PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, - - PowerPoint PPT Presentation

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness July 1, - - PowerPoint PPT Presentation

Jun 19, 2023 247 likes •669 views

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,

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Mary Brown Sandys, Moderator Chief Marketing & Communications Officer Small Business Investor Alliance

PPP Flexibility Act: How it Alters PPP Loan Forgiveness

July 1, 2020 Presented by:

Jude Covas Managing Principal Matthews, Carter & Boyce Phil Busenitz Principal Matthews, Carter & Boyce Cindi Park Principal Matthews, Carter & Boyce Matt Dwyer Principal Matthews, Carter & Boyce

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Presenters

July 1, 2020 2

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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

July 1, 2020 3

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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
  • f date of forgiveness application or December 31
  • Extends the two-year term for the loans to five years
  • We expect additional FAQs

July 1, 2020 4

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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

July 1, 2020 5

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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

July 1, 2020 6

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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

July 1, 2020 7

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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

July 1, 2020 8

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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

July 1, 2020 9

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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
  • Wages
  • Commissions
  • Bonuses
  • Hazard Pay
  • Tips
  • Sick Leave
  • Parental Leave
  • Medical Leave
  • Severance Pay
  • State/Local Comp Taxes
  • Vacation
  • SE Income
  • Family Leave
  • Retirement Benefits*
  • Group Health Care Benefits*

*Employer’s share only, excludes self-employed persons/partners

July 1, 2020 10

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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

July 1, 2020 11

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Ineligible Payroll Costs (cont.)

Treatment of Non-Cash Compensation

Health Ins. Retirement 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 Eligible?

July 1, 2020 12

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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

July 1, 2020 13

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Covered Period: 5/1 Loan Disbursement Date

Covered Period

5/1 6/25

5/10-5/23 Payroll Period 5/24-6/6 Payroll Period 6/7-6/20 Payroll Period 6/21-7/4 Payroll Period 4/30 Pay Date 5/14 Pay Date 5/29 Pay Date 5/28 Pay Date 6/11 Pay Date 6/25 Pay Date 7/9 Pay Date +0 +14 +14 +14 +14 +5 = 61 Days

Covered Period Start Date - 5/1 Covered Period End Date - 6/25

4/26-5/9 Payroll Period

July 1, 2020 14

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Alternative Payroll Covered Period: 5/1 Loan Disbursement Date

5/1 6/25

4/26-5/9 Payroll Period 5/10-5/23 Payroll Period 5/24-6/6 Payroll Period 6/7-6/20 Payroll Period 6/21-7/4 Payroll Period 4/30 Pay Date 5/14 Pay Date 5/29 Pay Date 5/28 Pay Date 6/11 Pay Date 6/25 Pay Date 7/9 Pay Date

Alternative Payroll Covered Period

5/10 7/4

Alternative Payroll Covered Period Start Date - 5/10 Alternative Payroll Covered Period End Date - 7/4

+0 +14 +14 +14 +14 +14 = 70 Days

July 1, 2020 15

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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?

July 1, 2020 16

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Expanded Window for Eligible Non-Payroll Costs: 5/1 Loan Disbursement Date

5/1 - Covered Period Start Date 6/25 - Covered Period End Date

Covered Period

5/1 6/25 4/1 – 4/30 Rent Period 5/1 May Payment

Rent Period

6/1 June Payment 6/25 July Prepayment?

Note: If prepayments count, you could get 4 months or more of rent payments – if you pay by June 25.

5/1 – 5/31 Rent Period 6/1 – 6/30 Rent Period 7/1 – 7/31 Rent Period

July 1, 2020 17

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Forgiveness Calculation

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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

July 1, 2020 19

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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

July 1, 2020 20

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

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

July 1, 2020 21

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Exemptions to FTE Calculation

  • Permitted exemptions
  • 1. Employee refuses rehire offer and the employer is

unable to hire a similarly skilled position

  • 2. Employee terminated for cause
  • 3. Employee resigns
  • 4. Employee voluntarily requests for a reduction in hours

Note: Exclusion only applies to calculation of FTE for purposes of forgiven amount reduction. To receive forgiveness, the money would still need to be spent as required under the Act.

July 1, 2020 22

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

FTE Reduction Example

  • Chosen Reference Period = 10.0 FTE employees
  • Covered Period = 8.0 FTE employees
  • Decline = 20%
  • Due to the decrease in FTE employees, only 80% of

the otherwise eligible expenses are eligible for forgiveness.

