June 1, 2020

GBQ’s COVID-19 response team provides answers to questions submitted during the webinar COVID-19: SBA PPP Loans – Review of SBA Forgiveness Application and Additional Guidance presented on May 19, 2020.

Covered Period

1.  If the receipt of the PPP funds was broken up into two payments, will this impact the covered period or do you just go by the receipt of the first payment?

    • The loan disbursement date is based on the first disbursement made when determining the Covered Period.

2. What if you have some employees on bi-weekly payroll and some on weekly payroll?

    • For each payroll period, you can pick either the original Covered Period or Alternative Payroll Covered Period. The FTE calculation is based on a weekly average so the bi-weekly payroll would need to be broken down into a weekly average for the FTE calculation. It would seem to be implied that you need to be consistent on the Covered Period chosen.

3. As a bar or restaurant, can we hold the PPP loan to our first pay cycle after we open vs. what would have been the first payroll if we were open?

    • As it stands today, the longest you can wait to start your eight weeks is the first day of your payroll period that starts after the date you receive your loan disbursement. Certainly, there is lobbying going on in Congress to extend the eight-week period.

4. Can you clarify? The Alternative Covered Period is only for employers who pay weekly or bi-weekly, but not bi-monthly?

    • Based on the guidance, it appears it is only for weekly and bi-weekly payroll periods.

5.   Has there been any further progress on discussions of extending the forgiveness period from 8 to 12 weeks?

    • A bipartisan bill is being discussed that would extend the eight weeks from anywhere from 16 to 24 weeks.

6.  For companies who have a weekly and semi-monthly payroll register, production team and office separate, which pay period would the Alternative Payroll Covered Period be based on?

    • We believe you should use one option for both payroll period types.  Since semi-monthly is not eligible for the Alternative Payroll Covered Period, it would appear you would have to use the original Covered Period.

 

EIDL

7.  We applied for first day available for the EIDL loan. Received no update from the SBA on whether or not granted so we applied for the PPP loan at the end of April. EIDL $1,000 received by sole proprietor 18 days after PPP was received. Should we deduct from forgivable PPP?

    • This $1,000 will be deducted from the amount forgiven assuming it represents the Emergency Grant payment.

 

Forgiveness

8. To clarify, only 75% of our payroll spend is eligible for forgiveness? Also, did you say that the 75% is based on the total amount of the loan or the total spent i.e. you don’t spend at all?

    • Non-payroll costs are eligible for forgiveness and cannot exceed more than 25% of amount being forgiven. Therefore, the eligible pool of dollars for forgiveness is based on the amount spent on payroll during the eight weeks divided by 75%.  One hundred percent of what you spend on payroll, subject to the other limitations, is eligible for forgiveness.

9. What if you can’t afford to keep employees after June 30 because the PPP loan is no longer there? What if we must let go the first week of July as a result?

    • There is currently no guidance or penalties regarding what happens after June 30, 2020. We expect there may be some guidance provided around this.

10. Do you need separate forgiveness calculations?

    • We are interpreting this question to mean, do you need separate forgiveness calculations for separate loans?  The answer is yes.  If this is not the intent of the question, please reach out to us.

11.   Is there a reason you would not try to file as early as possible for forgiveness?

    • Pros for filing early:
      • Loan will be removed from your balance sheet prior to year-end, which could impact your debt covenants.
      • Interest will stop to accrue on your loan that will be paid by you.
    • Cons for filing early:
      • You may be able to defer the employer portion of payroll taxes longer until forgiveness has been approved.
      • There may be more rule clarifications made that could impact your forgiveness amount, which may require you to amend your original application.

12. Can you clarify the 75% payroll forgiveness amount please? Are only 75% of the payroll costs incurred in the covered period allowed?

    • Non-payroll costs are eligible for forgiveness and cannot exceed more than 25% of amount being forgiven. Based on our understanding of the forgiveness formula, the eligible pool of dollars for forgiveness is based on the amount spent on payroll during the eight weeks divided by 75%. Subject to other limitations, all of the payroll costs are eligible for forgiveness. We believe back rent can be paid during the eight weeks and be eligible for forgiveness; however, the non-payroll is still subject to the 75/25.

