Payroll Protection Program and Forgiveness Calculation Update

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Payroll Protection Program and Forgiveness Calculation Update

[webinar Title] 2©2021, CCH Incorporated. All Rights Reserved.


Lynn Fountain, CPA, CGMA, CRMA, MBA

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3Payroll Protection Program and Forgiveness Calculation Update

Introduction

• The U.S. Small Business Administration (SBA), in consultation with Treasury, in Jan 2021 released a revised loan forgiveness application for the Paycheck Protection Program (PPP).

▪ In July 2020, the SBA also unveiled a new EZ application for forgiveness of PPP loans.

▪ The applications reflect changes to the PPP made by the Paycheck Protection Flexibility Act of 2020.

• The July came only after the SBA issued a new interim final rule providing guidance on how to calculate employee and owner compensation for loan forgiveness in the new 24-week covered period created by the Paycheck Protection Flexibility Act.

▪ The Jan 2021 release reflects changes made to accounting for non-payroll costs (among other changes)


Introduction

• Among the July 2020 changes are:

▪ Expansion of the “covered period” for loan forgiveness to 24 weeks from eight weeks,

▪ Reduction of the proportion of proceeds that must be spent on payroll costs to 60% from 75%,

▪ Establishment of a safe harbor for businesses that have been unable to return to the level of business activity pre- COVID-19 due to compliance with H&S guidelines for slowing the spread of the virus.

• Congress originally approved $349 billion in PPP funding.

▪ After that money was exhausted, they authorized another $310 billion, bringing the program total to $659 billion.

• This course is designed to walk through and discuss the many concepts involved in the SBA PPP Loan Forgiveness application.

• We will also cover areas of the most recent revised PPP Loan Forgiveness Application and instructions.

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Agenda

• Review background of PPP Program

▪ Understand first and second draw PPP loans

• Determine which forgiveness application to use

• Review the basics involved in forgiveness calculation

▪ Explore the SBA PPP Forgiveness form and instructions and how to utilize them

▪ Examine how to estimate your PPP loan forgiveness

▪ Understand what incorporates eligible payroll costs

• Understand the requirements for documentation

• Examine unique elements of the PPP forgiveness process


Background

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Background

• The PPP Program is a loan designed to provide a direct incentive for SBs to keep their workers on payroll.

▪ First Draw PPP Loans are used to help fund payroll costs, including benefits, and may also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. (added interim final rule in Dec 2020)

• SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses.

▪ PPP loans have an interest rate of 1%.

▪ Loans issued prior to Jun 5, 2020 have a maturity of two years those issued after Jun 5, 2020 have a maturity of five years.


New Allowances For Additional Expenses

• Under the renewed program, the list of eligible non-payroll expenses has been expanded and includes 4 new categories:

▪ Costs for personal protective equipment and adaptive investments that help a PPP loan recipient comply with federal and/or health and safety guidelines related to COVID-19;

▪ Outlays for on software, cloud computing, human resources, and accounting needs;

▪ Any spending not covered by insurance that are related to property damage due to public disturbances that occurred during 2020;

▪ Spending to suppliers that covered costs essential to the business operations at the time the outlay occurred. (e.g. restaurants’ purchases of perishable goods can now qualify).

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https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/ppp-loan-forgiveness

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Background

▪ Loan payments will be deferred for borrowers who apply for forgiveness until SBA remits the borrower's loan forgiveness amount to the lender.

• If a borrower does not apply for forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).

▪ No collateral or personal guarantees are required.

▪ Neither the government nor lenders will charge small businesses any fees.

• Following entities affected by COVID-19 may be eligible:

▪ Sole proprietors, independent contractors, and self-employed persons

▪ Any small business concern that meets SBA’s size standards

▪ Any business, 501(c)(3) NFP organization, 501(c)(19) veterans organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:

• 500 employees, or that meets the SBA industry size standard if more than 500


Breaking News

• On Jan 25, 2021 Banks warned the Biden administration that restart of the SB rescue program is facing significant operational problems preventing many employers from receiving aid.

▪ A "technical error" was flagged with the software portal that lenders must use to submit applications for businesses seeking PPP loans.

▪ This technical error is leading SBA not to approve a significant number of Second Draw Loans.

▪ Stay tuned

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PPP First and Second Draw Loans


Second Draw

• SBA reopened the PPP for First Draw PPP Loans on Jan 11, 2021.

▪ Application for a First Draw PPP Loan is until March 31, 2021.

▪ All new First Draw PPP Loans have the same terms regardless of lender or borrower.

• Application period for a Second Draw PPP Loan is Jan 13, 2021, until Mar 31, 2021.

▪ At least $25B is being set aside for Second Draw PPP Loans to eligible borrowers with a maximum of 10 employees or for loans of $250K or less to eligible borrowers in low or moderate income neighborhoods.

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Second Draw

• The PPP now allows certain eligible borrowers (who previously received a PPP loan) to apply for a Second Draw PPP Loan with the same general loan terms as their First Draw PPP Loan.

▪ For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2M.

• For borrowers in the Accommodation and Food Services sector, the maximum amount for a Second Draw PPP Loan is 3.5x average monthly 2019 or 2020 payroll costs up to $2M.

• Borrower generally eligible for a Second Draw PPP Loan if:

▪ Borrower previously received a First Draw PPP Loan and will or have used the full amount only for authorized uses

▪ Borrower has no more than 300 employees; and

▪ Borrower can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.


Background

• The SBA and Treasury issued an 18-page document on Jan 19 detailing how PPP borrowers should calculate revenue reduction and maximum loan amounts for second-draw PPP loans.

▪ The guidance also lists documents to provide to support.