July 1, 2020 23

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

FTE Reduction Safe Harbor

  • Employer is exempt from the reduction in loan

forgiveness if:

  • 1. FTE employee levels were reduced in the period beginning

February 15, 2020 and ending April 26, 2020

AND

  • 2. As of the earlier of date of forgiveness application or

December 31, 2020, FTE employee levels were restored to FTE employee levels that existed in the pay period that included February 15, 2020

  • FTE Regulatory Restriction Safe Harbor
  • The business was unable to operate at the same level as

February 15, 2020 due to regulatory restrictions

July 1, 2020 24

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Salary/Hourly Wage Reduction

  • Forgiveness is reduced if an employee’s compensation

during the CP/Alt CP decreased by more than 25% (annualized) when compared to Q1 2020

  • Forgiveness is reduced by the excess of 25%
  • Determined on employee by employee basis
  • Only includes those employees paid at a rate of $100K
  • r less during each 2019 pay period
  • Applies only to the portion of the decrease in

employee salary and wages not attributable to the FTE reduction

July 1, 2020 25

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Salary/Hourly Wage Reduction Example

  • Employee 1
  • Full-time employee during FTE reference period

(FTE = 1.0)

  • Full-time employee covered period (FTE = 1.0)
  • Earned $1,000 per week during Q1 2020
  • Earned $500 per week during covered period
  • In this case, the first $250 (25 percent of $1,000) is

exempted from the reduction.

  • Borrower would list $6,000 as the salary/hourly wage

reduction for that employee

  • $1,000 - $500 - $250 = $250 x 24 weeks = $6,000

July 1, 2020 26

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Interaction of Salary/Hourly Wage Reduction with FTE Reduction

  • Employee 2
  • Full-time during FTE reference period (FTE = 1.0)
  • Worked 32 hours/week during covered period (FTE = 0.8)
  • Earned $1,000 per week during Q1 2020
  • Earned $500 per week during covered period
  • The first $250 (25 percent of $1,000) is exempted
  • Another $200 is exempted due to FTE reduction
  • (1.0 – 0.8) x $1,000
  • Borrower would list $1,200 as the salary/hourly wage

reduction

  • $1,000 - $500 - $250 -$200 = $50 x 24 weeks = $1,200

July 1, 2020 27

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Salary/Hourly Wage Reduction Safe Harbor

  • Employer is exempt from the reduction in loan

forgiveness if:

  • 1. Employee’s average annual salary or hourly wage was

reduced in the period beginning February 15, 2020 and ending April 26, 2020 AND

  • 2. As of the earlier of date of forgiveness application or

December 31, 2020, the employee’s average annual salary

  • r hourly wage was restored to at least the same level

that existed on February 15, 2020

  • Similar to the salary/hourly wage reduction, this must

be calculated separately for each employee

July 1, 2020 28

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Examples

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Example 1 - ABC, Inc.

NO REDUCTIONS

July 1, 2020 30

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Example 2 - XYZ, Inc.

SALARY/HOURLY WAGE AND FTE REDUCTIONS

Note: Employees 1 and 2 are the same as those previously mentioned on slides 26 and 27.

July 1, 2020 31

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Example 2 - XYZ, Inc. (cont.)

SALARY/HOURLY WAGE AND FTE REDUCTIONS

July 1, 2020 32

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Example 2 - XYZ, Inc. (cont.)

SALARY/HOURLY WAGE AND FTE REDUCTIONS

July 1, 2020 33

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Example 3 - Company 3 and Comparison

60% PAYROLL COST LIMITATION

July 1, 2020 34

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Unanswered Questions

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Unanswered Questions

  • Do bonuses count as cash compensation? Yes, in addition to hazard pay.

(IFR issued 5/22/20)

  • Is the forgiveness taxable income? No. Can I deduct the related expenses?

No, under current law. But let’s wait and see…

  • When is the deadline to file the Form 3508EZ or Form 3508? Must be filed

within 10 months after the last day of the covered period. (IFR issued 6/22/20)

  • How do local orders closing non-essential businesses affect my

calculations?

  • How does an acquisition or merger affect my calculations?
  • What is a transportation utility cost? Most interpret this to be expenses

such as gas for business vehicles.

  • What telephone and internet costs can be included? Amounts paid for

services that began prior to February 15, 2020.

July 1, 2020 36

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Unanswered Questions (cont.)

  • Can eligible non-payroll costs paid to related parties count

towards forgiveness?

  • For interest payments to qualify, does it matter how the

corresponding mortgage obligation proceeds were used as long as the debt is secured by the borrower’s real or personal property?

  • Can amounts accrued prior to the CP/Alt CP, but paid during the

CP/Alt CP be included in the forgiveness amount? Yes. (IFR issued 5/22/20) What about prepayments?

  • Can shareholder-employees count retirement and health

insurance in addition to $100,000 cash compensation? No. (IFR issued 6/22/20)

July 1, 2020 37

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Questions & Answers

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PPP Flexibility Act: How it Alters PPP Loan Forgiveness

Thank You

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CONTACT US:

Jude Covas: jcovas@mcb-cpa.com

703.865.2053

Matt Dwyer: mdwyer@mcb-cpa.com

703.865.2054

Phil Busenitz: pbusenitz@mcb-cpa.com

703.865.2073

Cindi Park: cpark@mcb-cpa.com

703.865.2077

Nimish Sanghavi: nsanghavi@mcb-cpa.com

703.865.2084

July 1, 2020 39

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Join us for our upcoming webinars:

The Main Street Lending Program and the Middle Market Presented by: Eversheds Sutherland LLP Tuesday, July 7 | 12:00 pm – 1:00 p, ET M&A/Investment Considerations in a COVID-19 Environment Presented by: Pepper Hamilton LLP Thursday, July 9 | 11:30 am – 12:30 pm ET