CLA Livestream Series: PPP Forgiveness - Part Two

Event Detail
  • May 21, 2020
  • 2 – 2:30 p.m. CT
  • Location
  • Virtual

Event materials

Businessman Desk Pen Document Review Thinking

Our CLA professionals will be providing additional updates regarding the Paycheck Protection Program (PPP) forgiveness loan.


In case you missed it:

Questions and Answers:

Is it acceptable to count employer Health Savings Account contributions toward loan forgiveness?

The guidance as we understand it only allows for group medical, dental and vision, no HSA payments.

Is it legal to give an employee a bonus if we are going to be a little short of the 75% payroll expenses?

That sounds like a good planning item, keep in mind the $15,384 cap per employee, and also focus on overall working capital needs.  Also – divide 75% by total payroll costs to get to the total forgivable loan.

Would it be okay to pay employees for Memorial Day if typically we don't pay holidays?

Vacation and holiday pay do qualify.

Can you still choose your covered period if you do a monthly and biweekly payroll?

You can elect an alternative payroll period.

What if your business definition of full-time falls short of 40 hours in completing the forgiveness application?

If you person is defined as FT then we believe it is FT.

Can you add property tax to the forgiveness if it is part of the lease?

We believe you can include rent as defined in your lease agreement.  However, related party lease rules could change this when we get more FAQ guidance from treasury.

If you receive the $10k from the EIDL grant, does that go against any PPP funding and result in that amount due back to PPP?

This would reduce the amount of your forgiveness.

Can you confirm that employers who reduce employees' hours to 80% can still count them as FTE for the calculation?

The wage reduction test for hourly employees is measured at the pay rate level (i.e., hourly wage) rather than the aggregate pay level.

Dental and vision coverage is optional and paid for by the employees. Can those amounts be included in loan forgiveness?

You have to pay the amounts for it to be forgiven, it has to be a cost to the employer.

Can you please clarify what “transportation” means with regard to forgivable expenses? Does this mean gas, company vehicle repairs, fuel that is normally charged to our transportation account?

Unfortunately, we have no definition yet.

Does the PPP cover hiring fees that you pay to an agency you hire an employee through during the eight week period?

Agency fees would not be covered, employee wages would be.

We pay 100% of our employees short and long term disability. Can I include that in payroll costs?

No, those costs are not includable unless any portion of such amount is considered taxable compensation of the employee.

We are non-profit that receives a portion of our funding from the federal government. I'm assuming that we will have to carve out payroll cost related to that federal funding?

We believe that it is likely that those costs will not be includable.

What is the definition of "owner"? Does a 1% shareholder in an S Corp qualify as an owner?

You are an owner if you receive a K-1 or own equity in a corporation or partnership.

Is it ok to pay out vacation pay and will this be included in payroll costs?

You may do that.

Is a cleaning service considered as a utility?

We don't know.

Is hazard pay eligible during the covered period?

Sounds like a good planning strategy.

What about 401(k) paid during the period but for the prior year?

We believe the amounts have to be incurred during the period.  Prior year amounts paid during the 8 weeks aren’t “incurred.”

Are payroll taxes covered in the PPP loan?

The EE side yes, not the ER side.

We will use loan to cover utilities & payroll. What if money was deposited into the business acct, but payroll is paid out of its subsidiary account? Should I transfer the loan proceeds to the payroll acct?

Separate accounting is not required, as long as you can trace the amounts you spend.

What about owners of 1120-S who receive income via K-1?

They are eligible as W-2 employees so that is where they would be taken into account.

Social Security and Medicare are excluded, correct?

The employer portion of payroll taxes is excluded.

We pay union pension/benefits payment monthly and likely AFTER the next weekly pay period. Given these expenses relate to prior weeks (and in the 8), can we include these in the forgiveness calculation?

You would include the ones incurred and then paid thereafter.  See the guidance for some practical applications of these scenarios.

We have non-exempt employees working over-time. Does the premium portion of their pay meet the payroll requirements for forgiveness? Only straight time pay?

All wages count.

Is there any guidance yet on how the SBA will evaluate whether or not a company qualifies for forgiveness?

There is a forgiveness application.  The banks will make an initial determination based on your application and supporting documentation and submit to the SBA.  The SBA makes the ultimate determination.

Our payroll is semimonthly, so 4 payrolls cover more than 8 weeks. Do we need to prorate to 8 weeks?

You would prorate your final payroll, and elect the alternative start date.

Can a 401(k) profit sharing contribution from 2019 be forgiven if paid in 8 week period?

The amount would not be incurred during the period and may not meet the “incurred and paid” standard.

Is an S corporate shareholder who is an employee considered an owner for purposes of Line 9 of schedule A?

An S Corp owner is a W-2 employee, which line would be for a partnership or Schedule C business.

Can an alternate pay period be used if we are on a semi-monthly pay cycle?