• The release came after SBA/Treasury issued following guidance:

▪ A 12-page document detailing calculation processes and required documentation for first-draw PPP loans by business type.

▪ A procedural notice explaining what PPP borrowers must do if they or their lender made an application error that resulted in a borrower receiving a PPP loan amount that exceeds the borrowers correct amount.

▪ A procedural notice establishing the requirements and processes for borrower resubmission of a loan forgiveness application using SBA Form 3508S when forms 3508 or 3508EZ were previously submitted.

• Refer to SBA.gov for notices.

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https://www.sba.gov/sites/default/files/2021-01/Second%20Draw%20PPP%20Loans%20--%20How%20to%20Calculate%20Revenue%20Reduction%20and%20Maximum%20Loan%20Amounts%20Including%20What%20Documentation%20to%20Provide%20%281.19.2021%29.pdf

https://www.sba.gov/sites/default/files/2021-01/PPP%20--%20How%20to%20Calculate%20Maximum%20Loan%20Amounts%20for%20First%20Draw%20PPP%20Loans%20and%20What%20Documentation%20to%20Provide%20%E2%80%93%20By%20Business%20Type%20%281.17.2021%29.pdf

https://www.sba.gov/sites/default/files/2021-01/5000-20078-508.pdf

https://www.sba.gov/sites/default/files/2021-01/5000-20077-508.pdf

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First-draw Loan Calculations

• The guidance explaining first-draw PPP loan calculations and documentation requirements has 14 Q&A’s. Among the topics:

▪ How SE PPP borrowers calculate a first-draw loan maximum.

▪ How partnerships apply for first-draw loans and how they calculate the maximum amount for those loans.

▪ How S and C corporations calculate maximum first-draw PPP loans.

▪ How NFPs, religious institutions, veteran organizations, and Tribal businesses should calculate their maximum first-draw PPP loan amount.

▪ How entities and SE individuals not in operation a full year prior to Feb. 15, 2020, should calculate a first-draw maximum loan amount.

▪ Which pretax employee contributions for fringe benefits that may have been excluded from IRS 941, should be part of employee gross pay.

▪ How PPP borrowers should account for federal taxes when determining their payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven.


First-draw Loan Calculations

• SBA issued a set of FAQ’s that address how to calculate revenue reduction and maximum loan amounts for second-draw PPP loans, as well as the documents required to support calculations.

• SBA also issued a reminder regarding borrowers who have applied for second-draw loans and who currently have loans under review by SBA, or the SBA has determined the borrower may not have been eligible for a first-draw loan.

▪ In these cases, SBA said the lender will not receive an SBA loan number for a borrower’s second-draw loan until the issue related to the first-draw loan is resolved.

• SBA said it will “resolve issues related to unresolved borrowers expeditiously.”

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Second-draw Calculations Guidance

• The second-draw calculations guidance is structured in the form of 24 questions/answers addressing a variety of situations involving different types of organizations.

▪ Second-draw applications require borrowers to provide they have experienced at least a 25% reduction in GR as a result of the pandemic.

• Eight questions deal with how to determine if a PPP borrower experienced the 25% decline in GR required to apply for a second PPP loan of up to $2M.

▪ The other 16 questions handle how a PPP borrower can calculate the maximum amount it is eligible to receive in a second-draw loan.

• The guidance addresses a FAQ regarding the relationship between calculating GR and the accounting method the borrower uses for its business.


Second-draw Calculations Guidance

• For a NFP business, the guidance defines gross receipts as:

▪ Generally all revenue in whatever form received/accrued, determined in accordance with the borrower’s accounting method (accrual or cash).

• Other topics covered include (among others):

▪ Documents required to corroborate a 25% reduction in GRs.

▪ Documents required to substantiate payroll costs used to determine the maximum second-draw loan amount a borrower is seeking.

▪ How to calculate GRs reduction if using annual income tax returns.

▪ How SE employed PPP borrowers (both those with and those without employees) should calculate a second-draw loan maximum.

▪ How partnerships apply for second-draw loans and how they should calculate the maximum amount for those loans.

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Excess Loan Amount Errors

• If an application error caused a PPP borrower to receive a larger PPP loan than it was eligible for, the SBA and Treasury determined the borrower may not receive loan forgiveness for any amount exceeding the allowed maximum, regardless of whether the borrower or the lender is responsible for the error.

▪ The borrower will be required to begin making payments on the remaining loan amount that’s in excess of the amount forgiven.


What Form Do I Use?

• To obtain forgiveness, the borrower applies through their lender by filling out the SBA form and providing supporting documents.

• SBA Form 3508 (released May 15, 2020) is the document PPP loan borrowers must complete to request loan forgiveness.

▪ Three versions: Regular Form 3508, Form 3508EZ, and 3508S.

• Many business owners and financial advisors shared concerns about its complexity and rigid rules.

▪ In response, Congress passed the PPP Flexibility Act of 2020 to make changes to the PPP, prompting release of a revised Form 3508 on Jun 16.

▪ On October 8, the SBA and Treasury released Form 3508S for qualifying borrowers.

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https://www.patriotsoftware.com/blog/payroll/paycheck-protection-program-flexibility-act/

https://www.sba.gov/article/2020/oct/08/sba-treasury-announce-simpler-ppp-forgiveness-loans-50000-or-less

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What Form Do I Use?

• The three versions of Form 3508 are different, but they all begin by asking for the following business and PPP loan information:

Business legal name Business address DBA or trade name (if applicable)

Taxpayer identification number (e.g., EIN)

Phone number Primary contact Email address SBA PPP loan number

Lender PPP loan number

PPP loan amount Disbursement date (when you received the loan)

Number of employees at time of loan application

# of employees at time of forgiveness application

Economic Injury Disaster Loan (EIDL) advance amount

EIDL application number

Forgiveness amount


What Form Do I Use?

