Paycheck Protection Program (PPP)

Part of the CARES Act that was signed into law on March 27, 2020, the Paycheck Protection Program (PPP) provides loans to small businesses and non-profits to help in retaining their workforces and to cover other expenses. It provides $349 Billion in federal funding for potentially forgivable loans to help small employers cover costs including payroll, most mortgage interest, rent and utility costs for the eight (8) week period after loan commencement.

[fa icon="plus-square"] When can I apply for a loan for my business?

Starting Friday, April 3, 2020, employers affected by COVID-19 will be able to submit an application to see if they qualify for loan assistance to help cover payroll and other expenses.

Independent Contractors and Self-Employed individuals can apply for assistance to cover payroll and other certain expenses starting on Friday, April 10, 2020.

[fa icon="plus-square"] What businesses are eligible?

Business established before February 15, 2020, that meet the following criteria are eligible to apply:

  • Employing 500 or fewer employees (or meeting other SBA Size Standards based on industry)
  • Restaurants, hotels or other business under NAICS Code 72 (Travel and Accommodations) with 500 or fewer employees at each location.
  • Tribal businesses, 501(c)19 Veteran organizations and/or 501(c)(3) non-profit organizations, including religious organizations (subject to the SBA Affiliation Standards)
  • Independently-owned franchises with 500 or fewer employees (SBA Franchise Directory)
  • Independent Contractors and Self-Employed Individuals
[fa icon="plus-square"] Where can I apply for a PPP loan?
You can apply at any financial institution that is approved as a lender for SBA programs. To find an approved lender near you can us the SBA Lender Match Tool to lookup a lending institution online or you can Visit a Small Business Development Center.
[fa icon="plus-square"] How much of a loan can I get and what can it cover?
Loan amounts can cover up to 8 weeks of last year's average monthly payroll, plus 25%. Loans are subject to a $10 Million cap. The loans may be used to cover the following costs for any timeframe between February 15, 2020 and June 30, 2020:
  • Payroll costs (salary, wages, commissions, tips), including benefits. Note: Payroll costs are capped at $100,000 on an annualized basis per employee);
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

Note:  No more than 25% of the loan should be used on non-payroll costs.

[fa icon="plus-square"] What documentation do I need to provide?
You will need to complete a loan application with your lending institution (SBA PPP Sample Loan Application) and provide backup payroll and any other requested information to your lending institution.
[fa icon="plus-square"] What are the requirements for loan forgiveness?

Loans will not be forgiven if:

  • Funds are used for anything other than payroll, benefits, mortgage interest, rent or utilities.
  • More than 25% of the loan is used for non-payroll costs.
  • A business does not retain its workforce and maintain payroll.

There may be reductions in forgiveness amounts if:

  • Full-time employee head counts are reduced.
  • Salaries and wages for employees making less than $100,000 annualized in 2019 are reduced more than 25%.
  • Note: Employers are permitted to restore to previous staffing and payroll levels by rehiring, etc. to account for any changes made between February 15, 2020 and April 26, 2020. This must be completed by June 30, 2020.

To request loan forgiveness you must submit a request with supporting documentation showing that you met the forgiveness stipulations noted above to your lender. The lender is required to review the materials and provide notification of their decision within 60 days.

[fa icon="plus-square"] What are the loan terms and other details?

Interest Rate:  0.50% Fixed Rate

Loan Term:  2 years

Payments:  Deferred for the first 6 months (but interest will accrue).

Personal Guarantee or Collateral Required:  None

Approval:  Depending on the lending institution used, could be instant or take several days.

[fa icon="plus-square"] Our organization is currently closed. If we applied for the PPP, could we use that to pay our employees their full wages over the 8 to 10-week period, even though we are closed? They are currently collecting unemployment; would they have to stop filing claims if we are approved for a PPP loan?

The idea with the PPP loan is that you would rehire your currently unemployed workers once you have the PPP loan in place, before June 30, 2020. Once you rehire them, they should stop getting unemployment. 

As long as you have them on staff by June 30, 2020, you will have met the requirement for forgiveness. When you submit your loan application, you’ll need to find out from your bank what the correct number is for “number of jobs.” This is supposed to be the number of jobs that you currently have with employees working in them. The idea is that they will determine what the “number of jobs” is as of June 30, 2020 and compare that against what you submitted on your application.

[fa icon="plus-square"] Are 1099 contractors and temporary employees included in eligible costs for PPP loan coverage?

1099 contractors are not included in eligible costs covered by the PPP loan. The PPP doesn’t seem to support the concept of non-payroll labor (i.e. temp labor). The intent of the program is to provide employers with the ability to fund their payrolls (and keep people off of unemployment) during the quarantine time – in some case, to keep employees paid while they are not working – in some cases, to provide employers with a source of paying their payroll even while employees are working, in the face of their own uncertain cashflow. 

If you needed funding to cover temp labor costs, you would need to apply separately for an economic injury disaster loan, which you could use for this purpose.

[fa icon="plus-square"] Can we use PPP loan funds to give our employees more hours per week than normal? The goal is to maximize the loan forgiveness and give them the opportunity to “make up” lost hours from the last few weeks.
No, there is no penalty or downside at all to use your PPP loan money to increase someone’s pay. As long as you employ the same number of people on June 30, 2020 as “number of jobs” from the PPP loan application, and as long as you have not decreased the net earnings across your entire workforce by more than 25%, then 100% of the PPP loan will be forgiven.
[fa icon="plus-square"] Can PPP loan proceeds be used to compensate a member of an LLC that’s taxed as a sole proprietor?