 

FTE Calculation

13.  I know that the intent was to prevent forced reduction in staff, but how will voluntary retirements factor into forgiveness? If there were voluntary resignations, do we count those on what line?

    • See instructions on FTE Reduction Exceptions on Page eight of the application form. If this position was not filled, it is possible to receive an exemption and include an additional FTE based on the average number of hours worked and Covered Period chosen to use.

14.  Can you pick and choose? Some assign the value and some you count the hours?

    • For the Average FTE calculation, you can choose either option, but must apply to all periods of comparison and consistently to every employee. You cannot count different employees using different methods.

15.  If an employee declines the rehire, does it also count for the payroll amount or just the employee count?

    • It only counts for the Average FTE calculation. Because no money was expended on payroll, there is nothing to be forgiven.

16. What about employees that took a voluntary layoff or furlough? We tried to keep them working, but they didn’t want to work because of fear of COVID-19.

    • See instructions on FTE Reduction Exceptions on Page 8 of the application form. If this position was not filled, it is possible to receive an exemption and include an additional FTE based on the average number of hours worked and Covered Period chosen to use.

17. Can you clarify two items on the base period FTE #? First, is the “base” FTE # the number presented on your PPP loan application? Second, is there a means to recalculate the base FTE # so it is consistent with how the FTE # is calculated for the covered period?

    • The number on your PPP loan application was based on the SBA’s size standard definition, which is a headcount that allows each employee to be counted as one. This is not used in the forgiveness calculation. The loan application allows you to choose between two options on calculating the FTE # on page 7. Whichever one you choose will be applied to all comparison periods.

18.   Are these specific people or positions potentially held by two different people if someone resigned?

    • If someone resigned voluntarily, and you replaced this person, you can only count the replacement person from that point forward in your Average FTE calculation. No double-dipping is allowed.

19.  My full-time hourly staff works 37.5 hours per week. I’m planning on counting them as a 1.0 FTE.

    • The loan application defines a FTE on Page seven as an employee working 40 hours or more. In your situation, each employee would count as 0.9 if you choose this option; otherwise, under the simpler approach, your employee would count as 0.5.  Please note the comparable time periods will be calculating it the same way so the impact should be neutral.

20. What if your standard hours for all full time employees are 35 not 40. All would be considered PT?

    • The loan application defines an FTE on Page seven as an employee working 40 hours or more. In your situation, each employee would count as 0.9 if you choose this option; otherwise, under the simpler approach, your employee would count as 0.5.  Please note the comparable time periods will be calculating it the same way so the impact should be neutral.

21.  For the FTEE calculation, is it the average number of hours worked during the eight-week PPP spending period or is it using one of the lookback periods part of the original legislation?

    • The Average FTE calculation is based on the 8-week period chosen for payroll, but you compare that to the base period (which is either, at your option, 2/15/2019-6/30/2019 or 1/1/2020 to 2/29/2020) to determine if you have a reduction in forgiveness. Further, you also use the average FTE calculation during the eight-week period to determine if you qualify for the FTE reduction safe harbor calculation. To determine whether a penalty applies due to an FTE reduction, the calculation on Page nine will walk you through this to determine whether the Safe Harbor was met or a penalty applies.  This will compare to your average FTEEs for the payroll period including 2/15/2020.

22.  I have an employee who has been back to work for three weeks and is now resigning. Besides her letter of resignation, what other documentation do I need to have her payroll, that was expected to be paid from our PPP loan, be forgiven?

    • There is no specific guidance provided on this.  A signed letter of resignation appears to be reasonable documentation but I would defer to your HR department or labor attorney.

23.  What impact to the average FTEE and wage reduction calculation do employees who are on EFMLEA either in full or part?

    • The definition of an employee for purposes of the FTEE calculation states that it is anyone that worked hours.  However, the EFMLEA wages are not eligible as payroll.  Unfortunately, there is not a specific guidance that would allow for us to answer this question. In filling out the form, we believe you would have to put down only the portion of wages eligible and a number as to the amount of an FTEE they represent.