• The form you use depends on certain factors such as:

▪ How much you borrowed

▪ Whether you reduced employee salaries and headcount

• Form 3508EZ and S are simplified documents for eligible employers and solopreneurs.

▪ Unless you qualify to use the EZ or S versions, you must apply with the regular Form 3508.

• Difference between the forms lies in the calculations required.

▪ Form 3508 requires the most calculations, Form 3508EZ requires less calculations, and Form 3508S is nearly calculation-free.

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What Form Do I Use?

• 3508: Borrowers who do not qualify to use Form 3508EZ or 3508S

• 3508EZ:

▪ Borrowers who are self-employed with no employees OR

▪ Borrowers who did not reduce employee salaries by more than 25% and did not reduce employee hours OR

▪ Borrowers who reduced business activity due to COVID-19 health guidelines and did not reduce employee salaries by more than 25%

• 3508S: Borrowers who took out loans of $150,000 or less


Basics

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Basics

• Loans funded on or after Jun 5, 2020, the Covered Period is 24 weeks, beginning on the date that the loan is funded.

• Loans funded before Jun 5, 2020, the borrower has the discretion to choose a Covered Period of either 24 or 8 weeks.

• Business owners who run payroll on a bi-weekly (or more frequent) basis have the option of using the “Alternative Payroll Covered Period”.

▪ This begins on the first day of the payroll period that begins after PPP funding is received (instead of the date when PPP funds are received),

• This may allow for more payroll expenses to qualify for PPP loan forgiveness.


Basics

• The first day of the Covered Period must be the same as the PPP Loan Disbursement Date.

▪ Ex: if Borrower received loan proceeds on Apr 20, first day of the Covered Period is Apr 20 and the last day of the Covered Period is Jun 14.

• Payroll costs include:

▪ Salary, wages, commissions and tips—up to $100,000 annualized for each employee.

▪ Employee benefits, including paid leave, severance pay, insurance premiums and retirement benefit.

▪ State and local taxes assessed on pay.

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Basics

• Payroll costs for sole proprietors/independent contractors include wages, commissions, income or NEs from SE (up to $100K annual)

▪ Paid-sick leave/ paid-family leave payments made under FFCRA are excluded (reimbursement for those are provided through tax credits).

▪ Compensation is excluded for any employee whose principal place of residence is outside the U.S.

▪ Payments to furloughed employees are an appropriate use of PPP funds.

• Employees who resign, voluntarily ask for an hours reduction, or are fired for cause during the covered period, will not count as a reduction in the number of employees.

▪ Employers who seek to avoid a forgiveness reduction because an employee refused to return to work must report that refusal to the state unemployment office within 30 days of the rejection.


Basics

60%40%

Added: worker protection

costs related to COVID-19,

uninsured property damage

costs caused by looting or

vandalism during 2020,

and certain supplier costs

and expenses for

operations.

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Basics

• Payroll costs are calculated on a gross basis without considering federal taxes, (employee's and employer's share of FICA and income taxes) that are required to be withheld from employees.

▪ As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer's share of payroll tax”. Example:

• If an employee earned $4K a month in gross wages and $500 was withheld for federal taxes, then the total $4K would count as payroll costs.

• The employee receives $3,500, and $500 is paid to the federal government.

• However, the employer's federal payroll tax obligation for the $4K in wages is excluded from payroll costs under the statute.


Basics

• Employers can choose to compare workforce reductions during the eight-week loan period with the average number of employees on staff from either:

▪ Feb. 15, 2019, to June 30, 2019.

▪ Jan. 1, 2020, to Feb. 29, 2020.

▪ Example: If a business employed 20 workers during the comparison period and only 10 workers during the loan period, the forgivable amount would be reduced by 50%.

• Employers who made reductions between Feb 15, 2020 and Apr 26, 2020 had until Jun 20, 2020 to restore FT employment and salary levels to qualify.

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Basics

• Significant aspect on loan forgiveness is bonuses and hazard pay.

▪ PPP funds may be used to pay employee bonuses and hazard pay during the Covered Period and those amounts are eligible for forgiveness.

▪ Non-payroll costs such as rent, utilities and mortgage interest can be paid outside the Covered Period so long as those costs are incurred during the covered period and paid on the next regular billing date for the expense.

• Borrowers will not be doubly penalized for individual wage reductions and FTE reduction for the same employees.

• Wage applies only to the portion of the decline in the employee’s wages that is not attributable to the FTE reduction.

▪ In other words, if an employer reduces an employee’s scheduled hours by half, but keeps the hourly rate the same, the borrower would be penalized by .5 FTEs, not both the FTE count and the reduction in hours.


Basics

• It is critical that companies pay attention to the following aspects as they engage in the PPP funding:

▪ Data is critical – The first step in applying for a loan is gathering relevant data borrowers will need. Relevant information on payroll made during the payout period will be critical to ensure is accurate.

• Information such as average monthly payroll amounts and (for second-draw borrowers) quarterly revenue comparisons are necessary for application.

▪ Gather and keep documentation – Retaining documentation that backs up the information submitted in application forms is critical.

▪ Understand the new expenditures eligible for forgiveness – New guidance makes certain covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures eligible for forgiveness.

▪ Watch for updates – changing guidance is an almost inevitable feature of governmental programs that are rolled out quickly.

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Interim Final Rule

• On Dec 27, 2020, the Economic Aid Act was enacted, extending the authority to make PPP loans through Mar 31, 2021, revising certain PPP requirements, and permitting second draw PPP loans.

