CLA professionals will be touching on a variety of topics including personal wellness, economic relief considerations, global companies, and sharing updates on the Economic Injury Disaster Loan.
- Jennifer Rohen, CLA Principal, WOTC Practice Leader
- Leslie Boyd, CLA Principal, Manufacturing
- Nancy Brown, Chief Outsourcing Officer
- Sam Metcalf, Managing Principal of Industry
In case you missed it:
Questions and Answers:
How do you turn down an EIDL loan after you have received the $10K grant?
You do not respond to the loan application and have two months to return the signed document.
PPP loan is in a separate bank account and transferred to general account on payroll pay date. Should the transfer be for gross or net payroll? Separate transfer for employee PR tax when paid?
I believe you should be able to do either way without any negative impact.
If we don't agree with our lender on forgiveness can we pull it back and re apply after more spending?
There will be an avenue to appeal your lender's decision on forgiveness with SBA. Unsure at that point about an ability to include additional spending.
Can I now apply for a 2nd PPP loan for the next 24 weeks of payroll since my first one has ended?
You currently can't apply for a second PPP loan.
If we use our funds at 10 weeks, would we file for forgiveness or do we have to wait the 24 weeks?
We believe if you elect the 8 week period you can apply after the 8 weeks.
I was told to be sure of the uses of the EIDL loan. In an automotive sales dealership, is the purchase of inventory considered "working capital?"
Yes, inventory is a current asset which is considered in working capital.
Are we still restricted to $15,385 per employee on forgiveness, or will that amount increase to $46,155?
We believe you are correct, the amount would be increased from 8 to 24 if you elect the 24 week period.
Should clients that received up to $10k from EIDL consider this as taxable income?
We are looking to get clarification on that topic and will hopefully have information for you soon.
Is the 5 year repayment term only for loans after the current bill is signed by Trump or does it also apply to loans approved and funded before this amended bill is signed?
Five year is for new loans and the lender isn't required to amend term for loans already disbursed.Thus consider delaying signing new PPP Note until 5 year term becomes effective if you want 5 year term.
Will PPP forgiveness have to be recognized in the same accounting period that the expense occurred in?
It would be recognized when it is forgiven.
I am assuming the average FTE calculation will be based on whatever "covered period" (up to 24 weeks) are used, correct?
We also interpret it that way.
There was discussion that effectively we would be taxed on the PPP forgiveness since although the money in the PPP is not taxable, but we would have to pay taxes on the expenses were covered by PPP.
The PPP forgiven expenses are currently just non-deductible.
If you are applying for the PPP loan for the first time, will you still be restricted by the 2.5 months your average payroll or will that be increased?
We believe if you elect the 24 week period, you need to wait the entire period as that is your testing period for various items.
If I received notice that I was approved for the EIDL, how much time do I have between notice of approval and signing the loan, before I would lose approval and have to start over on an application?
We are approximately 4 weeks into using our PPP loan and our orders are slowing down. Are we able to extend our PPPL time if we have to lay them off again?
You may want to await additional guidance from the SBA on the 24 week extension.
If you elect the 24 week period but use the funds within 12 weeks, do you need to calculate your average FTE over the 12 or 24 weeks?
We believe if signed, then 24 weeks.
If you are applying for the loan itself (not true forgiveness) is the amount requested increased?
We do not believe so at this time.
Do we tell our bank if we wish to take advantage of the 24 weeks vs. the 8 weeks, or is this their choice?
It is your choice on the forgiveness application.
Are state taxes allowable payroll expenses for PPP?
Yes, state taxes are allowable.
Will sole proprietors be able to get more than the $15k forgiven?
We need additional guidance on the new rules (if signed).
Is the 24 week period for any PPP loan or any loans approved after a certain date?
The current rules would allow the company with the loan to choose between 8 or 24 weeks.
We had a payroll on day one of our covered period. Is it forgivable although none of it was incurred during that covered period?
Payroll costs are considered incurred on the day that the employee’s pay is earned. So if you have payroll that was earned on Day 1 of loan receipt, you should be okay with using the loan.
Is PPP accrued interest forgivable?
Yes it is.
How do you include accrued interest on the forgiveness application?
The borrower pays interest on loan balance remaining after forgiveness and you don’t need to include interest on the PPP in application.
Do we need to take any specific action if our PPP loan was issued under the 8 week rule and we would like to use the new 24 week rule?
No, you just need to indicate it on your application.
Have you seen anything on related party rent?
Still nothing on related party rents.