24.  What happens during the week of June 30th when your company is shut down and you furlough employees? What technicalities will this get into if your plant is off for a week?

    • It appears the Safe Harbor is based on a specific date, being June 30th (it is possible they will measure this by looking at the entire pay period including June 30th). Perhaps having evidence of the FTE calculation for the week before and afterwards would suffice for the bank. The bank would have to make this call.

25.  For the FTE calculation, is it based on hours scheduled or hours worked? All of our employees were called back to work on 5/4/20 and each employee is scheduled per week for a minimum of 40 hours up to 52.5 hours. Several employees have been calling off work and in some cases they are actually working less than 30 hours per week even though they were scheduled for 40. Can we still count them as FTE, based on scheduled work, or only half FTE (since they worked less)?

    • We believe the FTE calculation is based on hours paid.  Consider the FTE Reduction Exception if this is a consistent issue to reset the hours of employment to avoid forgiveness penalties.

26.  Under the Safe Harbor for FTE’s, is it asking for a count of the FTEs only during the 2/15 pay period, rather than looking at a cumulative weekly average as of 2/15. With the FTE level being restored by 6/30, is this restoring the 2/15 FTE count in any one pay period on or before 6/30? It doesn’t seem like it could be cumulative weekly average as of 6/30, but I want to be sure I’m not misunderstanding. “If the Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.”

    • It is asking for total FTEs (not an average) based on the payroll period including February 15, 2020. We believe the Safe Harbor will be based on your total FTEs as of June 30th, which may be measured by using the payroll period including June 30, 2020. Further clarification from the SBA is needed.

27.  FTE Reduction Exceptions: Indicate the FTE of (1) any positions for which the Borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and (2) any employees who during the Covered Period or the Alternative Payroll 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. We’ve been advised by a local SBA rep that if we have 1 & b that the reduction will not reduce forgiveness. This individual did not mention anything about not replacing the position, and when I brought it up to her she referred back to the text under 1 & b. What does it mean that the position is not filled by a new employee? Ex: If individual A declines to come back and so I move on to recall another lay off team member to fill the hours and the alternate person accepts, then could I still use the decline (a voluntary resignation by our policy) to help me? The way I am reading it, if we have another recall person take the hours the resignation is of no use to me. Is that correct?

    • We believe you need to start with your FTEs for the pay period inclusive of February 15, 2020. If that pay period has two full time employees and 20 part-time employees (ten FTEs) for a total of 12 FTEs then that is your baseline for the Safe Harbor. If you recall a part-time employee and they decline, you are eligible for a 0.5 FTE to be added to the June 30th count. However, if you are able to fill that position, the exception would be lost as you now have a new employee to count as that 0.5 FTE. Another way to think about it, same scenario with 12 FTEs, if you have ten FTEs at June 30th, 2020 and you have four part-time employees that you tried to recall and they declined or voluntary resigned during the eight-week period, those four part-time employees would count as 2.0 FTE, which would be added to the 10 FTEs to get back to 100% at June 30th. Let us know if you’d like to discuss further.

 

General

28.  Any guidance for those with existing government grants?

    • We would need more specific information to answer.

29.   I received the PPP loan, but due to some misguided advice and the confusion of the SBA loan payback requirements, I ended up returning the PPP loan. However, with the current SBA clarifications, I would like to know if I could reapply for the loan.

    • We would recommend reaching out to your bank on this question.

 

Non-Payroll Costs

30.  Can machinery leases in a manufacturing facility be includable in rent?

    • Rent includes leases on personal property, which would include equipment.

31.   Interest on lease?

    • Typically, lease payments are based on a fixed amount so the entire lease payment is eligible for forgiveness.

32.  If you do not spend 75% of your loan on payroll expenses, are you still able to maximize 25% on non-payroll costs? Example, loan provides 1.0M – you only spend 600K in payroll costs, are you able to spend 250K or 25% on non-payroll or is it limited to 198K spend on non-payroll?