▪ This interim final rule consolidates prior rules related to forgiveness and reviews of PPP loans and incorporates changes made by the Economic Aid Act, including with respect to forgiveness of second draw PPP loans.

• Loan Forgiveness Form can be found at SBA.gov

• The application has the following components:

1) the PPP Loan Forgiveness Calculation Form;

2) PPP Schedule A;

3) the PPP Schedule A Worksheet; and

4) the (optional) PPP Borrower Demographic Information Form.


Review Questions 1 - 3

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Calculation Guidance

• All Borrowers must submit (1) and (2) to their Lender.

• Overall Instructions

▪ Complete basic company information on the main Loan Forgiveness Calculation form

▪ Complete Schedule A Worksheet to see if you meet the headcount and pay requirements

▪ Complete Schedule A to find your payroll and compensation costs

▪ Complete the rest of the Loan Forgiveness Calculation Form to determine your total eligible costs and our forgiveness amount

▪ Determine whether you will complete and submit the demographics form


Part 1 PPP Loan Forgiveness Form• Business Legal Name (“Borrower”)/DBA or

Tradename (if applicable)/Business TIN (EIN, SSN): Enter same information as on Borrower Application Form (SBA Form 2483, SBA Form 2483-SD, or lender’s equivalent).

• Business Address/NAICS Code/Business Phone/Primary Contact/E-mail Address: Enter same information as on Borrower Application Form, unless a change in address or contact information occurred.

▪ If NAICS Code was not on the Borrower Application Form, match the business activity code provided on IRS income tax filings, if applicable.

• First Draw PPP Loan or Second Draw PPP Loan: Select box that describes PPP loan this forgiveness application is for

▪ If you only have one PPP loan, select First Draw PPP Loan.

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Part 1 PPP Loan Forgiveness Form • SBA PPP Loan Number: Enter loan number

assigned by SBA at the time of loan approval.

• Lender PPP Loan Number: Loan number assigned to PPP by the Lender.PPP Loan Amount: Enter disbursed principal amount of PPP loan (total loan amount you received from the Lender).

• PPP Loan Disbursement Date: Enter date you received PPP loan proceeds from Lender.

• If proceeds were received on more than one date, enter first date proceeds received.

• If you received an authorized increase on your First Draw PPP Loan after Dec 27, 2020, enter date on you received the original disbursement of your PPP loan proceeds.

• Employees at Time of Loan Application: Enter the total number of employees at the time of the PPP loan application.

• Employees at Time of Forgiveness Application: Enter total employees at time Borrower is applying for loan forgiveness.


Part 1 PPP Loan Forgiveness Form

• Covered Period: The Covered Period begins on the date the loan was originally disbursed.

▪ It ends on a date selected by the Borrower that is at least 8 weeks following the date of loan disbursement and not more than 24 weeks after the date of loan disbursement.

▪ Ex: if the Borrower received their PPP loan proceeds on Monday, April 20, 2020, the first day of the Covered Period is Monday, April 20, 2020 and the final day of the Covered Period is any date selected by the Borrower between Sunday, June 14, 2020 and Sunday, October 4, 2020

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Employee’s Name: Separately list each employee. Do not include any independent contractors, owner-employees, self employed individuals, or partners.

Employee Identifier: Enter the last four digits of each employee’s Social Security Number.

Pulled Forward to PPP Loan

Forgiveness form Line 1, 2, 3


PPP Table A Instructions

• Cash Compensation (Box 1): Enter the sum of gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical or sick leave, not including leave covered by the FFCRA), and allowances for dismissal or separation paid or incurred during the Covered Period or the Alternative Payroll Covered Period.

▪ For each individual employee, the total amount eligible for forgiveness may not exceed an annual salary of $100K (prorated for Covered Period).

• For an 8-week Covered Period, that total is $15,385.

• For a 24-week Covered Period, that total is $46,154.

See SBA.gov

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PPP Table A Instructions • Average FTE (Box 2): This calculates the average FTE during the Covered Period or the Alternative Payroll Covered Period.

• Borrows should report each employee’s average FTEs for the Covered Period on Table 1 (for employees earning $100K or less per year or those who were not employed in 2019) and

• Table 2 (for those employees earning more than $100,000 per year) of PPP Schedule A Worksheet(Form 3508, p.4 see link at footnote 1).

• For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth.

• Maximum for each employee capped at 1.0.

▪ A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.

• Then, add up each employee’s FTEs for Table 1 and Table 2.


FTE

• These totals are reported on PPP Schedule A Line 2 (from Table 1) and Line 5 (from Table 2), which are then totaled on Line 12 of PPP Schedule A.

▪ The calculation is used to determine whether the Borrower’s loan forgiveness amount must be reduced due to a statutory requirement concerning reductions in FTE employees.

• Borrowers are eligible for loan forgiveness for certain expenditures during the Covered Period or the Alternative Payroll Covered Period.

• Borrowers report total average FTEs for the chosen Reference Period on Line 11 of PPP Schedule A.

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FTE

• Salary/Hourly Wage Reduction (Box 3): This calculation will be used to determine whether the Borrower’s loan forgiveness amount must be reduced due to a statutory requirement concerning reductions in employee salary and wages.

▪ The actual amount of loan forgiveness the Borrower will receive may be less, depending on whether the salary or hourly wages of certain employees during the Covered Period or the Alternative Payroll Covered Period was < during the period from January 1, 2020 to March 31, 2020.

▪ If the Borrower restored salary/hourly wage levels, the Borrower may be eligible for elimination of the Salary/Hourly Wage Reduction amount.



