PPP Loans - What's Next?
Updated: Apr 17, 2020
As PPP Loans are processed and approved, Easytrack Payroll would like to provide the below guidelines and recommendations as you use the funds and ultimately seek forgiveness of the loan.
1) A good audit trail in your accounting is paramount. Your CPA and/or bookkeeper can work with you to help you achieve this.
2) If you have a separate bank account for your PPP funds, we recommend you transfer funds from that account into your regular operating account as you incur qualifying loan expenses.
For important information about Accrued Costs vs Payments Made, reference the section of this post covering that topic.
1) The covered period for using these funds, if you're going to seek forgiveness of the loan, is 8 weeks beginning on the date of the origination of the loan. Per the SBA, this is the date the lender makes the first disbursement of the PPP loan to the borrower.
2) Determine the last date of this covered period
If your CPA or attorney has advised you to adjust your pay dates in order to use the funds within the covered period, contact Easytrack for further assistance.
1) Payroll Costs (minimum 75% of the loan proceeds must be used for these)
a) Gross Wages
To determine qualifying expenses for the above category, we recommend doing the following after each payroll in the covered period:
- Run the Payroll Details report (go to the Reports tab and click Payroll Details)
- Click the link for View in Excel to export the report to Excel
- Scroll to the bottom of the page to see the Totals for the payroll
- Sum up all Gross Wages paid
* Do NOT include non-taxable Pay Types such as Reimbursements. If you have various Pay Types, and are unsure which ones should be included, contact Easytrack.
** Any wages for Paid Leave under the FFCRA should NOT be included
*** Compensation in excess of an annual salary of $100,000 should NOT be included
PPP funds can be used for the Total amount of the above
b) State Unemployment Taxes
c) Local Employer Taxes
These tax amounts can be found in the far right column of the Payroll Details report.
- While these taxes are qualifying expenses, in many cases these specific tax liabilities will be ACCRUED but not PAID during the 8-week covered period. Reference the section of this post about Accrued Costs vs Payments Made.
d) Company Contributions to retirement plans
These amounts can be found under the respective column of the Payroll Details report.
- While these contributions are qualifying expenses, it is unclear if they qualify if the paychecks fall within the covered period but the contributions are funded after the period. Reference the section of this post about Accrued Costs vs Payments Made.
e) Health Insurance Premiums paid by the Employer
To determine qualifying expenses for this category, we recommend referencing your monthly health insurance invoice and subtracting the amount withheld from your employees' paychecks for the MONTH. If you have questions, contact your insurance broker.
- While these expenses are qualifying expenses, it is unclear if they qualify if the paychecks fall within the covered period but the premiums are paid after the period. Reference the section of this post about Accrued Costs vs Payments Made.
ACCRUED COSTS vs PAYMENTS MADE:
- The CARES Act states that forgiveness applies to “costs incurred and payments made” during the covered period.
- Additional guidance is needed to better understand how to compute “costs incurred and payments made”.
- Work with your CPA to determine qualified expenses particular to your business as they may vary depending on your accounting method (cash or accrual). Your CPA can help ensure consistency where it is either payroll costs paid or accrued during the covered period, but not both.
2) Other Authorized Expenses (maximum 25% of the loan proceeds can be used for these)
a) Payment of interest on a covered mortgage obligation
b) Payment on any covered rent obligation
c) Payment on any covered utility payment
Consult your CPA to determine qualifying amounts for the above categories.
Important Reminders to Maximize Your Loan Forgiveness
1) The goal is to spend at least 75% of the PPP funds on payroll costs in the 8-week covered period. Try to get to full employment as quickly as you can, and if any employee wages were reduced due to COVID-19, be sure to increase wage levels to their original state as quickly as you can.
2) When you applied for the loan, you determined your FTEs for a specified period, which set criteria that must be met for loan forgiveness.
- We recommend you track your FTE monthly average during the 8-week covered period. Your loan forgiveness may be reduced if you decrease your FTE count.
3) Determine the total base salary or wages of each employee for the last full quarter before the date you received the loan.
- For any employee who made less than $100,000 annualized in 2019, we recommend you review compensation to ensure that you do not reduce their pay beyond 25% of the base amount during the 8-week covered period.
Verrill Dana LLP put together a very helpful publication with further guidance on the math around FTEs and Wages. We highly recommend taking the time to read this and running the numbers as they outline.
4) If you are seeking loan forgiveness, you have until June 30, 2020 to restore your FTE and salary levels for any changes made between February 15, 2020 and April 26, 2020.
5) Payments to contractors are NOT considered qualified expenses and PPP proceeds should not be used for these if you're seeking to have the loan forgiven.
Consult your CPA to confirm you are meeting the requirements set forth in the CARES Act to maximize your loan forgiveness.