    • Based on our understanding of the forgiveness formula, the eligible pool of dollars for forgiveness is based on the amount spent on payroll during the eight weeks divided by 75%.  In your example, payroll spent of $600K results in possible forgiveness of $800K, assuming this lower than the loan principal balance and before any penalties are applied. In this example, non-payroll costs of $200K would be eligible for forgiveness. The amount spent on payroll drives the forgiveness.

33.  Did you state for rent expenses, it is limited to rent and RE taxes only? Or can we include all occupancy – i.e. CAM, percentage rent, landlord paid insurance or trash?

    • We believe the guidance only includes rent and does not include CAM or property taxes. We are hoping for clarification, as many NNN leases include all of these components.

34.  Can we include trash as part of utilities?

    • The utilities definition is still unclear on “trash” specifically, but we think it will fall under utilities. Further clarification from the SBA is needed.

35.  For rent payments, will PPP cover April rent that wasn’t paid? We used it to pay May and will use for June (received 4/20/20).

    • We believe back rent can be paid during the eight weeks and be eligible for forgiveness.

36.  Any word on waste removal under utilities?

    • The utilities definition is still unclear on “waste removal” specifically, but we think it will fall under utilities. Further clarification from the SBA is needed.

37.  Can you prepay expenses such as rent?

    • We do not believe rent can be prepaid although the application does not specifically prohibit it. Remember that this will be limited based on the 75/25.

38.  If lease is triple net and the lessee pays real estate taxes, can those be included in allowed rent payments for forgiveness calculation?

    • We believe the guidance only includes rent and does not include CAM or property taxes. We are hoping for clarification as many NNN leases includes all of these components.

39.  Since interest is for real and personal property, can equipment loan debt be included in forgiveness? Also, since there is a UCC filing on inventory online of credit and inventory is personal property can that interest be included in interest for forgiveness?

    • We believe so long as the loan is a mortgage collateralized by the underlying equipment, the related interest would be eligible for forgiveness.

40.  Has there been any clarification to the definition of transportation costs?

    • No there has not.  Best guesses are that it is intended to be fuel.

41.  I’m looking for more detail on how the SBA defines “utilities.” Specifically, does that include software license costs?

    • There has been no additional guidance provided on utility costs. We do not believe licensing costs are included.

 

Payroll

42.  Can you choose Alternative Payroll Covered Period if you pay the 15th and the end of the month?

    • We believe only those that pay weekly or bi-weekly are eligible for the Alternative Payroll Covered Period based on the application form.

43.  Our team is highly compensated over 100k, some have been cut to 30 hours a week, but are still making over 100k. Does this protect us from the cut?

    • Yes. The hourly/salary wage reduction does not apply to any employee who made an amount equivalent to an annualized rate of $100,000 during any pay period in 2019. However, you would need to take into account that the 30 hours vs the 40 hours might change the FTE calculation.

44.  PPP Schedule A Worksheet Table 2 asks for employees who received compensation at an annualized rate of $100k or more for “any pay period” in 2019. If an employee had a $50k base salary, but also received a $10k bonus, would they be included on Table 2? If annualized, the pay period in which they received the bonus (i.e., “any pay period”) would make them a $100k employee.

    • Table 2 states to include employees based on the annualized rate of more than $100,000 for any pay period in 2019. If the bonus was paid in one pay period, the bonus would result in them being classified in this category and you would report their actual earnings then for the eight-week period.

45.  Can you restate the alternative payroll period example again? I thought there was a mistake in there with the 8 weeks’ period, just need clarification. I.E. April 20 funds received, April 26 first pay, when is eight weeks starting for eight weeks for payroll?

    • If you choose the Alternative Payroll Covered Period, the eight weeks starts on the first day of the payroll period that follows the loan disbursement date. If funds received are on April 20th and the first day of the next payroll period starts April 26th, then April 26th is the first day of the eight weeks for payroll only.

46.  Can payment of accrued commissions, earned prior to COVID-19, qualify as payroll towards the forgiveness of the loan?

