So, you received the PPP loan or are really close to getting the funding you want to make sure you keep yourself eligible to have it forgiven as intended. To start let’s remind ourselves of the PPP conditions:
A loan may be fully forgiven if all the following three conditions are met:
- The loan proceeds are spent, or qualifying costs are incurred, within 8 weeks of receipt of the loan proceeds.
- At least 75 percent of the forgiveness amount was used for payroll costs and no more than 25 percent was used for the other permitted Loan Uses.
- Staffing and pay levels must be maintained during the 8-week period immediately following the disbursement of the loan.
This is the beginning and because you are delineating these “qualified costs” from you other operational cost we highly recommend segregating the PPP funds in a separate account if possible. This will allow you to designate the separate account solely for the purpose of PPP qualified costs and in the end make it easier for you to provide proof the funds were used correctly when applying for forgiveness. Now what are payroll qualified costs you ask?
Payroll Costs Generally included:
- Employee gross pay, including salary, wages, commissions, and tips (capped at $100,000 on an annualized basis for each employee).
- All employer state and local taxes paid on employee gross pay, such as unemployment insurance and employer-paid state disability insurance (in the applicable state).
- Employer healthcare benefits, including insurance premiums.
- Retirement benefits, including defined-benefit or defined-contribution retirement plans and employer 401(k) contributions.
In addition to payroll costs there are also other expenses you are incurring on a monthly basis which will be considered qualified. Keep in mind not all operational expenses are qualified.
Permitted Loan Uses:
- Costs related to the continuation of group health care benefits during the period of paid sick, medical or family leave, and insurance premiums;
- Interest on commercial mortgage obligations, incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020; and
- Utilities, for which service began before February 15, 2020.
The last thing to make sure you are very aware of is staffing levels. You will have to make sure you maintain an average level of employees and pay.
To determine whether adequate staffing levels have been maintained, the average number of full-time equivalent (FTE) employees per month during the 8-week period from the date of the loan will be compared to one of two time periods. Borrowers may either use the period from February 15 through June 30, 2019 or January through February of 2020. If the number of FTEs during the 8-week period following the loan disbursement is lower than one of those two time periods, the amount of loan forgiveness may be reduced proportionately. However, reductions in staffing occurring between February 15 and April 26, 2020 will not be considered in reducing the loan forgiveness amount if the way reversed by June 30, 2020. If the staffing reduction was made outside the February 15 to April 26 time-frame, the forgivable amount may still be reduced even if the staffing reduction is reversed by June 30, 2020.
Repayment of the corresponding portion of the loan may be required if an employee’s earnings are reduced by more than 25% during the 8-week period from the date of the loan disbursement compared to the most recent full quarter of employment prior to the loan date. Keep in mind, reductions in compensation occurring between February 15 and April 26, 2020 will not be considered in reducing the loan forgiveness amount if the ware reversed by June, 30 2020. If the pay reduction was made outside the February 15 to April 26 time-frame, the forgivable amount may still be reduced even if the pay reduction is reversed by June 30, 2020.
Updates and Changes!
Everyone’s hope is the PPP goalposts do not get moved by our amazing leaders. While this is all of our hope, we cannot say it won’t happened since it already did a few times. We will make sure to let you know if it happens and what to look out for as usual, we just ask you stay tuned in case it does happen. For now, here is a forgiveness checklist for you to make sure you stay on track!