On Friday, May 15th, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) Loan Forgiveness Application which attempts to answer many of the lingering questions loan recipients have about loan forgiveness.
Counting Your Full-Time Employee Equivalents
Employers will have the choice of using one of two methods to calculate the number of full-time employee equivalents (FTE).
- 40 Hour Method
A full-time employee typical works 40 hours or more per week. However, 40 hours is applied to every period (the 2/15/19-6/30/19 or the 1/1/20-2/29/20) for computing your “base level” FTE.
- Alternative Computation Method:
Employers may choose a “simplified” approach where anyone working 40 or more hours per week counts as “1” and anyone working under 40 hours per week would be counted as “0.5”
Restoring Your Full Time Workforce
An employer has until June 30, 2020 to restore the number of full-time equivalent employees if workforce reductions occurred between February 25, 2020 and April 26, 2020.
Payroll Limits for You and Your Full Time Workforce
- Compensation Limits for Owners:
Owner compensation cannot be increased from 2019 levels and is capped at $15,385 during the eight-week period which is line with the $100k per year limitation. This is for cash compensation only.
- Compensation Limits for Full Time Employee Equivalents:
Payroll cost will be capped at $15,385 per FTE during the eight-week period which is line with the $100k per year limitation. This is for cash compensation only.
Defining Your Eight Week Period
There are two methods for defining your eight-week period. The borrower will have an option to have the eight-week period start from the date the funds were disbursed or may also use the “alternative payroll covered period” which begins on the first payroll period following the loan disbursement.
Incurred vs. Paid Payroll Cost
Payroll cost that are incurred during the loan period (using either method) will be allowable in the forgiveness even if the paycheck date falls outside the loan period.
For example, if you have one week of payroll incurred out of a two-week payroll period, you will be eligible to use the one week of payroll incurred, even if it has not been paid yet. This was done to simplify the administration of moving payroll dates around. The important thing to note is the word incurred. This means hours worked during that portion of the pay period, and not the entire pay period.
Other Cost Paid Dates Defined
For payments associated with “other cost”, any bill, such as rent, that would have been for the period in which the loan was in force, that come after the end date of the eight week period, may be included as long as the bill is paid by the next regular billing date. The SBA appears to be trying to simplify items that would be for one of the months included, however the billing date falls outside the actual eight weeks. This is not to be read as “prepay” future expenses, but to pay bills in which you would have incurred.
75/25 Computation Simplified
The application will take the lesser of the total loan amount, the total of payroll cost divided by 0.75 or the total allowable forgiveness due to reductions. The application still asks for “other” expenses, but the computation is now simplified.
Your Document Requirements
Including the application and worksheet, the borrower will need to provide:
- Documentation supporting salary wage reductions (if applicable)
- Documentation for any employee receiving wages to include those making over $100K per year
- Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written request by an employee for reductions to work schedule
- Documentation supporting that the borrower has met the FTE guidelines
- Copies of canceled checks or equivalent for all health insurance and retirements plans that the borrower included in the payroll cost; and
- A copy of Form 941 and your state unemployment report and payroll register.
Our entire Team at MillerMusmar CPAS is here to help you navigate through this program. Contact us if you require our assistance.
Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended or written by the practitioner to be used and cannot be used by the taxpayer for the purpose of avoiding penalties.
MillerMusmar CPAs is an established accounting firm with offices in Reston, Virginia and Manassas, Virginia. We have a twenty-five-year history of providing top quality auditing, tax, and accounting services to clients throughout the Washington Metropolitan area and internationally. By combining the expertise of a mid-sized firm with the personal attention, we are both large and small enough to deliver a responsive service to our clients. For more information, please call us at +703-437-8877 or visit our website at www.MillerMusmar.com