    • Accrued commissions paid during your eight week period are eligible for forgiveness, so long as it does not represent a prepayment and they are paid either in the eight-week pay period or in the next ordinary pay period. Please note you are limited to $15,385 during the eight weeks for forgiveness eligibility. A person can be paid more, but the excess would not be eligible for forgiveness.

47.  Health insurance allowed for a 60-day deferral of payment. Can all payments be made during the period, even if > eight weeks’ worth of premium be included?

    • Health insurance expense paid during your eight week period is eligible for forgiveness, so long as it does not represent a prepayment.

48.  Where does the Health Benefits costs get entered into the calculation? State Employer Payroll Taxes as well?

    • See page 6 of loan application, lines 6 and 8.1.

49.  Can you include severance payments into payroll costs?

    • Yes, severance payments are considered to be part of payroll. However, you should think about how the severance is being paid out and if there are hours assigned with it to take advantage of any associated hours for the FTEE calculation as well.

50.  Do the guidelines allow for including a 9th week of pay cost costs? It seems they might by allowing accrued expenses paid on or before the next pay period after the eight-week period. Also, it seems the guidelines allow for the payment and inclusion of accrued interest that might otherwise not be paid until the end of the quarter.

    • The guidelines allow you to include payroll costs paid and payroll costs incurred during the eight week period.  This does allow for a pay period to be paid at the beginning of an eight week period that related to a prior period before the eight week period.  Payroll incurred and not paid during the eight week period at the end of the eight week period would also be eligible so long as paid on or before the next payroll date.  Accrued interest for the days incurred within the eight weeks does appear to be included so long as paid on or before the next due date.

51.  Can payroll costs include subscription payments we need to make to our payroll provider? How about 401k plan expenses?

    • Payroll costs do not include subscription payments or 401(k) plan expenses.

52.  We are self-insured and pay claims in full when they are received by UHC. Can we include these employee payments?

    • Self-insured claims are eligible payroll costs when paid or incurred by the employer during the eight-week period.

53.  If 401(k) employer match is paid rather than waiting until year end, can the 401(k) employer match be included for year-to-date on only for the 8-week prorate time period?

    • So long as the cost has been incurred or paid during the eight-week period, we believe it can be included. The amount cannot include payments for the future as prepayments are not eligible.

54.  My question is about covered period. We received our funds on 5/4. Our first payroll paid was on 5/8 and it covered the period of 4/19 to 5/2. So payroll paid was incurred outside the date of funds receipt. Does this period count?

    • Both payroll paid or incurred during the eight weeks is eligible for forgiveness, so long as it does not represent a prepayment.

55.  Can dental premiums, ST and LT disability premiums, if paid at 100% by employer, be included in health insurance?

    • We believe only health related insurance costs are included, which primarily includes medical, dental, and vision. We do not believe ST and LT disability premiums would be eligible payroll costs.

56.  Is employer portion of Medicare and social security included in compensation?

    • Employer paid payroll taxes are excluded from eligible payroll costs.

57.  Is it ok to pay a bi-weekly payroll early so that it is included in the 8-week period?

    • Under the new guidance, it allows for days incurred in the eight-week period to be paid after the eight-week period so long as payment is made on or before the next pay date. No short period payroll is needed with this new guidance.

58.  The 100k payroll max, does it apply to all employees or just owners?

    • This applies to all employees as it relates to the amount eligible for forgiveness.

59.  Does a full-time contract worker (1099) count as a FTEE?

    • 1099 contractors are excluded from payroll costs.

60.  Do overtime earnings get included into the average earnings of an employee, or is it base pay only?

    • All cash compensation is included in the average wages; however, for the wage reduction penalty calculation for hourly employees, we believe this is based on normal hourly wage.

61.  I have an individual who works about four hours each week to cut checks, prepare payroll, etc. Can I include her monthly payment for her “contracted” services as part of payroll forgiveness or in the 25% figure?

    • Only payroll paid to employees is included in payroll costs. Payments to 1099 contractors are excluded from payroll costs.