• Borrowers must complete the worksheet to determine whether to reduce the amount of loan forgiveness eligible.

▪ Complete the Salary/Hour Wage Reduction column (Box 3) only for employees whose salaries or hourly wages were reduced by more than 25% during the Covered Period or the Alternative Payroll Covered Period as compared to the period of January 1, 2020 through March 31, 2020.

• For each employee listed in Table 1, complete the following (using salary for salaried employees and hourly wage for hourly employees):

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PPP Table A Instructions TABLE 1

• Step 1. Determine if pay was reduced more than 25%.

• Step 2. Determine if the Salary/Hourly Wage Reduction SH is met.

• Step 3. Determine the Salary/Hourly Wage Reduction.

See SBA.gov Page 5


Example – Table 1 Salary Worker • During covered period, your employee's average salary was $39K (Step 1a).

• In Q1, their salary was $57K (Step 1b).

• For this example, you’re using the eight-week covered period.

▪ 39,000/$57,000 =.68

• In this case you proceed to step 2.

• Employees average salary as of Feb 15, 2020 was $57K.

• Employee’s average salary between Feb 15, 2020 and Ap 26, 2020 was $45K.

▪ $45,000 (B) is not equal to or greater than $57,000 (A).

• Continue onto C.

• Employee’s average salary as of Dec 31, 2020 is $50K.

▪ $50,000 (C) is less than $57,000 (A)

The safe harbor hasn’t been met and you need to move to Step 3.

Step 1. Determine if pay was reduced more than 25%.

• a. Enter average annual salary or hourly wage during Covered Period:

• b. Enter avg annual salary or hourly wage during the most recent full quarter before the Covered Period:

• c. Divide the value entered in 1.a. by 1.b.:

If 1.c. is 0.75 or >, enter 0 in column above box 3 for that employee; otherwise proceed to Step 2.

Step 2. Determine if the Salary/Hourly Wage Reduction SH is met.

• a. Enter the annual salary or hourly wage as of February 15, 2020:

• b. Enter the avg annual salary or hourly wage between February 15, 2020 and April 26, 2020:

If 2.b. is => 2.a., skip to Step 3. Otherwise, proceed to 2.c.• c. Enter the average annual salary or hourly wage as of:

(a) for a PPP loan made before Dec 27, 2020, Dec 31, 2020 or (b) for a PPP loan made after Dec 27, 2020, the last day of the Covered Period:

If 2.c. is equal to or greater than 2.a., the Salary/Hourly Wage Reduction SH has been met – enter zero in the column above box 3 for that employee. Otherwise proceed to Step 3.

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• During the covered period, your employee's average salary was $39K (Step 1a).

• In the first quarter of the year, their salary was $57K (Step 1b).

• For this example, you’re using the eight-week covered period.

• 3A. Step 1b x 0.75

$57,000 x 0.75 = $42,750

• 3B. Step 3a– Step 1a$42,750 – $39,000 = $3,750

• 3E. Step 3b x 8 = Step 3e

• Step 3E / 52 = Salary/hourly wage reduction• $3,750 x 8 = $30,000• $30,000 / 52 = $576.92

• You will put $576.92 in the salary/hourly wage reduction column.

Step 3. Determine the Salary/Hourly Wage Reduction.

• a. Multiply the amount entered in 1.b. by 0.75:

• b. Subtract the amount entered in 1.a. from 3.a.

If the employee is an hourly worker, compute the total dollar amount of the reduction that exceeds 25% as follows:

• c. Enter the average number of hours worked per week during the most recent full quarter before the Covered Period:

• D. Multiply the amount entered in 3.b. by the amount entered in 3.c. .

Multiply this amount by the number of weeks in the Covered Period (a whole number between 8 and 24):

• Enter this value in the column above box 3 for that employee.

If the employee is a salaried worker, compute the total dollar amount of the reduction that exceeds 25% as follows:

• e. Multiply the amount entered in 3.b. by the number of weeks in the Covered Period:

• Divide this amount by 52:

• Enter this value in the column above box 3 for that employee.

Example – Table 1 Salary Worker



• FTE Reduction Exceptions: Indicate the FTE of:

▪ (1) any positions for which the Borrower made a good-faith, written offer to rehire an individual who was an employee on February 15, 2020 and the Borrower was unable to hire similarly qualified employees for unfilled positions on or before

• (a) December 31, 2020, for a PPP loan made before December 27, 2020 or

• (b) the last day of the Covered Period, for a PPP loan made after December 27, 2020;

▪ (2) any positions for which the Borrower made a good-faith, written offer to restore any reduction in hours, at the same salary or wages, during the Covered Period and the employee rejected the offer, and

▪ (3) any employees who during the Covered Period

• (a) were fired for cause,

• (b) voluntarily resigned, or

• (c) voluntarily requested and received a reduction of their hours. In all of these cases, include these FTEs on this line only if the position was not filled by a new employee.

▪ Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness.

See SBA.gov Page 6

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FTE Reduction Safe Harbors

• Two separate SHs exempt certain borrowers from any loan forgiveness reduction based on a reduction in FTEs.

▪ The Borrower is exempt if the Borrower, in good faith, is able to document that it was unable to operate between Feb 15, 2020, and the end of the Covered Period at the same level of business activity as before Feb 15, 2020, due Compliance with requirements established or guidance issued between Mar 1, 2020 and Dec 31, 2020 by:

• The Secretary of Health and Human Services,

• The Director of the CDC and Prevention, or

• The OSHA

related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.