If we received the loan on May 1, our eight week period ends June 30. Are we able to extend for anything beyond the 8 weeks for up to 24 weeks?
You get either 8 or 24 weeks.
Since we will be way over on the payroll side (i.e. have 24 weeks for 2.5 months) do we need to bother to track other expenses?
For spend probably not, but keep in mind your employee count for the 24 weeks.
Will the banks include accrued interest (on forgivable amount) in their forgiveness calculation? The original application did not mention accrued interest.
Bank submission expected to SBA will be on same basis as yours.
Would I talk to the bank to change to 24 weeks and are there other things affected if we change to 24 weeks?
You should not need to talk to your bank to make that change, but may inform them of your intent.
On day one of our covered period, the payroll for the previous two weeks hit our checking account. None of that payroll was incurred during the covered period, but it WAS paid. Forgivable?
You should be okay to include because it was earned through the date you’re paying it.
So if we elect the 24 weeks, but will fully utilize PPP funds all on payroll below the $100,000 individual cap after week 14, are we done at that point?
You could be done with your spend, but keep in mind your FTE's for the entire 24 weeks.
If I can't spend it in eight weeks, but I can in ten weeks, do I have to wait 24 months to file for forgiveness?
24 weeks, yes.
Just want to confirm. Jack said employer's portion of payroll taxes (Social security and Medicare) are not forgivable, but state tax is. Do I understand correctly?
Correct, state employer taxes are forgivable.
Can we prepay an additional 2 months of rent to hit the eight week?
Does the new 24 weeks apply to all PPP loans regardless of when applied for?
You have a choice - 8 or 24 weeks.
After the 8 week period, if we have rehired all FTE, can we lay off staff?
When you prepare your forgiveness application, you need to include your headcount at the time of the application. You may not want to make changes to headcount until the loan is forgiven.
Will loans being funded after this is enacted still have the option for the 8 or 24 week period or will all new loans being funded automatically be 24 weeks?
Expect new loans after enactment to use 24 week covered period.
Does the 60%/40% apply only to the 24 week period or can it be applied to the 8 week period?
We will need to await further guidance on the 60/40 split.
If we elect the 24 weeks, can we apply for additional funds?
If there is now 24 weeks, do we need to maintain the same head count for the whole 24 weeks?
You need to use the 24 weeks as the testing period for FTE's yes, you don't have to keep them all, but your testing window is 24 weeks instead of 8.
Under new law, is it correct your entire loan is forgiven if you spend at least 60% on payroll during the eight-week period? So you could take advantage of the change to 60% without the 24-week extension?
I believe the 60% and 24 week provisions go together.
What if I had PT people working 20 hours pre-COVID and now they only work 10 hours, but I didn't cut their hourly rate. Do I have a forgiveness issue if I use the .5 method?
From an FTE count perspective, you are correct and can use the .5 test.
Any guidance on "accrued" or "paid" uncertainty?
If we chose 24 weeks, do we have to pay all of our employees for the full 24 weeks even if the money runs out or can the employee go on unemployment if there is no work?
As we interpret it yes, you would have to maintain them.
Does the employee retention test apply to only full-time units or does it also talk about part time employees as well?
It applies to FT and PT.
Are you penalized if an employee who worked in Q1 was not called back to work during the CP? Employee worked through March so hourly rate wasn't reduced during safe harbor. Our FTE has not been affected.
If your FTE's are good, then no.
If I have 4 employees at the .5 FTE, and I let a full time 1 employee go, can I change one of my .5 FTE to full time to maintain my FTE count?
I think that would be okay as long as you retain the 2.5 EE FTE (1FT and 3PTs).
When do people have to choose whether they want to use the 8 week or 24 week window?
When you submit the forgiveness application.
When calculating FTE for the benchmark, do we calculate each week separately, then calculate an average for the appropriate number of weeks?
If you apply for forgiveness by 6/30, do you recognize the forgiveness in this fiscal year or when you are granted the forgiveness, which would be after the close of our fiscal year
Recognize after lender communicates forgiven amount to you
Based on prior guidance allowing lenders to file for forgiveness prior to the end of the eight-week period if the borrower qualifies for full forgiveness, why would they need to wait the full 24 weeks?
You would not have to wait on the 8 week cycle.
I have employees who resigned, retired, and were terminated for cause during the reference period & covered period. When applying for forgiveness, do I simply add back the people as FTEs?
There is not an exception for retirement, but terminated – yes.
