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HR Update: Coronavirus Updates 04.20.2020

By April 21, 2020 No Comments

Paycheck Protection Program (PPP) 

 When Congress passed the CARES Act, it authorized $349 billion in Paycheck Protection Program (PPP) loans for small businesses. Small business owners quickly applied, but many of them were not approved before the PPP ran out of the funding many small businesses still desperately need.

Congress has been working on providing additional funding for the Program. The Senate is expected to pass a bill providing that additional PPP funding for small businesses today. The House is expected to pass that bill early this week, as well. In the meantime, small businesses that have been approved and small businesses that have not (yet) been approved have many questions about the PPP and its possibility of loan forgiveness.

As your trusted HR partner, MBA does not provide financial planning services. We do want to provide you with the information we have about PPP loans, though. To that end, we have put together the below FAQs based on current Treasury and SBA guidance which can be found here and here:

  1. What can an employer use the PPP loan funds for?
    • You should use the proceeds from these loans on your:
      • Payroll costs, including benefits;
      • Interest on mortgage obligations, incurred before February 15, 2020;
      • Rent, under lease agreements in force before February 15, 2020; and
      • Utilities, for which service began before February 15, 2020.
  2. What funds are considered payroll costs?
    • Small business 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; and
      • payment of state and local taxes assessed on compensation of employees.
  3. What costs are NOT eligible for payroll?
    • Employee/owner compensation over $100,000;
    • Taxes imposed or withheld under chapters 21(FICA), 22(RRTA), and 24(FITW) of the IRS code;
    • Compensation of employees whose principal place of residence is outside of the U.S.;
    • Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
  4. What must employers do to qualify for loan forgiveness?
    • SBA will forgive loans if all employees are kept on the payroll for eight (8) weeks and the money is used for payroll, rent, mortgage interest, or utilities.
    • Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.
    • Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
    • You must apply through your lender for forgiveness on your loan.
  5. What actions will decrease or eliminate my loan forgiveness?
    • You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan.
    • You will owe money if you do not maintain your staff and payroll.
      • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
      • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
      • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
  6. When does the eight-week loan period begin?
    • The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.
  7. How much of the loan must be used for payroll for the loan to be forgiven?
    • Borrowers must use at least 75% of the loan for payroll costs.
  8. What documents will I need to apply for forgiveness?
    • We recommend you check with your lender.                                
  9. How is the forgiveness amount calculated?
    • Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8-week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000 per employee):
      • Payroll costs plus any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus and any covered utility payment.
  10. When does the loan have to start being repaid?
    • The loan payments are deferred until 6 months after issuance. The loan must be repaid within 2 years.
  11. What happens to the loan forgiveness if I have to lay off employees (or already have)?
    • If a business is forced to lay off employees or already has and doesn’t rehire them, the loan amount not used on payroll or approved expenses must be repaid over two years at 1% interest. Borrowers have until the earlier of until June 30, 2020 or eight weeks from the date the lender makes the first disbursement of the PPP loan to the borrower to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
  12. Does the PPP cover paid sick leave?
    • Yes, the PPP covers payroll costs, which include employee benefits such as costs for parental, family, medical, or sick leave. However, it is worth noting that the CARES Act expressly excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA)
  13. How should an employer calculate its full-time equivalent employee count for purposes of complying with maintaining its employee count?
    • There is currently no official guidance on how to calculate the full-time equivalent employee count referenced in the CARES Act.
  14. Do independent contractors count as employees for purposes of PPP loan calculations?
    • 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.

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