We are paid semi-monthly 1st-15th and 16-EOM. We received our PPP on 5/5. What payroll would we begin?

Whatever period starts post funding.

Do you think workers’ compensation or outside payroll processing fees can be included in payroll costs?

We do not believe workers’ compensation is includable.

Is a service agreement for accounting software considered a utility?

We do not believe so, but there is no definition. This sounds like a professional service.

We have Xfinity internet that is bundled with our TV cable. Can we figure out a portion of the invoice for the internet service or because it's bundled with TV is it not included for PPP?

I would break it out.

Is freight considered transportation costs?

We don't know.

I will pay our 2019 accrued 401(k) employer safe harbor contribution in June 2020. Is this an eligible PPP payroll expense?

Amounts need to be incurred.

Are ESOP contributions forgiven as part of retirement?

If it is a qualified retirement plan contribution under IRC S 401.

When calculating health insurance, is it the total premiums paid by the employer or the total paid by the employer less the employee contributions?

Only the portion that constitutes the employer expense is eligible.

Is the period being extended to the 16 weeks?

We would all like to know.  As of the date of this Livestream there is no legislation that allows for this.

Are dental insurances and other employee insurances included as a payroll expense (i.e. short-term disability)?

Dental yes, short-term disability, no.

If our retirement plan allows for one-time contributions on top of our regular contributions, can we use PPP funds to make one-time lump sum contributions?

Yes, as long as it’s incurred and paid.

I paid my Q1 SUTA tax after I received my loan proceeds. Is this a valid PPP expense?

It needs to be incurred during the 56 days, I believe this amount was incurred before.

Are we allowed to keep the funds in an interest-bearing account?


Is the 2/15/2020 date for having a lease or agreement in place required?

Yes, it is required.

Can we include past due rent (i.e. incurred before the 8 week period), but paid during the 8 week period?

It needs to be incurred and paid during that period.

For Schedule A worksheet - salary reduction - step 2 calculation of average annual salary, do you have to include bonuses or base pay only?

All are included.

Is the forgivingness percentage going to be based on payroll costs or number of FTE employees rehired?

It is a percentage of the FTE's based upon your spend.

Why are life, AD&D and workers’ compensation paid by company being excluded? Would they not be employee benefits?

They are not benefits to the employee, they are wage protection items.

Can Amazon web services be considered internet (utilities) if you have a service contract in place?

We wish we knew.

Lenders are not going to omit certain loans on the 1502 to allow borrowers to do an analysis; sheer volumes and SBA requirements simply won't permit most lenders to be able to entertain this…

We don’t believe it's hard for lenders to exclude your loan from reporting on Form 1502 and then include you on a subsequent Form 1502.

Is trash included?

We believe so, but do not have direct guidance.

Can PPP loan proceeds used to pay bonuses be forgiven? If so, under what circumstances?

Absolutely, keep in mind the compensation amount ceiling of $15,384.

We have bi-weekly and monthly pay schedules - how do you calculate payroll costs?

Based on the payroll incurred and paid (thereafter).  Review the guidance for alternative covered periods for payroll and practical solutions for payroll incurred during the eight weeks and paid in the next payroll cycle following the 8 weeks.

If we did not layoff, furlough or reduce wages/salary - are we exempt from calculating FTEs for forgiveness?

Unfortunately you still have to do the calculation.

If you are denied forgiveness by the SBA, can the company then just pay back the loan without issue?

It converts to a loan unless there's an issue with the certifications made in the application.

If Congress extends the 8 weeks to 16 weeks, do you think all these rules will remain the same, except for the time frame?

We wish we knew.

So if we paid annual bonuses in Q1 2020 and don't pay then in Q2 2020, it will appear we reduced wages which would reduce forgiveness. Is that your interpretation?

No, they are annual.

What we talked about:

Boyd: Hello CLA family, friends, colleagues, and community partners. Welcome back to our livestream and Part 2 of our forgiveness application discussion. For as many answers as we have gotten, the more questions have also cropped up. The SBA is building an airplane while flying. Today, we’ll do a deep dive into forgivable costs along with retention and wage reduction mechanics.

Our guests today are Jack Rybicki and Rick Krueger.Welcome back to the show, guys.

The chat on Tuesday was so engaged with questions from the audience, and we’re going to speak to several of the key topics in our session today. Rick, I’d like to start with you and ask you to dive in deep with information on the payroll portion of the forgiveness application, including what we know and what we’re still hoping to learn.

Krueger: I’d say most of the questions we’re getting ultimately deal with timing issues. Some common questions are:

  • Can I count wages we deferred in quarter one and then paid in the covered period?
  • Can I count a 2019 profit sharing contribution made in the covered period?
  • What about expenses incurred now that will be paid later like retirement or quarterly tax payments?