Our phone and internet invoices are covered by E-Rate rebate, so we haven't paid for a while. Can I include monthly charges of those in forgiveness, even though we actually haven't paid?
The guidance is incurred and PAID, so you would have to pay.
For monthly expenses like rent or utilities, for the eight weeks do you include two months' invoices or do you have to prorate over the actual covered period?
Assuming no significant variance between months, two months should work as it would yield approximately the same answer.
Are employees who are limited to $100,000 annualized compensation eligible for 24 weeks of forgiveness ($46,154) rather than just 8 weeks ($15,385) if the 24 week period is elected?
We also interpret the new law to reflect this treatment.
We accrue 401(k) match but pay it every six months (after our covered period). Can I expense two months’ worth of the accrual as a qualified payroll expense?
We believe if you pay it, then yes.
For FTE we have employees that are full time (40 hours), but they occasionally work 38.5 hours. Do we count them as 1 FTE or will they count those weeks as only a % or .5 FTE?
FT would be full time.
Is there a reason I can't do 16 weeks?
The law has not been written yet for 16 weeks.
Does every PPP Loan have the option of the 24 week period no matter when they loan was funded?
What you missed:
Rohen: Hello CLA family, friends, colleagues, and community partners. Welcome back to our livestream. We want to start today by thanking everyone for the feedback and outpouring of support we received from Tuesday’s session, as it related to our statement about George Floyd. We are committed to continuing to work toward the common goals of equity and inclusiveness. Our involvement will go beyond the moment of silence, and our goal at CLA is to have our voice make an impact on the movement for positive change in our country and in the world.
We also want to talk about the legislative news last night. At 7:05 p.m. ET, the U.S. Senate passed under unanimous consent the House PPP bill. The Senate did not make changes to anything we discussed in our session on Tuesday. However, we do believe the senators who lifted their objections to the bill did so with promises to have changes made to PPP in Phase 4 of the legislation, and that is something we will cover as it evolves. We expect this bill to be signed into law in the next few days.
(timestamps of topic discussions included in parentheses)
Today’s discussion will include:
- Overall wellness of our workforce (1:55 – 8:50)
- Review the key provisions of the bill (9:10 – 25:45)
- International component of the PPP process (25:55 – 28:55)
Our guests today are Nancy Brown, CLA’s Chief Outsourcing Officer, who will be moving into a new role for our firm — our Chief Culture and Engagement Officer. Also joining us are Jack Rybicki and Leslie Boyd. Welcome to the show, friends.
I’d like to start our session today talking with Nancy about some matters related to the well-being of each of us and our workforce at large. Nancy, thanks so much for joining us. Can you start by sharing why this topic is relevant amidst what has been happening in our country this week?
Brown: Thanks, Jen. It’s great to be here. Personal wellness is so important in both good and uncertain times. In April and May, we hosted six wellness webinars internally and held a Staying Healthy Challenge in May. We’ve focused on our four pillars of wellness:
During these challenging times, our personal wellness efforts often fall to the bottom of our priority list. And when we are not well, we find it difficult to live full lives or serve others as we may envision for ourselves. This week, we are turning the wellness conversation to social and emotional well-being by helping our CLA family members enter into courageous conversations. We recognize that regardless of your role or responsibility, each of us is impacted by the events happening in our country. To name a few this week:
- COVID-19 Global Pandemic – 12-week lockdown
- Economic Issues – 30 million unemployed
- Massive layoffs and furloughs
- Political challenges
- Senseless death of George Floyd
- Minneapolis response
- City unrest, curfews – protests in all 50 states & globally
- Widespread outrage, sadness, anxiety - fear
It’s also the start of Pride month, which is a bright spot in the face of all this pain, but it’s important to remember that this celebration also requires energy and focus for our workforce to share their stories and commit to education and inclusiveness.
Rohen: I agree with you, Nancy. Why is CLA committing to move the conversation on social and emotional wellness by focusing on equity and inclusion?
Brown: Jen, there are really two reasons. The first goes back to our CLA purpose and promise. We are committed to creating opportunities for our people, clients, and community. The second is that we want to provide our teams with tools that help every voice be heard.
Rohen: That is critically important to practicing inclusion and taking care of our workforce. Can we take some time to talk through the tools and how to use them?
Brown: We have broken them down into seven components for our purposes today.
1. Listen first – seek to understand
- Empathize, acknowledge – you don’t need to have the answers
2. Show up authentically, transparently and consistently
- Be strong to lead your team, but it’s okay to be vulnerable
- Continue proactive communication, even if it feels repetitive
4. Allow space for organization members to take care of themselves
- Encourage corporate resources, use downtime as needed, etc.