FTE Reduction Safe Harbors

• The Borrower is exempt from the reduction in loan forgiveness based on a reduction in FTE employees if both of the following conditions are met:

▪ (a) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and

▪ (b) the Borrower then restored its FTE employee levels to its FTE employee levels in the Borrower’s pay period that included February 15, 2020 by not later than

• (i) December 31, 2020, for a PPP loan made before December 27, 2020, or

• (ii) the last day of the Covered Period, for a PPP loan made after December 27, 2020.

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FTE Reduction Safe Harbor 2

Step 1.Enter the borrower’s total average FTE between February 15, 2020

and April 26, 2020. Follow the same method that was used to calculate AverageFTE in the PPP Schedule A Worksheet Tables. Sum across all employees and enter:

Step 2. Enter the borrower’s total FTE in the Borrower’s pay period inclusive of February 15, 2020. Follow the same method that was used in step 1: .

Step 3. If the entry for step 2 is greater than step 1, proceed to step 4. Otherwise, FTE Reduction Safe Harbor 2 is not applicable and the Borrower must complete line 13 of PPP Schedule A by dividing line 12 by line 11 of that schedule.

Step 4. Enter the borrower’s total FTE (a) for a PPP loan made before December 27, 2020, as of December 31, 2020 or (b) for a PPP loan made after December 27, 2020, the last day of the covered period: .

Step 5. If the entry for step 4 is greater than or equal to step 2, enter 1.0 on line 13 of PPP Schedule A; the FTE Reduction Safe Harbor 2 has been satisfied. Otherwise, FTE Reduction Safe Harbor 2 does not apply and the Borrower must complete line 13 of PPP Schedule A by dividing line 12 by line 11 of that schedule.


TABLE 2

Table 2: List employees who:• Were employed by the borrower at any point during the covered period or

the alternative payroll covered period whose principal place of residence is in the United States; and

• Received compensation from the Borrower at an annualized rate of more than $100K for any pay period in 2019.

Entered on Line 4 and 5 of PPP

Loan Forgiveness Form

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TABLE 2

• Remember, you are entering the cash compensation during the covered period or the alternative payroll covered period.

• For each individual employee, the total amount of cash compensation eligible for forgiveness may not be > an annual salary of $100K (as prorated for the covered period).

▪ Therefore, do not enter more than $15,385 if using the 8-week covered period or $46,154 if using the 24-week covered period in Table 1 or Table 2 for any individual employee

• For the Average FTE, remember this calculates the average full-time equivalency (FTE) during the covered period or the alternative payroll covered period.


Lines 1 through 5: Enter the amounts from PPP Schedule A Worksheet Tables as directed. Line 6: Enter amount paid by Borrower for employer contributions for employee HI, including employer contributions to a SI, employer-sponsored group health plan, but excluding any pre-tax or after tax contributions by employees. • Do not add employer health insurance contributions made on behalf of a sSE individual, general partners, or owner-employees of an

S-corporation, because such payments are already included in their compensation. Line 7: Enter amount paid by Borrower for employer contributions to employee retirement plans, excluding any pre-tax or after-tax contributions by employees.• Do not add employer retirement contributions made on behalf of SE individual or general partners, because such payments are

already included in their compensation.Line 8: Enter total amount paid by Borrower for employer state/local taxes assessed on employee compensation (e.g., state unemplmt. insurance tax); do not list taxes withheld from employee earnings.

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PPP Schedule A Continued

Line 9: Enter any amounts paid to owners (owner-employees, a SE individual, or GP).

• For Borrowers using a 24-week Covered Period, amount is capped at $20,833 (the 2.5-month equivalent of $100K per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower.

• For Borrowers using an 8-week Covered Period, amount is capped at $15,385 (the eight-week equivalent of $100K per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.

Line 10: Add lines 1, 4, 6, 7, 8, and 9. Enter this amount on line 1 on the PPP Loan

Forgiveness Calculation Form. See SBA.gov


PPP Loan Schedule A Continued

Enter on PPP Forgiveness

Form Line 7

See Instructions on next

slide

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Instructions for PPP Schedule A• Line 11: Enter Borrower’s total average weekly full-time equivalency (FTE) during the chosen reference

period. The reference period is, at the Borrower’s election, either:

▪ (i) February 15, 2019 to June 30, 2019;

▪ (ii) January 1, 2020 to February 29, 2020; or

▪ (iii) in the case of seasonal employers, either of the preceding periods or any consecutive 12-week period between May 1, 2019 and September 15, 2019.

• For each employee, follow the same method that was used to calculate Average FTE on the PPP Schedule A Worksheet. Sum across all employees during the reference period and enter that total on this line.

• The calculations on lines 11, 12, and 13 are used to determine whether the Borrower’s loan forgiveness amount must be reduced based on reductions in FTE employees, as required by the statute.

▪ Actual loan forgiveness received may be reduced if Borrower’s average weekly FTE employees during Covered Period (Alternative Payroll Covered Period) was < during the Borrower’s chosen reference period.

▪ The Borrower is exempt from such a reduction, and should skip lines 11, 12, if any of the three criteria listed on PPP Schedule A under (FTE) Reduction Calculation has been met.

• Line 12: Add lines 2 and 5.

• Line 13: Divide line 12 by line 11 (or enter 1.0 if any of three criteria on PPP Schedule A under FTE Reduction Calculation has been met).

▪ If more than 1.0, enter 1.0. Enter this amount on line 7 of the Loan Forgiveness Calculation Form.

See SBA.gov


Implications

• A drop in FTE will have a proportionate drop in loan forgiveness.

▪ A 20% drop in FTE will result in a 20% reduction in eligible loan forgiveness.

• Alternatively, a ‘safe harbor’ FTE calculation can be used by employers if it provides a more favorable result.