The short answer is we need more guidance and need it quickly. Though we are hearing that many FAQs will be posted today or tomorrow.

Here’s the slightly longer answer. First, here’s what we do feel comfortable with based on current guidance:

  • Payroll costs incurred and paid during the covered period or the alternative payroll covered period(APCP) are includable in the calculation
    • By incurred, I mean they relate to the day that the employee’s pay is earned
  • Payroll costs incurred during the covered period (or APCP) and paid on or before the next regular payroll date are also includable

So that’s what we know. Now here’s where uncertainty is introduced:

  • Payroll costs incurred during the covered period, but not paid until after the next regular payroll date do not seem to be allowed. Now people respond to me that the application line 1 states to “enter total eligible payroll costs incurred or paid” and it uses an “or.” I personally hope they’re right and it’s their application to complete, but I do have concerns about that position especially when payroll costs in the CARES Act is defined, and this is paraphrasing, as payments of compensation.
  • Payroll costs paid during the covered period (or APCP), but that were incurred before or after, also seems to be a risk for borrowers. Again many borrowers are latching on to the language in the application, but I’d caution them that the application isn’t an authoritative document and the CARES Act does discuss “costs incurred” when it discusses forgiveness of payroll costs.

We feel pretty good about the big item, that you can generally get 8 weeks’ worth of payroll. However, there still are some fairly large questions that borrowers are left with because of these inconsistencies.

Boyd: Would the same be true for self-employed individuals or should they approach this differently?

Krueger: It is similar, but there are two additional questions we have for self-employed individuals.

  • First is payments to a self-employed individual, which also is applicable to active partners in a partnership. Line 9 of Schedule A has you enter amounts paid to owners including a self-employed individual. We’re not exactly sure what that means.
    • For a self-employed individual, does that create a requirement they cut a check to themselves?
    • Or is there something else that will factor into their forgiveness?
  • Second is an issue that arose with the April 14 interim final rule (IFR) and it continues with the certification on the application. There’s a sentence in that IFR in question F that states that SBA “has determined that it is appropriate to limit loan forgiveness to a proportionate 8 week share of 2019 net profit.” The application’s first certification is similar in stating that the amount of forgiveness requested for a self-employed individual is capped at the lesser of 8 weeks of 2019 net profit or $15,385. This seems totally illogical for Schedule C and Schedule F businesses with employees, but pending further guidance, this is a big concern.

Boyd: Thanks, Rick. I’m sure there’s going to be a lot more to come on that and I know the chat is filled with additional questions. The other hot topic of the moment that needs some attention are these utility costs. Jack, can you help us understand what we know and what we’re still waiting to learn there?

Rybicki: Who ever thought utilities could be such a hot topic. I feel like a broken record here, but we have very limited guidance on the two most asked utility questions around cell phones and transportation.

  • For cell phones I’ll at least venture a practical answer. We know “telephone” is included as a utility and that utilities need to be subject to a service agreement. Based on this, it would make sense that if the borrower has a contract with a cell service provider and has company provided cell phones that these amounts should be includable.
    • Conversely, if a company only reimburses employees for use of personal cell phones, because those amounts would not be under a service agreement we believe those amounts would likely NOT be included.
    • Cell phone allowances are even a third scenario, but allowances are generally included in cash compensation and should be handled under payroll.
  • I wish I had a practical answer for transportation. And let’s be honest what we are talking about, it is fuel charges. And for the bulk of our small businesses this is not a significant expense. But for companies that have large fleets or equipment fuel can be a significant expense.
    • We received a very thoughtful analysis from Linda, one of our viewers, on this topic. We can’t thank her enough for sharing and would encourage others to do the same. Linda, like CLA, thinks much of this confusion arises because IFR #3 related to self-employed individuals makes reference to “gas you use driving your business vehicle” as an example of business utility payments. While this guidance was in the context of explaining Schedule C self-employed items that could be included, it has been extrapolated. In the end the answer is we don’t know. We think that would be an aggressive position, and regardless, would be subject to the 25% of non-payroll cost limitation.

Boyd: We also have a lot of questions related to mortgage and rent expenses. Could one of you please cover that?

Krueger: While mortgage interest doesn’t have all the questions that some of the other non-payroll costs have, we have the same questions I mentioned earlier regarding payroll related to rent and utilities.

  • Can we include prepayments? If so, how much?
    • 1 month, 2 months, 6 months
  • What if I have rent or utilities from before I got PPP loan that I hadn’t paid yet?
    • If I pay those during the covered period are they forgivable?

The answer on these is the same as well our payroll answer at this point. We need more guidance and we think there is risk associated with including costs incurred outside the covered period in the forgivable expense pool.

Again, we know that non-payroll costs, excluding interest on other debt obligations, incurred and paid during the covered period are includable. We also know that non-payroll costs incurred during the period and paid before the next typical billing cycle are also includable.