For an LLC that’s taxed as a sole proprietor, the company can use PPP proceeds to pay LLC members. In order to determine the amount of the PPP loan that can be used for this purpose: 

  1. Determine the net profit that was reported in Line 31 on Schedule C of your 2019 1040 (up to a maximum of $100,000)
  2. Divide net profit by 52
  3. Multiply this result by 8  

The result of the above steps will be the total amount of pay that an LLC member can earn during the 8-week PPP period, which could be forgiven.

[fa icon="plus-square"] How is the SBA calculating the payroll figure that they will use to make sure I gave 75% of the loan funds to my employees during the 8-week window after disbursement?
The forgiveness calculation looks at the annualized pay that the employee earned over the 8 weeks starting on the disbursement date of your PPP loan. This is then compared against the annualized compensation that the same employee earned in the previous calendar quarter (Q1). If they earned more than 25% less in annualized wages during the 8 weeks than they did during the prior calendar quarter, then you will not be able to get 100% of the loan forgiven.
[fa icon="plus-square"] What is used to calculate the FTE count before and after the 8-week period? Is it based on total hours worked or actual bodies? (i.e. if we lose an employee, but someone else who wasn’t working as many hours picks up those hours, can that be accepted or is it the actual number of bodies on payroll?)

An FTE is any employee who averages 30 or more hours per week. You run your FTE count as of June 30, 2020, and compare this against your FTE count for the period from January 1, 2020 to February 29, 2020, or from February 15, 2019 to June 30, 2019. The total number of FTEs as of June 30, 2020, divided by the total number of FTEs from whichever time period you selected will result in the percentage of your PPP loan that will be forgiven. The difference between your total loan amount and what will be forgiven represents the amount not forgiven due to the FTE discrepancy. The headcount threshold has no consideration for the specific individuals who are working (it is only based on hours worked).

[fa icon="plus-square"] We apply our loan funds to the amount of gross wages, but not the employer portion of social security tax. Is that correct?
Correct. The employer social security tax cost cannot be paid for with PPP loan proceeds.
[fa icon="plus-square"] We received our PPP funds mid-week. Does our eight-week period begin immediately, or can we choose to start on the following Monday?
The loan period begins on the day of disbursement. To the extent that this means that you need to make artificial changes to your pay periods in order to, for example, squeeze in enough payrolls to use the loan proceeds, then you need to consider making such changes.
[fa icon="plus-square"] How does one deal with payroll periods that don’t line up with the 8-week period?

One recommendation is to split your final pay period. You don’t need to worry about the initial pay period, because it doesn’t really matter when the first applicable pay date for use of the PPP loan proceeds occurs. In most cases, this first pay date will include a pay period that has days in it from prior to when you received your PPP loan. What matters is when the money was spent (i.e. pay date). 

The final pay period of your PPP loan period will begin on the day that it normally would begin. The end of the pay period as well as the pay date will fall on the last day of your PPP loan period. The normal pay date for this pay period will still happen, but on that pay date, employees will only get paid for what they did not receive on the special pay date on the last day of the PPP loan period.

[fa icon="plus-square"] We have employees who only work occasionally as our workloads require. They are W2 employees, but they might work 45 hours this week and no hours for the next two weeks. If they average less than 30 hours per week over a longer period (i.e. FY19 or Q1 2020), can they be excluded from the FTE calculations for PPP loan forgiveness?
No. In order to calculate your FTE count, you need to determine whether you’re using the period from January 1, 2020 to February 29, 2020, or February 15, 2019 to June 30, 2019. In both cases, you do not consider specific employees. Count all worked hours and divide by the “number of hours” to make one FTE over that time span. For right now, assume that anyone who worked for you and received wages during the span of time that you’re using for your FTE calculation needs to be counted, as long as they received W2 wages for actual hours worked.
[fa icon="plus-square"] Could we give bonuses to help reach forgiveness amount?
Yes. There are no rules to prevent increasing anyone’s pay during the 8-week period (except the rules about increasing the pay above an annualized amount of $100,000).
[fa icon="plus-square"] Can we include seasonal employees in our FTE calculations?
Seasonal workers should be counted in any FTE count, as long as they were employed and paid for hours worked during the FTE measurement period.
[fa icon="plus-square"] Are wage reductions evaluated on an employee-by-employee basis rather than based on total wages for PPP loan forgiveness calculations?
Yes, this appears to be the case.
[fa icon="plus-square"] Do we have to restore our workforce immediately upon loan disbursement or do we have until June 30, 2020?
You have until June 30, 2020 to re-establish your FTE count.
[fa icon="plus-square"] Can you pre-pay mortgage interest with the PPP loan fund?
The rules say that you can use PPP loan money for the payment of interest on mortgage obligations incurred prior to February 15, 2020. However, the interim final rule from SBA says that PPP loan money can be used on “Mortgage interest payments (but not mortgage pre-payments or principal payments).” That last point of clarity from the SBA interim final rule seems to prohibit pre-payments of interest.
[fa icon="plus-square"] What are the details regarding the Employer Social Security Tax Deferral option?
The Employer Social Security Tax Deferral option must be paid back. This is just a deferment. The ability to defer the employer social security tax costs applies to all employers (not just those with less than 500 employees). You can defer this tax expense from March 27, 2020 until either December 31, 2020, or when your PPP loan is forgiven. The employer social security tax expenses that were deferred as of the day when your PPP loan is forgiven, or December 31, 2020, will become due to the IRS in two installments: the first being December 31, 2021 (50% of the accrued tax liability), and the second being December 31, 2022 (the remainder of the tax liability).

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