5. Be very intentional and deliberate with any written communication
- Put together a local team to help with written word; utilize community engagement teams and resources along with others to make sure the message is clear and reflective of organization’s goalsEncourage corporate resources, use downtime as needed, etc.
6. Keep business communication information simple
- Use appropriate forums for storytelling or courageous conversations
7. Ask for input from your team
- Maintain an open-door policy and encourage feedback from everyone in the organizationUse appropriate forums for storytelling or courageous conversations
Rohen: Thanks, Nancy. Are there any final thoughts you’d like to share before we move back to the financial topic of our session today?
Brown: Thanks for having me, Jen. I do want to share a few final words on practicing inclusion:
- Exclusion is often subtle
- “You are so articulate.”
- “Where are you from?”
- “I didn’t mean to …” Try gratitude instead “thank you”
- Pause before speaking
- Would I say the same thing to a person of a different gender/race, etc.?
- Will it make this person feel connected and a part of the group or excluded?
- Does my question make them feel like a curiosity or threat?
Rohen: All very valuable points. Thank you, Nancy, for sharing your time and knowledge with us today. And while this is a topic we could talk about for the entire 30 minutes, we need to pivot back to the discussion around PPP and the new legislation passed by the Senate last night. Jack, thanks for coming back today. Let’s start with the big question: What’s in the new Act related to PPP?
- Extension of covered period to 24 weeks
- New loans have a minimum term of five years rather than the two-year term set by Treasury
- Lenders and borrowers can modify terms of existing loans (but that is not likely)
- Included exemptions for FTE in the law if unable to
- 1) Re-hire
- 2) Hire similarly qualified
- 3) Return to the same level of business activity as they were operating before 2/15 due to compliance with requirements of HHS, CDC and OSHA during the period from March 1 – December 31, 2020
- Must use 60% of loan amount for payroll in order to receive forgiveness (this is very different than the 75% of forgiveness amount had to be payroll)
- If loan received before bill becomes law, can elect to use the eight-week covered period
- Extends deferral period until loan forgiveness remitted to the lender
- Sets a 10-month period to apply for forgiveness or borrower has to start servicing loan
Rohen: I know there’s also a huge change to the treatment of deferral of employer payroll taxes. Can you talk about that and the deductibility of expenses or what we know about that?
Rybicki: The CARES Act allows the deferral of employer payroll taxes since those are not subject to forgiveness. The CARES Act does not address the deductibility of expenses paid using forgiven loan proceeds. Any expenses paid by loan proceeds that are forgiven are non-deductible expenses. We hope there is a correction in the next round of the relief, the correction not included as of now in the bill.
Rohen: A question from the chat, can you address the PPP accrued interest?
Rybicki: The accrued interest does get forgiven.
Rohen: Thanks, Jack. Let’s get into some other key points. How does this help businesses that haven’t been able to bring back employees or who are struggling with the 75/25 test?
Rybicki: It is great for businesses that haven’t been able to reopen and decided not to bring back employees. This bill is good for businesses like restaurants and hotels.
The 60% test is very different than the 75/25 test. If you come up short on the 60% test it appears that borrower is not eligible for any forgiveness; whereas other test just reduced forgiveness amount proportionately.
Rohen: Can you talk about the strategy around choosing a period?
Rybicki: Many businesses will likely find it more beneficial to stay with the eight-week original covered period so they regain flexibility and don’t have to worry about compliance or tracking for 24 weeks (four additional months).
Safe harbors on wages and retention appear to also be moving back to 12/31/2020 date, so planning opportunity exists to avoid forgiveness reductions if you think you can be back at 100% by end of year.
Forgiveness max per employee, owner-employee, self-employed and general partner increases to ~$46,000 as limitation is $100,000 “as prorated for the covered period.”
Rohen: Jack, I’d like to talk about items related to the fourth phase of relief legislation and some of what we know about what happened in D.C. related to this bill. Could you please give us an update about what happened and some practical considerations as a result?
Rybicki: Senator Johnson from Wisconsin was the squeaky wheel that almost held this up. He got a letter regarding congressional intent added to the public record that clarifies that the SBA cannot issue loan guarantees beyond 6/30/2020, so that likely establishes an end date (for new loan origination for the program. As Omar outlined, his other concern is that companies that didn’t need the money took the loans and will now be getting forgiveness. We foreshadowed a concern on this topic a couple weeks ago when we highlighted the language Treasury added in the PPP Loan Forgiveness Application that forgiveness can only be requested for payroll costs to retain employees (underlined language was new addition). We should highlight that this is likely going to get further consideration by both Congress in the next relief bill or by Treasury when they issue FAQs.
