Paycheck Protection Program
CARES Act Summary (updated 4/9/20): Click here
- Paycheck protection loans are =2.5X payroll and certain benefits (Starts on page 2 of the CARES Act summary above). The payroll protection loans can be forgiven if a business uses the funds to pay their employees and meet certain employment thresholds in the coming months (essentially full employment when compared to the prior year). Our understanding is this will be a rather quick process, but banks will not be ready until mid-April. We suggest you contact them now to make an appointment and start to gather to necessary documents. Here is our list of what banks may require.
PPP Overview: Click here
PPP Borrower Fact Sheet: Click here
PPP Lender Information Fact Sheet: Click here
PPP Application: Click here
Update: April 17, 2020
Update: April 11, 2020
Below is a summary of SEK’s interpretation of the re-employment provisions and forgiveness calculations related to the Paycheck Protection Program. Please keep in mind that this is only an interpretation of the rules, and there have been no examples issued by the Small Business Administration (SBA) yet.
Question: With the PPP loan approved, when I get funding, do I have to put my employees back on payroll immediately?
Answer: The intention of the PPP loan is to get employees back on payroll and off unemployment despite business closure or lack of work. Getting employees back on payroll as soon as practicable even if there isn’t productive work for them is imperative to receiving maximum loan forgiveness.
1. The maximum possible forgiveness "expected forgiveness" is determined based on how much of the funding you spend in the 8-week period after the loan is funded.
- Spend entire loan on eligible costs in the 8 weeks after funding to be eligible for 100% forgiveness
- A minimum of 75% of funds must be spent on payroll, health, and retirement benefits. The other 25% can be used for rent, utilities, and certain interest, including mortgage interest, established prior to 2/15/20.
2. Then, from the possible 100% forgiveness there is a two-tier calculation on REDUCTION in forgiveness based on the following:
- The first reduction is based on the percentage of; the average number of full-time equivalent (FTE) employees per month employed by the eligible recipient during the 8 weeks following the loan divided by either:
- The average number of FTE employees per month employed by the eligible recipient during the period beginning on February 15, 2019 and ending on June 30, 2019; or
- The average FTE employees during January 1, 2020 and ending on February 29, 2020.
***There is no guidance on how to calculate FTE for this test - generally speaking, full employment after an applicant gets funding has to be equivalent to one of the above periods or the loan could not be forgiven 100% (BUT SEE EXEMPTION FOR RE-HIRES BELOW)
- The second reduction is based on any decrease in total wages during the 8-weeks after funding that is in excess of 25% of an employee’s earnings during the 1st quarter of 2020.
***There is no guidance on how the reduction of wages works - presumably the forgiveness is reduced for each dollar of wages greater than a 25% reduction? (BUT SEE EXEMPTION FOR RE-HIRES BELOW)
EXEMPTION FOR RE-HIRES — The amount of forgiveness shall be determined without regard to a reduction in FTE employees or a reduction in the salary during 2/15/2020 to 4/27/2020 IF those reductions (when compared to 2/15/2020 employment levels), are cured by 6/30/2020.
***There is no guidance on exactly how one proves and for what length of time you must prove you have cured the FTE or reduction in payroll (i.e. a day, a week, a pay period?) as of June 30th.
This suggests decreases in your workforce in FTE or pay that occur between 2/15 and 4/27 will not be held against you, so long as you get back to 2/15/2020 employment (FTE and pay) by 6/30/2020.
Again, this is our interpretation of the forgiveness calculations. Please do not hesitate to contact your Client Relationship Manager (CRM) with questions.
We will continue to update as further guidance is released.
Update: April 9, 2020
As a reminder, starting tomorrow, April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing Small Business Administration (SBA) lenders.
Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.
For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.”
In other words, sole proprietors can apply based only on their net earnings from self-employment.
If you have further questions, please do not hesitate to reach out to your Client Relationship Manager (CRM).
Update: April 7, 2020
The Small Business Administration (SBA) released an FAQ document yesterday, which covers common inconsistencies in calculations for the Paycheck Protection Program Loans, available here.
This document covers the following:
- Treatment of 1099s in the calculations of average monthly payroll – Question #15
- Clarifies time period for reporting average monthly payroll as either Calendar 2019 or fiscal 4/1/2019 to 3/31/2020 – Question #14
- Clarifies that gross wages with no deductions for taxes should be used in monthly average payroll – Question #16
- Clarifies $100K limit is for salary only, not benefits – Question #7
- Covers payroll costs from a third party payor or PEO – Question #10
- Additional guidance on eligibility if you are over 500 employees – Questions #2, 3, 4, 5 and 6
Update: April 5, 2020
On Friday afternoon, the American Institute of Certified Public Accountants (AICPA)'s coalition on small business funding, in conjunction with the National Payroll Reporting Consortium (NPRC), gathered to discuss the appropriate method for calculating Average Monthly Salary.
