(Updated 6/22) PPP Forgiveness Application: The surprises, a guide and some calculators!
Disclaimer: Ultimately if is your responsibility as the borrower to qualify for forgiveness. This blog and calculator is for information purposes only and not intended to replace your own due diligence for accuracy.
TABLE OF CONTENTS
FAQs about the loan in general
Guidance for Businesses with Employees
PPP Flex Act Updates
You can now use 8 or 24 week periods
With being able to use 2.5 months of payroll, most all businesses can be forgiven 100%
All companies that qualify for the form EZ should use that. Its a streamlined form to receive forgiveness.
The House and Senate passed an amendment to the CARES Act on 6/4/2020. On 6/16/2020 the applications were updated.
If you don’t have an understanding on what the PPP is, and what to do next – follow links to read those blogs first. The come here when ready to apply for forgiveness.
Some FAQ’s answered in this application.
Please note that I’ve also addressed quite a few FAQs on blogs here and here, the below is just NEW information as of 6/16/2020.
8 OR 24 WEEK PERIOD
Which 8/24 weeks are covered? There are now two options!
A. Covered Period – The traditional 8 weeks (56 days) or 24 weeks from the date you received the funds
B. Alternative Payroll Period – For those who pay bi-monthly (or more frequently) you may use an alternate 8-week/24-week period starting on the first day of the NEXT payroll period after receiving the funds.
Example: Get the funds on Wednesday April 22nd which is in the middle of a pay period. Next pay period starts on May 1st your 8-week alternative covered payroll period would then start on May 1st.
NOTE: It’s clear that this is for bi-monthly or more frequent…so if you are at twice a month (which I realize is similar) or monthly, you would NOT qualify for this Alternative Payroll Period.
ANOTHER NOTE: It does not say anything about suddenly changing your frequency for the alternate period to prohibit you from qualifying. AKA going from twice a month to bi-monthly at the start of your alternate period.
SHOULD YOU CHOOSE 8 OR 24 WEEK PERIODS?
Benefits of using an 8 week period:
Quicker forgiveness - if you are wanting to reduce loans ASAP to qualify for other financing needs this could be useful
Full Time Employee Headcount - it could be more difficult to keep your headcount during a 24 week period vs only 8 weeks
Applying earlier could mean you can take advantage of SBA rules as they are now, rather than whatever inevitable changes are coming
Benefits of using a 24 week period:
More funds to be covered - 24 weeks of payroll vs only 8 weeks
More certainty of the rules as they will be much more clarified 24 weeks down the road compared to today
More time to chat with advisors to utilize funds accurately
DO EXPENSES NEED TO BE INCURRED AND PAID?
Background: Prior to this forgiveness app, it was in the language that all expenses needed to be incurred and paid within the covered period. AKA all the expenses truly relate to costs in the 8-week period (no prepaying) and you actually disbursed the $$$ in that period (bills paid after would be disqualified). What. A. Cluster.
UPDATED 6/22: A cost is eligible for forgiveness if it was:
Paid during the covered period; or
Incurred during the period and paid by the next billing date
Example: Covered period is June through October - all bills paid during that time period are eligible for forgiveness. But in addition, the October bill paid in November is also eligible for forgiveness because it was INCURRED during the covered period and paid on the next billing date.
TIP: Based on what I’m reading, prepaying rent and utilities is allowed. However prepaying mortgage is not.
WHAT IF I SPEND IT ON OTHER THINGS? AM I IN TROUBLE?
There are a couple items in here dancing around that subject.
1. You are only requesting what you want forgiven and not at all providing information on what you don’t want forgiven. So one could conclude, if you don’t ask for forgiveness it sounds like it won’t be addressed by the SBA and its automatically converted to a loan.
2. There is a statement that anyone that applied for the PPP signed that says “I understand that if the funds were knowingly used for unauthorized purposes, the government may pursue recover of loan amounts and/or civil or criminal charges.” Now the question is what is unauthorized.
My thoughts: From everything that I’ve read, it appears that if you applied for the loan desiring relief for payroll and by the time you received it you used the funds to keep you from going out of business and plan to pay it back with a 1% loan - you are okay. The intent of the loan is to keep people off unemployment and incentivized by allowing it to be forgiven – and you need to do whats best for your business right now as long as you understand you would be ineligible for forgiveness.
WHAT DOCUMENTS DO I NEED TO KEEP ON FILE?
They have provided both required documents to submit and documents you need to have on file in case of audit. See here. It states you need to keep these documents for 6 years – how fun.
WHAT IS THE LOAN FORGIVENESS PROCESS LIKE?
Per guidance on 6/16/2020, loans are to be applied for forgiveness after the period ends. After 10 months of no forgiveness application, the repayments begin. Once the application is submitted the lender has 60 days.
WHEN DO REPAYMENTS START?
You start repayments once forgiveness is determined (this is a lot sooner than the 6 month rule they talked about) OR after 10 months of the end of the covered period if no application for forgiveness is received.
Businesses with Employees
To wrap my brain around this I made a calculator for you to use. Us accountants have been working on and sharing spreadsheets for weeks, it’s very difficult to create one that checks all the boxes along with everything I outlined above. I hope it is useful to you and you should also review with a professional as well.
I put together clear steps and have laid it out to where people can enter all information on one page and then see the PPP Forgiveness Application result on the following tab.
On the input tab you’ll see that I’ve created steps for completion, and I’ll refer to them throughout the rest of the blog. Download the calc below.
