To our valued clients & friends,
Last night, the SBA released its first public version of the PPP Loan Forgiveness Application. The application codifies the calculations we’ve spoken about and given classes on, and provides us with much clearer guidance on what supporting documents to gather as well as draft calculation forms to show the forgiveness calculations.
The PPP Loan Forgiveness Application was not expected to codify major changes to the PPP forgiveness calculations or change the rules - that set of adjustments, which we still expect to be forthcoming, looks like it will most likely come directly from Congress or from bi-partisan Congressional appeal / guidance to Secretary Mnuchin. We find the PPP sections of yesterday’s HEROES Act illustrative in providing insight into what at least part of Congress is thinking regarding adjustments to the PPP program (namely: a 24-week forgiveness period, adjustments to the 75/25 ratio, and movement of the FTE Reduction Safe Harbor Date to 12/31/20).
Almost everything on the PPP Loan Forgiveness Application is in line with what we’ve expected, with the following useful clarifications or pleasant surprises:
A. FTE Calculation: We counseled you to use a 30 hour FTE calculation as the basis for your planning, as it would protect you, conservatively, from using too low of an FTE count for your planning purposes. The SBA decided the FTE calc will be based on 40 hours per week, which is the best possible interpretation for small businesses, and you'll have to hire fewer people to get back to your FTE count.
Under the clarified rules, all full time employees will count as 1.0 FTE. All part time employees will be converted to FTE by adding up their collective hours in a week and dividing by 40 (e.g. one worker at 10.0 hours plus one worker at 20.0 hours = 30.0 hours / 40.0 hours = 0.75 FTE). You can also choose to simply count all full time employees as 1.0 FTE and all part time employees as 0.5 FTE. We will obviously guide our clients to the most beneficial calculation for their specific forgiveness application.
B. Alternative Payroll Covered Period:A number of us worried about how to align bi-weekly payroll cycles with the 8 week period. For simplicity, the SBA is allowing you to align your forgiveness request with the nearest 8-week / 56 day period after receipt of the loan that corresponds with your payroll cycle, so you won't have to run off-cycle payrolls to get your payroll counted.
To share the SBA example: “...if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.”
This Alternative Payroll Covered Period only aligns the payroll portion of forgiveness with your pay cycle. Your non-payroll expenses are still on the original eight-week period that starts the day you receive your loan.
C. Utilities:the SBA has clarified that these will be for electricity, gas, water, transportation, telephone, and internet access
D. Owners / Partners:these individuals are not included in the FTE calculations (either before or after). The SBA has also provided clear space for guaranteed payments, etc, so owners do *not* need to have their pay run through a payroll system for you to be able to easily report it. Given this guidance, please revert to / or continue with normal guaranteed payment processes.
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We hope these clarifications are helpful to you - they certainly are for us. For our clients: don’t worry, we’ve got you covered on all of this and will be training internally to make sure we maximize your forgiveness with timely, accurate forgiveness applications...assuming we don’t get an extension of the due dates. We will continue to monitor guidance over the weekend and beginning of the week and will run Zoom conferences to clarify any questions about the PPP Forgiveness Application mid-week.
Matt Hetrick, CPA
President
Harmony Group & CPA Eats