CLA Livestream Series: PPP Certification and Forgiveness Tracking

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  • 4/30/2020
  • Virtual

Event materials

In this livestream, we will be addressing updates surrounding PPP certification and the uncertainty around what you can do to track weekly and maximize forgiveness.

Speakers:

In case you missed it: 

 

Questions and Answers:

Can planned bonus payments be counted as payroll?

Yes, but you will need to be aware of the $100k limit per person; many are contemplating that strategy.

Do utilities cover water, gas, electric, phone, and trash removal?

We do believe that is correct.

What is covered by ‘transportation?’

No definition has been given yet.

Is it ok to prepay things like health insurance or rent for forgiveness?

That is yet to be determined. The language says ‘incurred and paid.’ So we need to wait for the detailed guidance.

Are all employer paid union costs covered in the PPP forgiveness or just health and retirement?

Just health and retirement.

Can hazard pay for employees who cannot work from home due to their job duties be included in payroll for the eight weeks?

Yes, it would be included.

Is dental and vision considered health care?

We believe those will qualify.

Does the eight week period start on the loan document date or the day funds are received?

It begins the day funds are received.

As the eight weeks monitoring is starting the day you receive the funds, the whole period might be off for the regular payroll schedule. How will it then be possible to compare with a previous period?

Over the eight week period it should level out, but we suggest that organizations track the amounts ‘incurred and paid’ during the eight weeks until we get more guidance.

If an organization laid off staff before the loan, do they have to offer the jobs to the same people or just have the same number of FTEs?

FAQ 40 now provides clarity on this.

Can PPP funds be used for Workers Comp premiums?

They can be used, but will not qualify for forgiveness.

Does a monthly guaranteed payment to an LLC shareholder count in salaries for forgiveness?

Guaranteed payments should qualify.

Has the SBA issued regulations on what’s eligible for forgiveness and required documentation 

No, we are still waiting.

If I add hazard pay for employees that worked in the office during a Safer at Home order, will that qualify?

It sounds like wages, so yes.

Is it best to open a separate bank acct for PPP funds or can CLA accounting work this via categories set up in Quickbooks without complexities of opening a bank account just for tracking PPP spend?

Either option would work. Please talk with your accounting team.

Can you pay expenses that you held from a previous month, like rent, and have 3 months of rent in the eight week period?

There is language that the expense has to be paid and incurred during the eight week period. We are waiting for guidance to learn what that means.

Do we need to make sure each employee’s payroll is at least 75% of Q1 2020 average payroll or is it 75% of the aggregate payroll not focused on specific individuals?

We will get more clarity when we get forgiveness guidance.

Do reimbursements for phone and internet to employees count as utility expense?

Yes, phone and internet count.

Should payroll, rent, and utilities be computed on the accrual or cash basis?

The language states ‘paid and incurred.’ Stay tuned for further guidance from Treasury or SBA.

Can fuel costs for service vehicles to go to jobsites be included in PPP forgiveness?

It is not clear yet. We are waiting for forgiveness guidance on ‘transportation.’

How does an employee that does not want to come off of unemployment affect the 75% related to that specific employee’s potential forgiveness?

Employees have to be employees to help you in PPP forgiveness. Speak with your HR as an employee has to be ‘willing and able to work’ to qualify for unemployment. 

Where can you find the FAQ 33 online?

SBA.gov

Can we get a legal or accounting “opinion” on whether or not we are okay with PPP?

That is a legal issue

How much liquidity is considered “adequate” if we don’t know how long this will last?

Talk with your legal counsel.

Are there worksheets available for loan forgiveness?

Contact your CLA Advisor for help with forgiveness.

If we receive the loan on the 14th, would the payroll on 15th for the previous 2 weeks be considered for forgiveness?

We are waiting for clarification on this.

Is the money we spend on temp workers considered a payroll expense?

If they are W-2 employees, yes. If they are 1099 employees, no.

Can utilities such as gas, electricity, phone, wireless, and water be paid by PPP?

Many of those are in the FAQs. Cable TV does not count. We recommend reviewing the FAQs.

Does the eight weeks start the day or day after you receive funds?

It appears to be the day you receive the funds.

We had funds in a corporate money market that could have kept us going for roughly 3 months. Will we be asked to potentially pay a PPP loan back?

Have a discussion with your legal counsel. That is not an accounting question.

Can you explain the 75% per employee if someone quits?

See FAQ 40.

Can life insurance, short term disability (STD), or accidental death/dismemberment (ADD) insurance can be considered for forgiveness?

We believe that those amounts do not qualify.

What does ‘transportation’ mean?

We are waiting on further guidance from treasury or the SBA.

If you hire new employees after receiving PPP, will their pay qualify for PPP?

Yes.

When is forgiveness guidance due to come out?

Anytime. It is already overdue.