COMPLETE STEP 1
Enter basic information.
There are 3 requirements to getting this loan forgiven:
Using it on the correct expenses:
a. At least 60% payroll related costs
b. Up to 40% nonpayroll related costs
Full Time Equivalent (FTE) maintained
Wage Restoration – that each wage is at least 75%
I am going to go through all 3 walk you through the steps to complete the calc, create the application and frequently asked questions.
Requirement #1: Use it on correct expenses
PAYROLL EXPENSES
In this section we will begin filling out the PPP forgiveness application. It supports the “ Schedule A and Schedule A Worksheet.”
Determine if you are using the “covered period” or “alternative covered period” as defined above
Gather all reports to support the eligible payroll costs below for the 8-week period:
Gross wages, tips, commissions, paid leave and allowances for dismissal or separation pay
Employer contributions to employee retirement plans excluding employee contributions and those for owners
Employer contributions to health insurance excluding employee contributions and those for owners
State and local taxes assessed on employee contributions excluding any employee withholding
FAQ’S ON PAYROLL
I’m an officer salary only S Corp or a partnership, can I bonus out the owners to meet the criteria?
According to the application, there is language stating that you can only include the LESSER of what you were paid and 2.5 months – so…NOPE. They are not letting you bump up the pay to yourself to address this. \
Can I use federal employer taxes?
No
Can I include 1099 subcontractors?
No
If I don’t meet the 60% what happens?
The calculation is not all or nothing, you’ll get forgiveness up to what you spent along with the other factors. Just follow the calculation spreadsheet.
NON-PAYROLL EXPENSES
These are the mortgage interest, rent and utilities expenses that can make up to 40% of the forgiveness calculation.
Gather non-payroll expenses related to the covered 8-week period – All these expenses need to have been in place by February 15th, 2020, any obligations created after this date will not qualify.
Mortgage interest expenses (excluding principle and prepaid)
Rent or lease expenses related to lease agreements for real or personal property
Utility payments – electricity, gas, water transport, telephone or internet
COMPLETE STEPS 2 & 3
Enter non-cash compensation, non-payroll related costs and employee info/wages.
Requirement #2: Full Time Equivalency (FTE) Calculation
This section is to determine if you kept your headcount. The great news is there are a lot of exceptions and it does not appear that this will be as difficult to meet as previously thought.
It is done on an employee by employee basis and is supposed to compare employee headcount prior to the pandemic and during the 8-week or 24-week covered period.
If you don’t meet this requirement you end up reducing your entire forgiveness pro-rata..
Here is my recommended thought process on this (because they made it confusing in the app)
If you have not reduced the number of employees or the average paid hours of your employees between 1/1/2020 through covered period, you are completely exempt from calculating further.
FTE Reduction Safe Harbor – There is no reduction for the FTE if you 1) reduced your number of FTE employees between Feb 15th – April 26th AND 2) restored the FTE headcount by 12/31/2020.
Were any of your employees fired, reduced in hours voluntarily, and/or quit? If so, that employee is exempt from this calculation. Enter this number on “PPP Schedule A Worksheet” in table 1 for “FTE Reduction Exceptions”.
If you don’t meet #1 or #2, you are to use the original calculation and reduce your forgiveness by that factor.
COMPLETE STEPS 4 & 6
Steps 4 & 6 address the limitations above. No need to do the steps out of order, just wanted to note!
FAQS ON THE FTE CALCULATION
What is the measure for FTE? I heard it was 30 hours/week?
They totally surprised us and said that 40 hours per week is what they consider FTE. This should not be a huge deal because at the end of the day, if the worker used to work 30 and is now working 30 – there is no penalty for this.
The point is to employ the same level from before until now.
I plan to restore my FTE headcount by 12/31/2020 – do I need to wait until after 12/31 to support this and ask for forgiveness?
It doesn’t say, but I would assume so.
Requirement #3: Salary/Hourly Wage Reductions
This section is intended to see if you cut pay to your employees more than 25%.
It looks the grossest in the actual calculation spreadsheet, but I’ve hopefully removed the difficulties for you and I do want to note that its N/A if you maintained all hourly wage rates and salaries during this period.
It is done on an employee by employee basis and is supposed to compare employee salary/hourly rate prior to the pandemic and during the 8-week period.
If you don’t meet this requirement you end up reducing your entire forgiveness pro-rata.
Here is my recommended thought process on this (because again, they made it confusing in the app)
If the employee’s annual salary or hourly wage for the covered/alternative covered period compared to the first quarter of 2020, then no need to complete for that employee or enter zero.
Safe Harbor Exception – If their wages were reduced during the period of February 15th, 2020-April 26th, 2020 is restored by December 31st, 2020 then this employee is exempt from this reduction.
Employees who were fired/voluntarily reduced in hours/quit – they are to be excluded from this calculation.
If none of the above applies, you are to use the original calculation and reduce your forgiveness by that factor.
COMPLETE STEP 5
This step calculates the wage reduction amount if applicable. This part is definitely the most intimidating, I think taking it one step at a time for each employee is key. I’ve built in notifications on whether or not moving forward is necessary. My hope is that most people rehired at the same wage rate and intended salary to not need this.
That’s all I have for now.
Happy calc’ing – I tried my best to make it pretty for you and easy to follow. Furthermore, I always update as new information comes out!!
Sources: https://www.sba.gov/document/sba-form--paycheck-protection-program-loan-forgiveness-application
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