Their recommendation is that for the calculation of the average monthly payroll cost, applicants should use gross payroll (including tax expenses) — based on 2019 data — for the PPP loan application and forgiveness.
This recommendation is based upon both the word and intent of the law. Neither the CARES Act itself nor the guidance the Small Business Administration (SBA) released Thursday evening specifically stated that payroll taxes should be excluded from the calculation. Additionally, based upon statements from members of Congress, it appears that the intent of the Act was to base the salary calculation on gross payroll with no adjustment for federal taxes. This ensures that payroll tax expenses are not passed on to the small businesses in need.
The AICPA and their coalition partners are working diligently to provide guidance as quickly a possible to expedite implementation. Here are three points that address some of the additional issues they are hearing:
- As the Small Business Administration (SBA) released guidance late Thursday evening, many banks are still working to get their loan application processing systems online. The AICPA is in discussions with the banking industry, which is working to get these systems online as quickly as possible.
- Additionally, the Trump Administration has said that it will ask Congress for additional funding for small businesses if the initial $350 billion runs out.
- Finally, the AICPA is developing information on how to determine other application calculations and are also working on a list of recommended documents that banks should accept for loan applications and forgiveness.
Their discussions with the Treasury Department, SBA, banks, and payroll processors to address these and other issues are ongoing
We will continue to update our clients as more information becomes available.
Original post: April 3, 2020
Late Thursday, April 2, the Treasury and SBA issued an Interim Final Rule that included 31 pages of additional information about the program.
In addition, a new application was issued for borrowers, available here.
Our updated Paycheck Protection Program template is available here. This is an illustration of how you might get the numbers that are required for your application.
It is our understanding that no banks are currently submitting applications, but Treasury has clearly indicated their interest in having this program be operational by the end of today. In fact, some banks are withdrawing from the program, and others have stated they will not be submitting applications until Monday at the earliest. That said, we want our clients to be as prepared as possible so when the banks begin accepting and submitting the applications that you are READY.
What is still unclear, and what all employers should be prepared for:
A final application will need to be submitted. We are including the latest application available, but our understanding is that this application could still be revised by the SBA.
- Companies should ensure they have a completed final application that their lender will accept when they submit the application.
Number of employees – Page 1 of application – We believe the number of paychecks issued on the final payroll in the period that is reported below is the number that should be reported on the initial application.
- We believe this number of employees relates to the size of the small business being under 500, not the FTE calculations that will be used for forgiveness of the loan.
- For partnerships or LLCs, the number of partners / members should be added to the number of employees.
- Companies will later perform FTE calculations to determine the amount of potential forgiveness of the loans.
Average monthly payroll calculation – This calculation is for a 12 month period, and while the Interim Final Rule and application state in some places “Calendar 2019,” there are other places where the “preceding 12 months” or “last 12 months” is used.
- Ultimately the lender will communicate what they want from each applicant. So we suggest you have both periods (4/1/2019 to 3/31/2020 & Calendar 2019) payroll calculations available and ready for submission.
- It is mostly clear in the Interim Final Rule that employers use total gross payroll, and no deduction is meant to be applied to gross payroll
- Individual lenders could interpret this differently, but examples in the Interim Final Rule have no subtractions for taxes, and the section that discusses taxes as “excluded” refers to taxes imposed between 2/15/2020 and 6/30/2020.
1099 – MISC – This is clearly noted in the guidance that NO 1099s should be included in the paying Company’s application/calculation of average monthly payroll.
Retirement expenses – The expenses included in the loan calculation should be based on actual payment dates during the 12 month period and only include the employer portion.
Also, Treasury changed the interest rate from .5% to 1% yesterday and the term is still 2 years, with at least the first 6 months deferred.
Finally, the Interim Final Rule makes it clear that at least 75% of the loan that is approved will need to be spent on payroll and related benefit costs, and no more than 25% can be spent on the other eligible expenses (Rent, Utilities, and Interest).
We are committed to sharing final rules and information as it becomes available, but we encourage each Company to be in close communication with your lender as these loans are on a first come, first serve basis.