16. Apply for PPP Forgiveness Like a Pro

This week the Small Business Administration sent out Paycheck Protection

Page 1 of the PPP Forgiveness Application

Program (PPP) forgiveness applications and more guidance on usage. You should have received this document from your lender. The 11 page document (see image of pg. 1 here) is basically a 1 page application with many pages of instructions to help you get the numbers right. There are 11 lines requiring numbers, with the 11th being the "Forgiveness Amount" for which you are applying.

This week the SBA also sent guidance about when the eight week "covered period" starts. The period no longer has to start on the day the loan was disbursed. Instead the employer may start the eight week period on the immediately following pay period. So if the loan was distributed April 24 and the next pay period starts May 1, the eight week period may start May 1.

PRO-TIPS:
1. The application provides a worksheet to help you calculate payroll costs. I would augment this with spreadsheets many CPA firms have already developed to assist with PPP payroll monitoring and reporting. CLICK HERE for an example prepared by Capocore Professional Advisors. The slide deck and webinar that goes with this spreadsheet are available on this Small Business Association of Michigan (SBAM) website.

2. CLICK HERE for a webinar from a month ago with a CPA company provided by SBAM on applying for PPP loan forgiveness. TODAY (May 22) the same CPA company is giving webinar on forgiveness using the new SBA application.

3. Get your documents together. For utility costs this can get cumbersome. Remember, getting government money for free takes an investment of time. For example, your phone costs can be counted as utilities. But you've got to provide (to your banker) phone bills and evidence (statements, receipts or checks) showing you paid those bills. For payroll, do you have a third-party payroll company? Their reports will usually be accepted by your bank. If you don't have a payroll company, get ready to make reports with details on each employee.

4. Are you using a work-share program? I.e. with your state, to allow employees to partially come back on payroll, and also get unemployment insurance? This, in many cases, is good for employees because they will still be eligible for the $600 additional per week, but it's not going to help you get more forgiveness on the PPP. That's OK - being good to your employees is the right thing to do.

5. The big two questions are, did you maintain your employee count and did you maintain wage rates? So the application walks you through calculating whether you reduced your "full-time employee" (FTE) number, which (ironically) can be a decimal. Then it walks you through whether you reduced wage rates. This gets confusing because the application was on a quarter basis (13 weeks) and the forgiveness is on an eight week basis. The instruction from the SBA is now to use annualized numbers for both numbers.

6. Understanding the term "Safe Harbor": This is referring to the fact that SBA said they want you to bring an employee back to the time and wage rates you were paying (pre-February 15) and you have until June 30 to do this. If you do not bring them back to at least 75% of full hours and full wages by June 30, the payroll for this employee does not count towards your forgiveness. For employees that ramp up their time and wage rates over the covered period (reaching at least 75% by June 30), a partial forgiveness amount is calculated. This "partial forgiveness" is the Safe Harbor.

7. How do you calculate FTE? Many CPAs thought that 30 hours/week would be considered 1 FTE. Nope! U.S. Treasury has now confirmed you must use 40 hours/week as the definition of 1 FTE. They do offer a simplified method such that anyone less than 1 FTE can be counted as .5 FTE. If you use this simplified method, you must use it throughout your application.

8. Exceptions to FTE for employees who refuse to come back to work: if an employee refuses to come back to work, or resigned, you do not have to reduce your forgivable amount for this employee's wages (as long as you did not replace them). So for the wages

9. Owners payroll calculation - owners of the business have their wages calculated separately from employees on Line 9. This is totally separate from Table 1 and Table 2 in the Schedule A worksheet. Owners' "pay" will be calculated as 8/52 of whatever was the net income on the owner's 2019 Schedule C. In other words, the pay used to to apply for the loan is the limit of the pay that can be used for forgiveness.

10. Do not rely on your bank to catch calculation errors - this is like doing your taxes. The SBA will come to you, not the bank, with questions.