62.  I know you mentioned short-term and long-term disability would likely not be included, but is life insurance included?

    • We do not believe life insurance is included, only health related insurance such as medical, dental and vision.

63.  Do workers comp premiums count as a payroll cost? If so, how is the workers comp rebate treated?

    • It depends on the state. In Ohio, we believe premiums paid are eligible payroll costs. It is unclear how rebates would be treated if received within the eight-week period.

64.  State UI is paid on the 1st x% of wages and usually paid in full during the first quarter of the calendar year. Is there any way to apply those UI premiums paid in the first quarter of the year toward forgiveness on a prorated basis?

    • We would not think first quarter SUI would be eligible as it was incurred and paid prior to the beginning of the eight-week period.

65.  If we had aged premiums for health care, can they be included in forgiveness, if catch up payments are made during the eight weeks?

    • We believe healthcare premiums incurred to date and paid during the eight-week period are eligible payroll costs.

66.  How are employees who are on leave in either the baseline prior period or the actual covered period treated? For example, those on maternity leave or FMLA.

    • Maternity leave would likely fall under the request for reduced hours, and therefore would, qualify for the FTEE reduction exemption. There is no guidance on the FMLA and certain payments of leave are not eligible for payroll (those paid under the Families First Act), but there is not guidance on how the FTE calculation would be impacted.

67.  Looks like we will need to submit Federal Form 941 or 940. Wages are different for Federal, Social Security and Medicare. Which of these should the gross payroll tie back to?

    • The Social Security wages.

68.  Is Social Security/FICA excluded from definition of “payroll costs”, or is that only if a recipient is also taking a credit due to offering FFCRA leave or applying for employee retention credit?

    • Employer paid payroll taxes are excluded from eligible payroll costs.

69.  Our company pays .95% of healthcare costs for full- time employees on our company healthcare plan. We have several employees’ that are over 65 years of age and are on Medicare. For these employee’s, we reimburse .95% of their Medicare and any Medicare Supplement costs. Can the amount the employer pays towards their Medicare and Medicare Supplemental programs be included in the employer contributions for employee health insurance?

    • We believe these employer paid costs are payroll costs and eligible for forgiveness. The Form states, “amounts paid by the borrower for employer contributions for health insurance, including employer contributions to a self-insured, employer-sponsored group health plan…”. It does not specify any certain programs.

70.  The SBA FAQ provides that non-cash benefits are eligible for forgiveness. Healthcare and retirement benefits are specifically listed as forgivable, but what about benefits such as dental, vision and short-term/long-term disability?

    • We believe health related insurance benefits include medical, dental and vision and does not include ST/LT disability.

71.  The SBA’s forgiveness form also makes reference to health, insurance and retirement contributions, but not to other benefits.

    • Forgiveness only includes employee health insurance and retirement plan costs.

72.  How do you report if you have both weekly and semi-monthly payroll?  

    • We believe you should use one option for both payroll period types. Since semi-monthly is not eligible for the Alternative Payroll Covered Period, we would recommend using the original Covered Period and use for all baseline comparative periods.

 

Self-employed

73.   Is sole proprietor income, which was based on SE income for 2019, capped at $15,385? Bank has advised proprietor that they may write them self a check for the full amount if qualified PPP.

    • Owners are limited to the lower of $15,385 or 8/52 of 2019 compensation based on the certification on page 4 of the application form.

74.  Have you had any success applying for partnership PPP applications and getting “credit” for the partner’s share of net self-employment income? If so, where?

    • We have seen an instance where the partnership paid regular draws to the partners in a paycheck method (i.e. a regular amount every two weeks.) The bank accepted that as proof of partner income.

75.  What about SEP payments for corporate owners or partners?

    • We believe SEP payments are not eligible payroll costs.

76.  Owner’s compensation. Our owners received raises to salary in Q4 of 2019, so salary going into 2020 was much higher than for the average for entire 2019. How do we calculate these eight weeks of 2019 compensation to compare to? The raises did not bring owners above 100k.