Does eight weeks start on the date received or the week of?

Day received.

Will forgiveness be reduced if salaries are reduced for employees earning more than $100k annualized?

Any amounts reduced above $100k are not counted against you.

Are FTEs calculated based on 30 or 32 hours?

We believe an FTE is 30 hours.

How can we document when there are so many questions to be answered?

We suggest keeping detailed payroll records and cancelled checks.

For employees making over $100,000 per year, can all of their salary be included in the eight-week payroll expense calculations or only a pro-rated share ($1,923 per week)?

$1,923 per week.

Can we pay out bonuses?

As long as you don’t exceed $1,923 per week.

Will disability and life insurance be forgiven?

No.

Will temp invoices substantiate the temp payroll expense?

1099 payments do not count. They have to be W-2 employees.

Are Union Dues considered an allowable payroll cost?

Not straight union dues. Health care and retirement are considered allowable.

Do leases on personal property count, or only real property?

Real and tangible property.

Does the eight week date start when the loan is approved by SBA or when the money is funded?

When the money is funded.

Do banks have to make a decision on forgiveness, forgive that portion, and then request funds from the SBA?

That is correct.

Can you explain related party rents?

This is still pending guidance.

Are salary costs for employees hired after February 15th eligible?

Yes.

Can we include salaries over $100K in our payroll or do they need to be capped at $100k?

Capped at $100k, annualized. $1,923 per week.

Does hazard pay count?

Yes, that would count as wages.

Can planned bonus payments be included in PPP forgiveness?

We believe they will be allowed, but subject to a $100K limit.

Will sales commissions be subject to the wage analysis for forgiveness?

Yes, if they are W-2 payments.

Has there been any guidance regarding the June 30 rule? Does that just help you for the head count portion of forgiveness?

Correct, you still need to make sure your spend is covered during the eight week period even if you reinstate employee count by June 30.  We will get more clarity when we get forgiveness guidance.

We had an employee that was full time during the lookback period. He chose to change to part-time so his wages will be less. Will this hurt our calculation?

Yes, it does hurt you unfortunately.

Can you pre-pay your rent?

It is not clear. The current guidance says ‘incurred and paid.’

Is regular payroll paid to owners eligible to be considered for forgiveness?

Yes, for W2 wages.

Given the guidance of ‘incurred and paid,’ do we need to make our annual employer match for retirement plan now, instead of at year end?

Right now, we would say yes, but we don’t have any additional guidance.

Has there been clarification regarding pro-rated expenses for the eight weeks or actual cash spent?

We are still waiting for clarification.

Can we make a contribution to our employees 401K?

Yes, we believe this is a good strategy.

Is the payroll forgiveness on gross or net? How do we handle the FICA?

Gross wages. Employer FICA is not included.

If employee gets COVID19, and paid under FFCRA, that gets deducted for PPP purposes correct?

You are correct. Their wages do not count for amounts paid for PPP purposes. Double dipping is not allowed.

Where can I find a forgiveness application?

Contact your bank. It starts with them.

We want to pay out some accrued PTO – can that payout (less than $100k) be included?

Yes, wages are includable.

What about a “Hazardous Pay” for front line workers?

It should count as wages.

Are costs forgiven on accrual or cash basis?

“Incurred and paid” is the current guidance. We are still waiting on further clarification.

What happens if an employee quits in terms of the forgiveness calculation?

See FAQ 40 for guidance on this.

Do wages need to be incurred and paid within the eight weeks? Our payrolls come a week after earned.

You are correct.  We will get more clarification when we get forgiveness guidance.

Is there guidance regarding employees that move out of state, pass away, are laid off for fraud, etc. in terms of headcount?

No, there is not any relief for this, unfortunately.

Is a payroll service expense (i.e. ADP, PayChex, CPA) counted as payroll expense for PPP?

They are not counted as a payroll expense.

If an employee was furloughed in April, do they need to be brought back or can we increase salary of those taking on the extra work of the furloughed employee?

You can do either, just keep in mind your FTE number.

If we can’t use all PPP funds in the eight weeks, do we need to track that the remainder of funds were used appropriately?

After the eight weeks those amounts are no longer forgivable. We also think there will be certain things to track.

Are expenses utilized for PPP loan forgiveness going to be disallowed as a tax deduction?

They should be allowed as deductions. We will see what the IRS says.

Are utilities and rents incurred or accrued during the eight week period?

This still needs to be clarified.

Does forgiveness cover workman’s comp and payroll taxes?

It doesn’t cover workman’s comp or the employer share of taxes.

Can you discuss rent to a related party?

We do not yet have guidance.

Is worker’s comp an allowable expense (benefit)? We may have employees getting COVID from work.

Unfortunately, no.

Can a hazardous pay bonus be given at the end of the tracking term based on attendance or other reasons?

