PPP Loan Forgiveness Walkthrough May 22, 2020
Agenda Loan Forgiveness Basics Key Concepts and Calculations For Completing SBA Form 3508 Documentation Requirements Q & A
Loan Forgiveness Basics
8-Week Covered Period Qualifying costs must be “incurred or paid” during this period Starts on the date of disbursement and ends 56 days later Example: If loan proceeds were received on Monday, April 20th, the final day of the covered period is Sunday, June 14 th . Pre-payment of expenses not permitted “Alternative” covered period provided for payroll costs only
Alternative Payroll Covered Period Available for borrowers with biweekly (or more frequent) payroll only Begins on the first day of the first pay period following the loan disbursement date Example: if the loan proceeds were received on Monday, April 20 th and the first day of the following pay period is Sunday, April 26 th , the first day of the “Alternative Payroll Covered Period” is April 26 th and the last day is Saturday, June 20 th . If elected, the “Alternative Payroll Covered Period” must be used consistently through the application
Eligible Payroll Costs • Salary, wages, commissions, or similar Payroll compensation • Cash tips or the equivalent Costs • Payments for vacation, parental, family, medical, or sick leave • Allowance for separation or dismissal Eligible for • Payments for employee benefits including group health coverage, including insurance premiums Forgiveness and retirement • Payments of state and local taxes assessed on compensation of employees • For independent contractors or sole proprietors: wages, commissions, income, or net earnings from self-employment (Schedule C taxpayers)
Non-Eligible Payroll Costs • Compensation for employees whose Payroll principal place of residence is outside of the United States Costs Not • Compensation of an individual employee in excess of an annual salary of $100,000 Eligible for • Prorated over the 8-week covered period Forgiveness • Capped at $15,385 for each individual • Employer portion of payroll taxes • Sick leave or family medical leave paid under the Families First Act
Covered Mortgage Obligations • Includes both real and personal property Non-Payroll • Interest only • No prepayment allowed • Agreements in effect prior to February 15, Costs 2020 Eligible for Covered Rent Obligations Forgiveness • Includes both real and personal property • Full lease payment • No prepayment allowed • Agreements in effect prior to February 15, 2020
Covered Utility Payments Non-Payroll • Includes electricity, gas, Costs water, transportation, telephone, or internet Eligible for access Forgiveness • No prepayments (continued) • Service must have started before February 15, 2020
Clarification on “Paid or Incurred” “Paid” = bills paid during the 8 week covered period “Incurred” = costs incurred but not yet paid “Incurred” costs (both payroll and non - payroll) are eligible for forgiveness if they are paid on or before the next regular payroll/billing date The application does not make it clear if the payment of costs relating to periods prior to the 8-week covered period will be eligible for forgiveness.
“75%” Rule Example At least 75% of the potential forgiveness amount must be used Total loan amount $ 100,000 for payroll Using less than 75% of the loan proceeds for payroll results in a Payroll costs (70%) $ 70,000 reduction of the total potential Divide by 0.75 forgiveness available to a Maximum borrower forgiveness 93,333.33
Reduction Ratios for Reduced Workforce and Wages Reductions in the average number of full-time equivalent employees (“FTE”) or Reductions in salary or hourly wages greater than 25% for non-highly compensated employees Will reduce total loan forgiveness!
Workforce Reduction Safe Harbor Full restoration of any workforce or pay reductions that (1) occurred between February 15, 2020 and April 26, 2020 (2) by or before June 30, 2020
FTE Reduction Exceptions Good faith, written offer to rehire employee 1. during the covered period which was rejected Any employees who during the covered 2. period: Were fired for cause; a) Voluntarily resigned; b) Voluntarily requested and received a c) reduction in hours FTE reductions in these circumstances will not reduce loan forgiveness
EIDL Advance Payments Total PPP loan forgiveness is reduced by any advance payments received for an Economic Injury Disaster Loan (“EIDL). EIDL advance payments are not required to be repaid Maximum EIDL advance payment = $10,000
Maximize spending during the 8-week covered period Accumulate supporting documentation for payroll Loan and non-payroll costs Forgiveness Complete SBA Form 3508 Process Submit completed SBA Form 3508 and supporting documentation to lender Lender must make a determination on forgiveness within 60 days
Key Concepts and Calculations for Completing SBA Form 3508
SBA Form 3508 Includes three main documents: PPP Loan Application 1. PPP Schedule A 2. PPP Schedule A Worksheet 3.
PPP Loan Application - Basic Information
PPP Loan Application - Payroll Elections and Additional Info
The $2 Million Question Borrowers who received loans in excess of $2 million must “check the box” (including affiliates) Checking this box will result in a review of your loan by the SBA!
PPP Loan Application - Forgiveness Amount Calculations Step 1 – go to PPP Schedule A to calculate payroll costs
PPP Schedule A
PPP Schedule A Worksheet
Schedule A Worksheet – Table 1 Employee Name – separately list the names of each employee. Do not include independent contractors, owner-employees, self-employed individuals, or partners. Employee Identifier – last four digits of employee’s social security number Cash Compensation Include gross wages, salary, tips, commissions, paid leave, severance pay, and similar compensation paid or incurred during the covered period or alternative covered period Total can’t exceed $15,385 for any individual employee Average FTE Calculate average “full - time equivalency” for each employee Used to determine if loan forgiveness will be reduced due to reductions in the number of FTEs during the covered period or alternative covered period Two methods available: standard and simplified
Calculating Average FTE – Standard Method Example For each employee, calculate 1. average of hours paid per week over the covered period or Average weekly hours alternative covered period worked 35.00 Divide by 40 and round to the 2. nearest tenth Divide by 40.00 The maximum for each employee 3. is capped at 1.0 Average full-time equivalency 0.88 Rounded 0.90 FTE
Calculating Average FTE – Simplified Method For each employee, calculate average of 1. hours paid per week over the covered period or alternative covered period Employees who worked an average of 40 a) hours or more = 1.0 FTE Employees who worked an average of less b) than 40 hours = 0.5 FTE
Calculating Average FTEs Other dates that average FTEs may need to be calculated: January 1, 2020 through the end of the covered period or alternative covered period Safe Harbor Calculation February 15, 2020 to April 26, 2020 February 15, 2020; and June 30, 2020 Optional Reference Periods (Select One): February 15, 2019 – June 30, 2019 January 1, 2020 – February 29, 2020 A consecutive 12-week period between May 1, 2019 and September 15, 2019 (season employers only)
Schedule A Worksheet – Table 1 (Continued) Salary/Hourly Wage Reduction Used to determine if loan forgiveness amount must be reduced for reductions in employee salary or hourly wages during the covered period or alternative covered period as compared to the period January 1, 2020 to March 31, 2020 This column is only completed for employees whose salaries or hourly wages were reduced by more than 25% Potential reductions in loan forgiveness can be eliminated if safe harbor requirements are met Three step calculation is to be completed for each employee included in Table 1
Salary / Hourly Rate Reduction Flowchart Compare compensation during the covered period with January 1, 2020 – March 31, 2020 No Yes Determine if Safe Harbor is Decrease Enter $0 on of 25% or met Table 1 more? Yes No Calculate dollar amount reduction of compensation, Enter $0 on enter total on Table 1 Table 1
Completed Table 1 - Example
Completed Table 1 - Example
Schedule A Worksheet – Table 2
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