Brian Lee Guest Post: Paycheck Protection (PPP) Update
In the COVID-19 pandemic, there is so much information being broadcast that it is difficult to keep up with the various rules and regulations surrounding the Paycheck Protection Program (PPP). However, Staff Leasing has put together this helpful article about how to account for your PPP funds and how to ensure your business is compliant and your loan forgiven:
Preliminary Forgiveness Information and Checklist
As the Paycheck Protection Program Loan money is starting to be disbursed and in an effort to help you best prepare for the application process to have the loan forgiven, here is some information you need to know and a checklist of things you need to be prepared to provide once SBA finalizes this process. Working on this as early as possible will help make this easier when it comes time to submit your documentation. This is not a final list as SBA may determine additional information will be required.
Recommended Action Steps and Documents to Start Collecting
It is recommended to place all funds in a business checking account that does not have any other money in it so it will be easy to track how you used the money.
Make sure to follow guidelines for how the funds may be used:
o Funds are to be spent on qualified costs over the 8 weeks following your loan closing.
o Payroll costs must make up at least 75% of how you spend the funds in order to be forgiven.
o Limit mortgage interest payments, rent payments and utilities to no more than 25% of your loan amount.
Document how all loan proceeds were spent:
o List of all employees on payroll the 8 weeks following loan with the dollar amount of payroll costs (defined below).
o Evidence of mortgage interest payments, rent payments and utilities paid during the 8 weeks following the loan:
- Copies of cancelled checks
- Bank statements with ACH info
- Utility Bills
- Mortgage Statements
- Lease Agreement
- Evidence that workers were kept on payroll or rehired once loan was received, including a calculation of the average monthly number of full-time equivalent employees for the period February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020 (borrower to select the time period) and the average monthly number of full-time equivalent employees for the period of (borrower to select one) for the eight weeks following the date of the loan.
- Evidence of restoration by June 30, 2020 of pay for any individual whose pay was reduced by 25% or more.
- Evidence of payroll costs, utilities, rent/lease payments and mortgage interest paid before February 15, 2020 to compare to what is paid or incurred during the 8 weeks following the loan closing to ensure it aligns. If self-employed, these expenses are allowed to the extent they are deductible on Form 1040 Schedule C.
- Copy of paperwork submitted to bank
- Copy of EIDL loan if refinanced with PPP loan (be sure to identify how much was an advance that does not have to be repaid)
- If you used PPP to refinance an EIDL loan, only the funds used for payroll costs will be forgiven so be prepared to provide documentation listed above for the EIDL loan, too.
- Evidence you were in business on February 15, 2020 and paid employees or independent contractors (Payrolroll tax Filing for 1st quarter 2020)
- For borrowers who are self-employed, the forgiveness amount for owner’s compensation is limited to eight weeks’ worth of 2019 net profit and does not include covered benefits. It also excludes any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116-127) or qualified family leave equivalent amount for which a tax credit is claimed under section 7004 of FFCRA (similar rule as applies to employers with respect to pay for time for which a tax credit is claimed under FFCRA).
- If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you may be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.
What qualifies as “payroll costs?”
Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.
Is there anything that is expressly excluded from the definition of payroll costs?
Yes. The Act expressly excludes the following:
- Any compensation of an employee whose principal place of residence is outside of the United States.
- The cash compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary.
- Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.
For more information on the rules around forgiveness, please review the Interim Final Rule , the Final Interim Rule - Additional Eligibility Criteria, which covers Self Employed borrowers and the FAQs and other documents found on the Treasury's website. If you have any questions, it is recommended that you contact your Bank/Banker. You may also contact Brian Lee at Staff Leasing by phone at (315) 641-3600 or by email at firstname.lastname@example.org.