ACE Workforce Technologies Answers Your Questions About PPP Loan Forgiveness

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ACE Workforce Technologies answers your frequently asked questions surrounding loan forgiveness and correctly filling out the coronavirus PPP loan forgiveness application

 ACE Workforce President and CEO Alan Klein recently hosted a webinar guiding business owners through the process to file for PPP loan forgiveness. This blog post defines some of the commonly used terms that may help business owners file their PPP loan forgiveness application properly and answers your most pressing questions.

Employers can obtain the PPP Loan Forgiveness application on the SBA website, here.

Q.

What is the 8-week cut-off as it applies to PPP funding and loan forgiveness? 

A.

The 56-day covered period, or the 8-week cut-off, begins on the first day the applicant received their PPP funding. However, an applicant that pays employees bi-weekly or weekly can choose to use an “Alternate Payroll Covered Period” to simplify payroll calculations. 

The SBA defines the Alternate Payroll Covered Period as the payroll period beginning the first day of the pay cycle after the day the employer received funding. 

A company that received funding in the middle of their pay-cycle can opt to begin counting the 56 days starting on the first day of their next pay-cycle – only if they pay employees weekly or bi-weekly. 

For instance, if the employer received funding on a Tuesday in the middle of a pay cycle, the 56 days would start on the date of their next scheduled pay cycle. Borrowers utilizing the “Alternative Payroll Covered Period” must apply the alternative period wherever there is reference to “Covered Period or Alternative Period” in the application, but must only use the “Covered Period” wherever the application refers only to this period.

Q.

Does the expense have to be incurred during the 8 weeks or can we use the loan to pay expenses incurred earlier and still have those expenses forgiven?

A.

Allowable Expenses, including payroll, must be paid during the 8-week period or incurred during the 8-week period and paid on their next regular scheduled payment date.

Q.

When are payroll costs considered paid and incurred?

A.

The SBA considers payroll costs as: 

  • “Paid” when the employer or payroll company distributes paychecks or initiates ACH deposit
  • “Incurred” on the day employees earns that pay

Forgiveness generally applies to payroll costs both paid and incurred during the 8-week (56-day) period.

That is, payroll costs incurred but not yet paid within the 56-day period qualify for forgiveness if they are paid on or before the next regular payroll date.

Q.

Are employer payroll tax costs covered and forgivable?

A.

State and Local tax assessments are allowable as part of the 75% minimum payroll costs. The employer portion of federal taxes are NOT allowable payroll costs.

Q.

Are employer healthcare costs allowable as part of the 75% minimum payroll costs?

A.

Yes, employer healthcare costs are allowable as part of the 75% minimum payroll costs.

Q.

Can businesses funding their employer 401k for 2019 for safe harbor and profit-sharing during the 8-week period get that full amount forgiven?  

A.

Expenses paid or incurred (and paid timely) are allowable expenses.

Q.

Are bonuses paid in 2019/2020 allowed?

A.

The interim final rule that came out on Friday, May 22, specifically addresses bonuses and hazard pay and states that they are both allowable.

Q.

If employees opt into payroll deduction insurance products, such as disability insurance and catastrophic insurance, which are deducted from their paychecks, are these items considered allowable expenses?

A.

Payroll deduction insurance items cannot be added to total costs as they have already been taken into account when using an employee’s gross wage.

Q.

What is the cap on forgiveness for owners’ compensation? 

A.

The SBA caps forgiveness on owner’s compensation and on compensation for any employee making more than $100,000 annually, at the smaller of these amounts:  

  • $15,385 (the 8-week equivalent of $100,000 per year) 
  • the 8-week equivalent of the owner’s compensation in 2019 

Q.

What about someone who only takes salary once a year at year-end?

A.

Regardless of when salary is collected, owners and employees making more than $100,000 are subject to the $15,385 limit or the equivalent 8-week average of 2019 compensation, whichever is lower.

Q.

Do health insurance payments paid by the employer count toward the $100,000 annual maximum per employee?

A.

Health insurance payments are allowable above the $100,000 cap per employee.

Q.

How does the SBA define Full-time Equivalent (FTE) employees? 

A.

Full-time equivalent employees work 40 hours or more per week. To calculate this amount, the employer enters the average number of hours worked per week, divides by 40, and then rounds that number to the nearest tenth. The maximum per employee is capped at 1.0.  A simplified method allows an employer to assign a 1.0 for employees who work 40 or more hours per week and 0.5 for employees who work fewer than 40 hours per week.

Q.

Do part-timers paid as 1099-Misc contractors, not W-2 employees, count as .5?

A.

No. PPP proceeds cannot be used to pay 1099 contractors. Likewise, 1099 contractors do not count toward FTE totals.

Q.

Are there any exceptions to calculating FTE employees? 

A.

The SBA allows for FTE exceptions in two cases: 

  • If an employer makes a good faith, written offer to rehire an employee during the covered period or alternative period and the employee rejects the offer

  • If an employee was fired for just cause, voluntarily resigned, or voluntarily requested (and was granted) a reduction in hours

Q.

If a qualified offer is rejected or someone was terminated for just cause, it doesn’t count against the FTE count. In that case, does the employer just include them in the FTE number for the 8 weeks, as if they were still employed?

A.

Employees terminated for cause will not count as a reduction in FTE count, as long as the employee was not replaced. Maintain proper documentation for terminated employees to show proof of the reason for termination.

Q.

What is the “Full-time Equivalent Safe Harbor?” 

A.

A safe harbor exempts an employer from reduction of loan forgiveness based on FTE count if both of the following conditions are met:

  • The borrower reduced their FTE level in the period beginning February 15, 2020 and ending April 26, 2020
  • The borrower restored its FTE level by no later than June 30, 2020 to its FTE level during the pay period that included February 15, 2020

Q.

If you did not change any rate of pay but eliminated overtime, does that count as a wage reduction?

A.

The interim final rule states that a reduction of hours but not payrate does not constitute a reduction in wages. However, it may affect an employer’s FTE calculation.

ACE Workforce is here to help through these unprecedented times. We can assist by providing payroll reports to enable our clients to complete the PPP loan forgiveness application in a timely manner.

As we work together to reopen America, we will continue to be a resource for our customers nationwide. Click here to view the PowerPoint from our webinar, and be sure to reach out if you have any questions.

 

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