I would be remiss if I didn’t reinforce what Jack said earlier, that all these costs are limited to 25% of the forgivable amount.

A couple other comments as well:

  • We still don’t have an answer on related party rent
  • Interest on other debt obligations are not part of the forgivable costs

Boyd: We also want to speak to any special considerations related to nonprofits, as there were questions coming to the chat for those as well. Can one of you comment on this?

Rybicki: The main thing we are tracking for nonprofits relates to organizations that participate in federal and state grant programs. If the funding for those programs has continued and you are already being reimbursed for certain payroll and non-payroll costs, we believe that it is likely that those costs will not be includable in the forgivable cost pool because they are already being funded by another governmental program. However, this may represent a planning opportunity for our nonprofits if the time to use the grant funds can be extended.

Boyd: Anything else to cover?

Rybicki: I do want to step away from the forgiveness topic to address an urgent matter. The SBA issued an IFR last week that paved the way for partnership and seasonal employers to request additional PPP loans if they sized their loan at a lower level than they were eligible for based on guidance that came out after they applied and were funded.

  • This occurred primarily because some partnerships did not include active owner compensation, (think non W-2 wages) in their average monthly payroll used to size the loans. Guidance that came out in mid-April clarified that active owner wages should have been included in the partnership’s loan amount.
  • Conversely, seasonal employers were limited to the period they could use to determine average monthly payroll. Subsequent guidance that came out late in April provided more flexibility in the period that could be used to size the loan.
  • If your organization was impacted by either of these topics, you can apply for additional loan.
    • However, there is some urgency around this process, as you can only request a larger loan until your lender reports your loan amount to the SBA.
    • After your loan gets reported to the SBA you will not be able to request an additional loan.
    • We believe at this point that the banks have not been able to report the loans they have funded on Form 1502 to the SBA because the SBA has not opened the reporting portal.
    • However, in the IFR issued last night the SBA moved the reporting deadline back from May 22 to May 29, which seems to imply that they will be turning on that bank reporting portal soon

Boyd: I would like to address some questions from the chat, Rick, can we talk about the utility definition and internet access?

Krueger: Internet access is included within the definition of covered utility payments, as long as you have a service agreement that indicates service began before February 15, 2020. The other types of things included are electricity, gas, water, transportation, telephone and internet access.

Boyd: There are questions in the chat today asking if they can start to reimburse cell phones or is there some type of allowable plans with gas that consist of payroll to help their forgiveness calculations, what are your thoughts on this?

Krueger: The closest type of guidance we would have that specifically addresses this would be related to allowances. If you give general allowance to an employee, which normally would be taxable income to that person, that is includable in the cash compensation definition. If you are talking about reimbursing someone there isn’t anything that specific, but it would seem not to be includable.

Boyd: Who is deciding what is forgivable, is it the bank or the SBA?

Rybicki: The first responsibility is yours, the borrower. The bank has a role in this, but the bank is not the final decision. They are a conduit for your information and getting it to the SBA and they are responsible for doing certain things. Ultimately it is the SBA that has the decision making authority on whether or not you get forgiveness.

Boyd: One last question I would like to address, we have bi-weekly and semi-monthly payrolls starting our covered period at the beginning of the next bi-weekly pay period, but that puts us in the middle of the semi-monthly period, so how are they going to handle the semi-monthly period?

Krueger: Most people would start their covered period on the date of loan origination. Borrowers with a bi-weekly or weekly cycle can shift that back to align up with their normal pay cycles. What we don’t have guidance on is what happens if we have different payment frequencies for different classes of employees. The safer answer would be to assume that you do not qualify for the alternative because you have that cut-off issue, with the bi-weekly shift in which it’s trying to align so it matches up with your payroll reports. I would think it would start at the loan origination, but I can’t say that definitively.

Rybicki: A practical way to deal with that is to shift your bi-weekly and weekly to correspond with the 8-week period knowing that you will have to prorate the semi-monthly or monthly. That way you are only prorating one payroll cycle, opposed to prorating two payroll cycles. Again, we don’t have clear guidance on whether or not that is allowable.

Boyd: That’s all we have time for today, we are hoping we get that guidance soon that clarifies more of these FAQ questions, so hopefully we’ll be able to address those next week, as well as digging into FTE reduction, considerations and wage reductions. Thank you to our guests today, to you for your questions, and to our moderators in the chat for all the support and great information and answers.

We’d like to remind you to continue to visit our COVID-19 landing page at for more information on PPP forgiveness as well as other hot topics. You should also take a minute to subscribe to our emails so that we can continue to share up-to-date information with you around the forgiveness tool, including a demo of the tool itself and how we can continue to support you during this time. We’ll look forward to seeing you next Tuesday. Thanks for watching, and be well.


For more information:
Heather Kloster
Marketing Project Management Director

Experience the CLA Promise