Given the quickly changing regulations in regard to PPP, we are providing our clients and valued friends updates and expert insights on what this news means for employers.
Businesses and employers are most likely familiar with the SBA’s loan forgiveness application that all borrowers will use to apply for the forgiveness. A few key takeaways from the application include:
1. Owners compensation is now limited not only to the $100,000, but also to the lesser of 8/52nds of 2019 compensation or the covered period compensation. So, you can’t give an owner a raise over their 2019 compensation level to fill up the payroll bucket.
2. The issue of “incurred and paid” for expenses has been clarified. It now appears that any amounts paid during the 8-week period, even if past due bills, will count as well as amount incurred that are then paid at the next due date even if outside the covered period. For example, if you were funded on a Thursday and paid your payroll for that week on the next day, that entire week’s payroll may count since it is “paid” (even though not fully incurred). Then at the end of the 8-week period which would end on a Wednesday, you can “accrue” any unpaid days up to that date that will be paid on the next pay period. Effectively, it appears that you may be able to get more than 8 weeks of payroll to qualify. Same would be true with rent and utilities.
3. It appears that owner employees can not include Health Insurance benefits or retirement plan contributions in the forgiveness. They only get salary up to the cap(s).
4. The FTE calculations were clarified, and additional safe harbors were added to avoid reductions for employment levels if they are replaced by certain dates.
The Paycheck Protection Program Flexibility Act will extend the 8-week “covered period” to 24 weeks and loosen up the requirement that caps non-payroll expenses at 25% of the forgiveness. The Senate has a comparable bill and there is bipartisan support for these changes so the likelihood of something along these lines passing is very high. This article may be a bit of an easier read than the text of the bill: marketwatch.com
It will still be very important to monitor the FTE calculation as that is key to the forgiveness calculation and can be the most limiting factor. However, if the proposed changes go through and you only have to hit the FTE mark for a certain date while having more time to spend the loan dollars, the goal is much easier to accomplish. Before, even if you obtained the FTE but fell short on the total spend, you would have your forgiveness reduced. So, bringing back employees late in the spend period only accomplished so much.
We are monitoring the passing of this bill and will continue to update you as news breaks. As always, reach out if you have any questions.