    • We would recommend taking the total 2019 salary amount, divide by 52, and multiply by eight weeks. This will result in a lower wage than they were accustomed over the eight weeks.

77.  How do we handle owner’s salaries? It appears they need to be separated from everyone else’s wages in the calculations.

    • Owners compensation is dealt with differently and you will need to ensure the rules are followed so the owner can make the proper certification on page 4. There is a separate table on the form for the owner compensation.

78.  How is an owner defined for the wage calculation? Is there a minimum percentage ownership?

    • We believe so, as long as the person is an owner of any percentage of the company the limitations on the wage calculation apply. The application does not specify a percentage.

79.  How does a self-employed (Sch-C) prove payment to himself for payroll?

    • The Loan Forgiveness Form does not specify; however, it indicates that payroll expenses should be supported by bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid. It goes on to list other documentation such as payment receipts, cancelled checks, etc. Therefore, we would recommend writing yourself a check every week, or every two weeks, with a standard draw amount over the eight-week period to document and support owner compensation. Ultimately, the bank will be reviewing the forgiveness calculation and support, therefore you can check with them as well.

80.  If I have people/ members, receiving guaranteed payments and they have a reduction in compensation during the covered period, how do I treat them for the loan forgiveness calculation on Schedule A? 

    • Compensation to owners should be reported on Line 9 of Schedule A. On line 9, enter any amounts paid to owners (owner-employees, a self-employed individual or general partners). This amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.

81.  What is the definition of owner? If an employee has 5% shares of the company, should they be included in Table 2 of the PPP Schedule A Worksheet or Line 9 – “Compensation to Owners”. Is Acquisition Debt included as part of mortgage interest payments?

    • There is no specific guidance that owners are limited to a certain percentage so we believe that even a 5% owner would be included. General acquisition debt does seem to qualify, but we recommend that you check with your CPA to see whether there is an underlying security interest or mortgage in specific assets (i.e. equipment) or whether it is a more “general” debt, in which case, it would likely not qualify as mortgage debt.

 

Wage Reduction Penalty

82.   Can you please confirm? For employees that are tipped, if tips declined more than 25%, do we need to report that as a Penalty?

    • Tipped employees are subject to the wage reduction penalty. Please see our article on this topic here

83.  Wage reduction penalty: are bonuses paid in January considered in calculation?

    • All cash compensation is included in the average wages for the respective baseline period. Determine whether you meet the safe harbor which compares wages as of June 30, 2020 to February 15, 2020.  If you fail the safe harbor, then the penalty applies.

84.  How do we handle the Salary/Hourly Wage Reduction calculation for a new team member (someone not on staff between 1/1/20 and 3/30/20), or a team member who left? Do we exclude both of them from that calculation? I know we would include each of them in the FTE calculations – just not sure how to handle them for the salary/hourly wage reduction calculation.

    • Because there is no comparison, this employee would be exempt from the wage reduction calculation.

85.  The Safe Harbor Wage Reduction says, “Enter the average annual salary or hourly wage as of June 30, 2020”. For an hourly worker, does this take into consideration the average of all wage rates received so far this year, or is it simply asking for the hourly wage at 6/30?

    • This is unclear; however, we believe the “as of June 30, 2020” wage will be using the payroll period to include June 30, 2020 as the basis for the Safe Harbor.

86.   We recently received an interim final rule on PPP loan increases. This guidance specifically states that if a partnership received a PPP loan that did not include any compensation for its partners, the loan amount can be increased to include partner compensation. On the first day, applications were accepted (April 3), we submitted an application for a sole proprietor with payroll, and excluded any amount for owner compensation from the payroll calculations. Can this sole proprietor PPP loan now be increased?

    • Yes, it can, but it is also dependent on whether the bank has filed the SBA Form 1502 already. We recommend reaching out to your lender.

87.  Instructions Line 9 Schedule A – do attribution rules apply?

    • Line 9, Schedule A are the owners that were paid. We believe this would only be owners of the entity in question.  There is no indication you have to apply the rules of attribution.

 

 

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