PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 Mary Brown Sandys, Moderator Chief Marketing & Communications Officer Small Business Investor Alliance Jude Covas Matt Dwyer Managing Principal Principal Matthews, Carter & Boyce Matthews, Carter & Boyce Phil Busenitz Cindi Park Principal Principal Matthews, Carter & Boyce Matthews, Carter & Boyce Presented by:
Presenters PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 2
Agenda • PPP Loan Forgiveness Applications • Covered Period (CP) • Alternative Payroll Covered Period (Alt CP) • Eligible/Ineligible Payroll Costs • Eligible Non-Payroll Costs • Forgiveness Calculation • FTE Reduction • Examples • Unanswered Questions • Questions & Answers PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 3
Paycheck Protection Program Flexibility Act • Signed into law on June 5, 2020 • Extends the time in which businesses must use the funds from eight weeks to 24 weeks • Amends the 75/25 rule to 60/40 for how much businesses must spend on payroll versus non-payroll costs • Pushes back the deadline to rehire workers to the earlier of date of forgiveness application or December 31 • Extends the two-year term for the loans to five years • We expect additional FAQs PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 4
PPP Loan Forgiveness Applications • SBA Form 3508EZ (Issued June 17) • Only use this form if meet at least one of the following: • Self-employed or Sole Proprietor with no employees • No Salary/Wage Reduction > 25% AND No Reduction in Employees or Average Paid Hours of Employees • No Salary/Wage Reduction > 25% AND Unable to Operate at the Same Level of Business Activity pre-February 15, 2020 • SBA Form 3508 (Revised June 17) • Schedule A • Schedule A Worksheet PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 5
PPP Loan Forgiveness Applications (cont.) • Demographic Information Form (Optional) • Documentation requirements • Must retain all documentation for six years after the date the loan is forgiven or repaid in full (see p. 4 of Form 3508EZ instructions and p. 6 of Form 3508 instructions for a detailed list of documents required to be retained by the borrower) • When can I submit the forgiveness application? • Any time on or before the maturity date of the loan (including before the end of the covered period) if all loan proceeds for which forgiveness is requested have been exhausted • Lender has up to 60 days to review forgiveness application and SBA has 90 days after lender review PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 6
Covered Period (CP) • 56-day period (8 weeks) or 168-day period (24 weeks) • Begins date PPP funds are disbursed by lender (disbursement date) • Period during which eligible costs must be paid or incurred PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 7
Alternative Payroll Covered Period (Alt CP) • 56-day period (8 weeks) or 168-day period (24 weeks) • Begins 1st day of the 1st pay period after disbursement date • Who is eligible to use the Alt CP? • Employers with a biweekly or more frequent payroll cycle • Eligible payroll costs only PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 8
Costs “Paid” or “Incurred” • Costs paid during the CP or Alt CP can be counted • This is clear for costs incurred prior to the CP • What about prepaying for costs that will be incurred after the CP? • Costs incurred but not paid during the CP or Alt CP can be counted if paid on or before the next regular due date/payroll date • The above principles apply to both eligible payroll and non-payroll costs PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 9
Eligible Payroll Costs • Must be paid during CP/Alt CP or incurred during CP/Alt CP and paid on or before next regular payroll date (even if after end of CP/Alt CP) • Includes the following: • • Salaries Medical Leave • • Wages Severance Pay • • Commissions State/Local Comp Taxes • • Bonuses Vacation • • Hazard Pay SE Income • • Tips Family Leave • • Sick Leave Retirement Benefits* • • Parental Leave Group Health Care Benefits* *Employer’s share only, excludes self-employed persons/partners PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 10
