is after the covered period.
Does ‘Payroll Costs’ include unemployment and employer share of retirement and healthcare, or is it just true payroll?
Payroll cost is the sum of cash compensation to employees (gross wage) as well as employer paid state unemployment as well as non-cash compensation such as the employer share of retirement and health insurance. See PPP Schedule A of the Loan Forgiveness Application.
If an employee owner only started taking a salary in the last six months of 2019, would they prorate the two months over all of 2019 or just over the six months they were paid a salary?
Owner employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 or 2019 compensation (i.e., approximately 15.38% of 2019 compensation) or $15,385 per individual in total across all businesses.
How do you handle constant turnover? For example, if an employee only stays one week and another employee only stays a week, and they were 40 hours a week, do they count as one employee each or a part of an employee?
Borrowers must divide the average number of hours paid for each employee per week by 40.
Can you bring back all the employees by June 30 then lay them off 14 days later for safe harbor?
Currently, there is no guidance regarding employees after the covered period ends and after the safe harbor period of June 30, 2020 ends. If borrower covered period extends past the June 30th date then a lay off would still have an impact on loan forgiveness. If it ends before June 30th, any future layoffs would not factor into the loan forgiveness reductions, but the borrower should keep in mind that the certified loan funds would be used to maintain employees and payroll.
Is the expectation that individual lenders will be required to amend existing loan documents to match Congressional changes (i.e. no grandfathering to terms at date of signing)?
Consult with your lender.
If we accrue a COVID special payment during the 56 days and commit to disburse it at a future date, will it count for forgiveness?
No, only accrued payroll costs can be paid after the 56 days, as long as they are paid on the next regularly scheduled pay date.
Are computer outsourced services part of utilities?
No, subcontract or outsourced services are not considered allowable expenses at this time.
Can we file forgiveness based on the initial rules vs the potential changed rules?
That remains to be seen; thus far, we have only seen clarifications, no changes. If/when Congress acts, we would expect this to become clear.
If PPP started April 29, but we had payroll on April 28. Can we count April 28? I assume not since we didn’t have the PPP yet.
No, forgivable expenses begin on the date of the loan funding. The flip side is that you will pick up the payroll amounts paid in late June on the 56th day.
DISCLAIMER: PPP Alert: The U.S. Senate cleared a House-passed bill extending the current eight-week period during which businesses must use the funds to have loans forgiven to 24 weeks or 12/31/2020, whichever comes sooner. Stay tuned for more info.