Yes, just keep in mind the $1,923 per week limit.

Is hazard or combat pay allowed?

As wages, yes.

What we talked about:

Rohen: Hello CLA Family, friends, colleagues, and community partners. Welcome back to our livestream series. We’re going to spend our time today talking about some key items, including an update on the legislation passed on Friday, PPP certification, and what we need to be tracking for forgiveness purposes. In addition, the Fed has just issued an updated term sheet for Main Street Loan Facilities, making three new options available. We’ll discuss that in our session today.

The Treasury FAQ issued on April 23 focuses on the applicant certification that the loan was necessary to support the ongoing operations of the applicant, as well as a safe harbor for borrowers. We’ve got Jack and Todd back today, along with Rick Kreuger who is a principal in our National Assurance group to walk through these key points. Welcome, Jack, Todd, and Rick.

Todd, the big breaking news today is the Fed releasing an updated term sheet for the Main Street Lending Program. Can you talk about that?

Sprang (1:32 – 3:40): Absolutely. We were hoping for two new term sheets and we got three term sheets and an FAQ! We also saw the creation of a third loan option, which increased risk sharing by lenders for borrowers with greater leverage. The Fed will purchase $600 billion of loan participations through the Main Street Program.

Some key changes from the original term sheets:

  • Terms are still 4 years
  • Lowering the minimum loan size for certain loans to $500,000
  • Base rate changed from SOFR to LIBOR and new rates are 1- or 3-month LIBOR plus 3%
  • Expanding the pool of businesses eligible to borrow: businesses with up to 15,000 employees or up to $5 billion in annual revenue are now eligible 
  • EBITDA calculations didn’t change in quite the way we hoped, but they were modified to be defined as the adjusted EBITDA methodologies utilized by the lender for analyzing borrowers as of April 24, 2020.

Rohen: Jack, there’s been a lot of news lately about organizations returning PPP loans or being subjected to SBA audits. What’s causing all this activity?

Rybicki (4:09 – 8:26): [Below is a summary outline of the discussion]

  • Certifications in loan application • FAQ #31 (April 23), Mnuchin’s comments (April 28 morning), FAQ #37 (April 28 evening)
  • Banks sending letters to borrowers about returning funds
  • This has become a really big topic and everyone is looking for guidance

Rohen:  So what should someone do if they received or want to receive a PPP loan?

Rybicki (8:44 – 12:06): Unfortunately, there isn’t clear guidance, but we do know that documentation is critical. There are three factors to consider:

  • Activity as of application date
  • Access to other sources of liquidity sufficient to support ongoing operations,
  • Evaluation if any other options could be implemented in a way that are not significantly detrimental to the business

Beyond that, we’re recommending an attorney be involved when an organization has doubts.

Rohen: If an organization keeps the loan, what can it expect to happen later?

Sprang (12:43 – 15:04): I think it’s important to clarify a few points as there are inconsistent uses of terms. The proper verbiage is “review” not “audit” and it’s not a new or additional process. The PPP program has always contained two review components

  • The first is conducted by the lender when the borrower submits their request for forgiveness. We don’t have a lot of guidance on the SBA’s expectations yet, but the lender will need to request and review information to support the borrower request.
  • The second is conducted by the SBA when the lender submits a report to the SBA requesting the SBA’s concurrence with the lender forgiveness amount request. Not much is known about that SBA process but we’ve expected it to range from a cursory review to a “full” review. When they state that loans over the $2 million threshold will be subject to “full review,” they are really just stating they will conduct the most extensive reviews on these loan forgiveness requests prior to approval.

We also expect SBA reviews to cover eligibility, forgiveness, and allowable use of funds.

Rohen: Turning to Rick now; we discussed eligibility, what about forgiveness and allowable use of funds?

Krueger (15:16 – 16:08): The same general message applies: Document, document, document. This is government funding and there are strings attached. They want it used for specific purposes.

It’s really important to track information real time and accumulate supporting documentation as you go. Many organizations are using G/L capabilities to track the details and others are using a segregated bank account.

Rohen: You mentioned the importance of documentation. What specifically are you talking about?

Krueger (16:18 – 17:55): All borrowers seeking forgiveness are required to submit documentation along with their forgiveness application. A few of the requirements include:

  • Payroll reports, and payroll tax filings
  • Invoices 
  • Mortgage, debt, and lease agreements (to document in place before 2/15/20)
  • Cancelled checks and/or bank statements

[QUESTIONS FROM AUDIENCE (18:00 – 29:50)]

Rohen: We want to make sure that you continue to reach out to us at claconnect.com for more information and to answer any additional questions you have. We will continue to provide you with information about what you need to know. We can connect you with an advisor for your specific needs. Be sure to tune in next Tuesday when Leslie covers key insurance components that you need to know when navigating the COVID situation. Thanks for watching, and be well. 

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