Rohen: Can you talk about the headcount requirement and describe it?
Rybicki: In order to get forgiveness, you are required to maintain your workforce at “pre-COVID-19 levels” and you look at your full-time equivalents during your covered period. The complication now for this 24-week period is you are going to measure your FTE’s for the full 24 weeks even though the loan is only going to help you pay for eight to ten weeks of salary. This new round of legislation will not have a reduction of forgiveness if you are not able to maintain the FTE’s. The safe harbor related to the retention test is pushed out to December 31, 2020. If you can show by December 31 that you are going to return to your pre-COVID-19 levels of employment then this would be another way to avoid any reduction in forgiveness.
Rohen: Jack, thanks for that information. I know the chat is hopping, so we’re going to come back to you before we close. Right now, though, I’m going to turn the discussion to some global matters, and for that we have brought Leslie into the conversation to share her expertise. Leslie, it’s great to be on the show with you!
Boyd: Jen, same here – it’s nice to pivot to be in the guest chair for a change.
Jen: I love it. Thanks for bringing your expertise in the international arena to the discussion. We have talked about several economic relief programs over the last several weeks. One complicated area has been how global companies do or don’t qualify for the program and any special issues these companies face. Let’s discuss how global companies fit into these lending packages, starting with the Main Street Lending Program.
Boyd: Yes, there are a few main requirements for the Main Street Lending Program.
- The business can’t be an ineligible business
- Has to have less than 15,000 employees or less than $5 billion in annual revenues
- Must be a U.S. business – which means created or organized in the United States or under the laws of the United States with significant operations in and a majority of employees based in the United States
Similar to the definition of business in the EIDL program businesses must be legally formed entities that are organized for profit as a partnership; a limited liability company; a corporation; an association; a trust; a cooperative; a joint venture with no more than 49% participation by foreign business entities.
When we are counting employees for purposes of the 15,000 and $5 billion in revenues, we have also learned our lesson from the PPP guidance that we have to include affiliates – including our foreign affiliates.
Rohen: Thanks, Leslie – that’s so helpful to have some comprehensive coverage in this area. I’d like to take a few minutes to address questions from the audience that have come in during the session.
Rohen: We are going back to the chat, — is there any guidance on the 8-week or 24-week period and any potential changes?
Rybicki: Unfortunately, the way that the CARES Act is worded, it doesn’t give a lot of latitude. The way it is written is you either have the original 8-week period or the 24-week period.
Rohen: Do you have any guidance on accrued or paid uncertainty?
Rybicki: We still do not have a lot of guidance on this. What we do know is if you incur an expense during the covered period, whether that’s payroll, rent, utilities or any allowable expenses — as long as it’s paid within the next normal pay cycle, you can include it. Pre-payments likely not allowed, hoping to get more guidance.
Rohen: Does the employee retention test apply to only full-time employees or does that include part-time employees as well?
Rybicki: The FTE test applies to everyone, with the exception of owners. It includes both full-time and part-time employees.
- How to count FTEs
- Option 1: Regular - divided by 40 / week subject to a max of 1 (i.e., 45 hours = 1 FTE, 30 hours = .75 FTE)
- Option 2: Simplified - 40 or more hours = 1 FTE or Less than 40 hours = 0.5 FTE
- Need to use consistently
If you are doing the eight-week period you only have to measure FTE’s for eight weeks. If you do the 24-week period you have to measure over this time and maintain that FTE count for that timeframe.
Rohen: When do people have to choose whether they want to use the 8-week or 24-week period?
Rybicki: There is nothing in the CARES Act that says you have to choose a particular time; however, you need to review your loan agreement because some are requiring you to request forgiveness within some period of time.
Rohen: Unfortunately, that’s all we have time for today. Thank you to our guests today, to you for your questions, and to our moderators in the chat for all the support, great information and answers. We’re going to have more on Tuesday as it relates to the international discussion. We’ll also cover any news or updates on the PPP, and at your request, we’ll be bringing back Sam Metcalf to discuss important information related to the EIDL program.
We’d like to remind you to continue to visit our COVID-19 landing page at CLAconnect.com 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 our forgiveness tool, including a demo of the tool itself and how we can continue to support you during this time. Please continue to send us your questions and we will be back next week with more information.