▪ Method counts employees working 40 hours or more per week as 1 FTE, and employees who work less than 40 hours per week as 0.5 FTEs.

• Cuts of more than 25% to the compensation of workers with (previous) salaries of less than $100K will result in a dollar-for-dollar reduction in the forgivable amount of a PPP loan (to the extent the cuts exceed the 25% threshold).

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PPP Loan Forgiveness Application


Forgiveness Amount Calculation

• Eligible payroll costs. Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the 24-week (168-day) or 8-week (56-day) Covered Period (or Alternative Payroll Covered Period) (“payroll costs”).

▪ For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,K as prorated for the Covered Period.

▪ Include only payroll costs for employees whose principal place of residence is in the United States.

See appendix for detail

See SBA.gov

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• Eligible nonpayroll costs. Eligible for forgiveness consist of:

▪ (a) covered mortgage obligations

▪ (b) covered rent obligations

▪ (c) covered utility payments

• Note: on Dec 27, 2020 an interim final rule was enacted that added other non-payroll costs as eligible for forgiveness.

▪ (d) covered operations expenditures: payments for any business software or cloud computing

▪ e) covered property damage costs

▪ (f) covered supplier costs

▪ g) covered worker protection expenditures

See Appendix for detail

See appendix for line by line instructions for the Forgiveness Form


Process Summary

• Calculate payroll and non-payroll costs

▪ Line 1: Payroll costs

▪ Line 2: Mortgage interest payments

▪ Line 3: Rent or lease payments

▪ Line 4: Utility payments

• Make adjustments for full-time equivalency* (FTE) and salary/hourly wage reductions

▪ Line 5: Total salary/hourly wage reduction of more than 25%

▪ Line 6: Add the amounts on lines 1, 2, 3, and 4, then subtract the amount entered on line 5

▪ Line 7: FTE reduction quotient (Average number of FTEs during the covered period / Average FTEs during the reference period)

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Process Summary

• Calculate potential forgiveness amounts

▪ Line 8: Modified total (line 6 X line 7)

▪ Line 9: PPP loan amount

▪ Line 10: Payroll cost 60% requirement (divide line 1 by 0.60)

• Arrive at the forgiveness amount

▪ Line 11: Forgiveness amount (The smallest of lines 8, 9, and 10

• To calculate FTE

▪ Enter the average number of hours each employee worked per week, divide by 40, and round to the nearest tenth (maximum, 1.0).

▪ Assign a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours


Examples

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Partially Forgivable Loan

• You received a PPP loan worth $300K.

• Your average FTEs during the reference period were 15.

• Your average FTEs during the covered period were 12.

• You are not eligible for the FTE safe harbor.

• You didn’t cut any of your remaining employees’ wages.

• Here’s a breakdown of what you used the PPP loan for:

▪ $160,000 compensation

▪ $10,000 health insurance contributions

▪ $10,000 state and local taxes assessed on wages

▪ $10,000 rent

▪ $5,000 utilities



• First, add together your payroll and non-payroll costs:

▪ $180K (gross compensation + health insurance contributions + state and local taxes assessed) + $0.00 (mortgage interest) + $10K (rent) + $5K (utilities) = $195,000

• Next, subtract your wage reduction amounts.

▪ Because you didn’t reduce wages, your wage reduction amount is $0.00:

• $195K – $0.00 = $195K

• Multiply $195K by your FTE reduction quotient.

▪ Find your FTE reduction quotient.

• Divide your FTEs during the covered period (12) by your FTEs during the reference period (15):

─ 12 (FTEs during covered period) / 15 (FTEs during reference period) = 0.8

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• Now multiply the total of your payroll and non-payroll costs minus wage reduction amounts by the FTE reduction quotient:

▪ $195K X 0.8 = $156,000

• Select the smallest amount between the following 3 options:

▪ [(Payroll + Non-payroll Costs) – Wage Reduction Amounts] X FTE Reduction Quotient = $156,000

▪ PPP Loan Amount = $300,000

▪ Payroll Cost 60% Requirement = $325K ($195,000 / 0.60)

▪ The smallest amount is $156,000.

▪ Out of your $300,000 PPP loan, $156,000 is forgivable.


Fully Forgivable Loan

• You received a $200,000 PPP loan.

• Your average FTEs during the reference period were 15.

• Your average FTEs during the covered period were 15.

• You didn’t cut any of your remaining employees’ wages.

• Here’s what you used the PPP loan for:

▪ $155,000 compensation

▪ $22,000 health insurance contributions

▪ $11,000 state and local taxes assessed on wages

▪ $10,000 rent

▪ $2,000 utilities

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• Add together your payroll and non-payroll costs:

▪ $188K (payroll) + $0.00 (mortgage interest) + $10K (rent) + $2K (utilities) = $200K

• Next, subtract your wage reduction amounts.

▪ Because you didn’t reduce wages, your wage reduction amount is $0.00:

• $200,000 – $0.00 = $200,000

• Multiply $200K by your FTE reduction quotient.

▪ Because you didn’t reduce your FTEs, your quotient is 1.0:

• $200,000 X 1.0 = $200,000



• Finally, select the smallest amount between the following three options:

▪ [(Payroll + Non-payroll Costs) – Wage Reduction Amounts] X FTE

• Reduction Quotient = $200,000

▪ PPP Loan Amount = $200,000

▪ Payroll Cost 60% Requirement = ~$313,333.33 ($188,000 / 0.60)

• The smallest amount is $200K

• The full amount of your PPP loan is forgivable.

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Summary

• The PPP Loan program has undergone many revision and alterations.

• This presentation is considered point in time as of Feb 2021.

• As recently as Jan 2021, revisions were made to the SBA forgiveness application.