Ineligible Payroll Costs Salaries and wages > $100K (on annualized basis) • Owner Employees & SE Individuals, including GPs • If using the 8-week covered period, 8 weeks/52 weeks of 2019 comp, capped at $15,385 • If using the 24-week covered period, 2.5 months/12 months of 2019 comp, capped at $20,833 • For Non-Owners • $15,385 if using 8-week covered period • $46,154 if using 24-week covered period PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 11
Ineligible Payroll Costs (cont.) Treatment of Non-Cash Compensation Eligible? Retirement Health Ins. Plan Self-Employed (Sch C or F) NO NO General Partner NO NO S Corp Owner-Employee NO YES* C Corp Owner-Employee YES* YES* *Included in Cap PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 12
Ineligible Payroll Costs (cont.) • Employer portion of FICA, Medicare and FUTA • Amounts claimed for other credits under the FFCRA • Costs for employees who are non-US residents PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 13
Covered Period: 5/1 Loan Disbursement Date Covered Period Start Date - 5/1 Covered Period End Date - 6/25 Covered Period 5/1 6/25 6/7-6/20 4/26-5/9 5/10-5/23 5/24-6/6 6/21-7/4 Payroll Period Payroll Period Payroll Period Payroll Period Payroll Period +0 +14 +14 +14 +14 +5 = 61 Days 5/29 5/14 4/30 5/28 6/11 6/25 7/9 Pay Date Pay Date Pay Date Pay Date Pay Date Pay Date Pay Date PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 14
Alternative Payroll Covered Period: 5/1 Loan Disbursement Date Alternative Payroll Covered Period Start Date - 5/10 Alternative Payroll Covered Period End Date - 7/4 5/1 6/25 Alternative Payroll Covered Period 7/4 5/10 5/24-6/6 6/7-6/20 6/21-7/4 5/10-5/23 4/26-5/9 Payroll Period Payroll Period Payroll Period Payroll Period Payroll Period +0 +14 +14 +14 +14 +14 = 70 Days 5/29 5/14 4/30 5/28 6/11 6/25 7/9 Pay Date Pay Date Pay Date Pay Date Pay Date Pay Date Pay Date PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 15
Eligible Non-Payroll Costs • If obligations existed prior to February 15, 2020: • Interest (not principal) on mortgages secured by real or personal property • No prepayments of interest permitted • Rent/Lease costs • Utilities, if service began before February 15, 2020 • Must be paid during CP or incurred during CP and paid on or before next regular billing date (even if after end of CP) • Are rent and utility prepayments permitted? PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 16
Expanded Window for Eligible Non-Payroll Costs: 5/1 Loan Disbursement Date 5/1 - Covered Period Start Date 6/25 - Covered Period End Date 6/25 Covered Period 5/1 4/1 – 4/30 5/1 – 5/31 7/1 – 7/31 6/1 – 6/30 Rent Period Rent Period Rent Period Rent Period Rent Period 6/1 6/25 July 5/1 Prepayment? May Payment June Payment Note: If prepayments count, you could get 4 months or more of rent payments – if you pay by June 25. PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 17
Forgiveness Calculation PPP Flexibility Act: How it Alters PPP Loan Forgiveness
Forgiveness Calculation (Overview) 1. Add all eligible payroll and non-payroll costs 2. Subtract salary/hourly wage reduction 3. Multiply by FTE reduction quotient 4. Arrive at potential forgiveness amount • Forgiveness is the lesser of: • Potential forgiveness amount, • PPP loan amount, or • Eligible payroll costs divided by 0.60 PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 19
Forgiveness Calculation • At least 60% of forgiveness amount must be eligible payroll costs • Calculations that may reduce forgiveness amount • FTE Reduction Decrease in average full-time equivalent employees Ratio reduction • Salary/Hourly Wage Reduction Decrease in certain employees’ cash compensation Dollar amount reduction • Safe Harbors PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 20
FTE Reduction • Employer’s average FTEs during CP or Alt CP is less than the average FTE during the chosen reference period, which can be: • February 15, 2019 to June 30, 2019 OR • January 1, 2020 to February 29, 2020 • A third alternative is available for seasonal employers • FTE = individual that works 40 hours or more each week • Average FTE (calculated separately for each employee) 1. Average # of hours per week / 40 hours (round to nearest tenth, cap each individual at 1.0) 2. Simplified method • 40 or more hours per week = 1.0 • Less than 40 hours per week = 0.5 PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, 2020 21
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