• It is strongly advised that you monitor the SBA.gov site and ensure you are aware of any changes proposed or implemented.


PPP Forgiveness Form

Page 2

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PPP Forgiveness Form

Page 2


PPP Loan Forgiveness Application

Page 5

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• Eligible payroll costs. Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the 24-week (168-day) or 8-week (56-day) Covered Period (or Alternative Payroll Covered Period) (“payroll costs”).

▪ Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction.

▪ Payroll costs are considered incurred on the day that the employee’s pay is earned.

• Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.

• Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).

▪ For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100K, as prorated for the Covered Period. Count payroll costs that were both paid and incurred only once.

▪ Include only payroll costs for employees whose principal place of residence is in the United States.

See SBA.gov



• Eligible nonpayroll costs. Eligible for forgiveness consist of:

a) covered mortgage obligations: payments of mortgage interest (not including any prepayment or payment of principal) on any business mortgage obligation on real/personal property incurred before Feb 15, 2020 (“business mortgage interest payments”);

b) covered rent obligations: business rent or lease payments pursuant to lease agreements for real/personal property in force before Feb 15, 2020

c) covered utility payments: business payments for a service for the distribution of electricity, gas, water, telephone, transportation, or internet access for service that began before Feb 15, 2020 (“business utility payments”);

• Note: on Dec 27, 2020 an interim final rule was enacted that added other non-payroll costs as eligible for forgiveness.

See SBA.gov

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d) covered operations expenditures: payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting of tracking of supplies, inventory, records, and expenses;

e) covered property damage costs: costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation;

f) covered supplier costs: expenditures made to a supplier of goods for the supply of goods that are essential to the operations of the Borrower at the time at which the expenditure is made, and made pursuant to a contract, order, or purchase order in effect prior to the beginning of the Covered Period (for perishable goods, the contract, order, or purchase order may have been in effect before or at any time during the Covered Period); and



g) covered worker protection expenditures: operating or capital expenditures that facilitate the adaptation of the business activities of an entity to comply with the requirements established or guidance issued by the Department of Health and Human Services, the CDC, or the OSHA, or any equivalent requirements established or guidance issued by a State or local government, during the period starting March 1, 2020 and ending on the date on which the national emergency declared by the President with respect to the Coronavirus Disease 2019 (COVID-19) expires related to maintenance standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19, but does not include residential real property or intangible property.

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Documents Each Borrower Must Submit with PPP Loan Forgiveness Application

• PPP Loan Forgiveness Calculation Form

• PPP Schedule A

• Payroll: Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period consisting of each of the following:

• Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.

• Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period:

▪ Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and

▪ State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported,

▪ or that will be reported, to the relevant state.



• Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee group health, life, disability, vision or dental insurance and retirement plans that the Borrower included in the forgiveness amount (PPP Schedule A, lines 6, 7)

• FTE: Documentation showing (at the election of the Borrower):

▪ Average FTE employees on payroll per week employed by the Borrower between Feb 15, 2019 and Jun 30, 2019;

▪ Average FTE employees on payroll per week employed by the Borrower between Jan 1, 2020 and Feb 29, 2020; or

▪ In the case of a seasonal employer, the average FTE employees on payroll per week employed by the Borrower between Feb 15, 2019 and Jun 30, 2019; between Jan 1, 2020 and Feb29, 2020; or any consecutive 12-week period between Feb 15, 2019 and Feb 15, 2020.

• The selected time period must be the same time period selected for purposes of completing PPP Schedule A, line 11. Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.

• Documents submitted may cover periods longer than the specific time period.

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• Nonpayroll: For categories a-c, documentation verifying existence of the obligations/services prior to February 15, 2020 and, for all categories, eligible payments from the Covered Period.

▪ Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.

▪ Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.

▪ Business utility payments: Copy of invoices from Feb 2020 and those paid during Covered Period and receipts, cancelled checks, account statements verifying those eligible payments.

▪ Covered operations expenditures: Copy of invoices, orders, or PO’s paid during Covered Period and receipts, cancelled checks, account statements verifying those eligible payments.

▪ Covered property damage costs: Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments, and documentation that the costs were related to property damage and vandalism or looting due to public disturbances that occurred during 2020 and such costs were not covered by insurance or other compensation.



• Covered supplier costs: Copy of contracts, orders, or purchase orders in effect at any time before the Covered Period (except for perishable goods), copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.

• Covered worker protection expenditures: Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments, and documentation that the expenditures were used by the Borrower to comply with applicable COVID-19 guidance during the Covered Period.

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Documents that Each Borrower Must Maintain but is Not Required to Submit

• PPP Schedule A Worksheet or its equivalent and the following:

a. Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.

b. Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.

c. Documentation regarding any employee job offers and refusals, refusals to accept restoration of reductions in hours, firings for cause, voluntary resignations, written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before (i) December 31, 2020 for a PPP loan made before December 27, 2020 or (ii) the last day of the Covered Period for a PPP loan made after December 27, 2020.


Documents that Each Borrower Must Maintain but is Not Required to Submit

• Documentation supporting the certification, if applicable, that the Borrower was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 (or, for a PPP loan made after December 27, 2020, requirements established or guidance issued between March 1, 2020 and the last day of the Covered Period) by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.

• Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor 2.

• All records relating to the Borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan (including the Borrower’s gross receipt reduction certification for a Second Draw PPP Loan, if applicable), documentation necessary to support the Borrower’s loan forgiveness application, and documentation demonstrating the Borrower’s material compliance with PPP requirements.

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Review Questions 4 - 6


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Thank You for Attending Today’s Program


Final Exam

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Date post:	06-Feb-2022
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