PAYCHECK PROTECTION PROGRAM (PPP)

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PAYCHECK PROTECTIONPROGRAM (PPP):UPDATE REGARDING ISSUED GUIDANCE ONLOAN FORGIVENESS(UPDATED THROUGH SBA GUIDANCE ISSUED MAY 22, 2020)May 28, 2020BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UKcompany limited by guarantee, and forms part of the international BDO network of independent member firms.

Today’s Speakers from BDO USA, LLP Andrew Gibson - Tax Managing Partner, Global EmployerServices/National Tax Office, Atlanta Peter Diakovasilis – Tax Partner, Core Tax Services, New York Metro Joan Vines - Managing Director, Compensations & Benefits/GESTechnical Practice Leader, National Tax Office, Greater WashingtonD.C.2PAYCHECK PROTECTION PROGRAM (PPP) SESSION 5

Agenda 3SBA Loan Forgiveness Application (dated May 15, 2020)Expected Forgiveness AmountLimits on Loan ForgivenessWage and Salary ReductionsFull Time Equivalent Employees“SBA 75%/25% Rule”DocumentationTakeawaysPAYCHECK PROTECTION PROGRAM (PPP)

Key Strategies for PPP Loan ForgivenessNow that you have received your Paycheck Protection Program (PPP) loan and are in your“eight-week covered period”, it is imperative that you establish a strategy to ensure thatyour spending falls within SBA guidelines. A sample strategy will include items such as: Review your initial spending plan for the eight-week period,Monitor and observe changes in Small Business Administration (SBA) guidance,Update the plan as needed to pay only allowable expenses during the eight weeks,Document your actual spending with special attention to the loan forgivenessrequirements, and Get prepared to compile a loan forgiveness report or certification to provide to your SBAlenderThis webcast will provide insight on the SBA guidance released on May 15 and May 22 aswell as a roadmap to coordinate preparation of submitting you loan forgivenessapplication.

Most Up To Date Guidance on PPP Loans May 15, 2020 Some Questions Addressed- 5The Audit Threshold of Two Million will be applied to the Borrower and its AffiliatesA Special Payroll Run at the End of the Covered Period is Not NecessaryCertain Payrolls can use an Alternative Payroll Covered PeriodPayroll Costs Paid during the 8-weeks are Eligible for Forgiveness; Incurred but Paidduring the next Payroll Cycle are also Eligible for ForgivenessNonpayroll Costs can be Paid After the Covered Period but Before the Next BillingCycleMaximum Compensation for the 8-week period is 15,385 ( 100,000/52*8)Salary/Hourly Wage Reduction Uses Rate of Pay not Actual PaymentsApply Salary/Hourly Wage Reduction before FTE Reduction/ No Double JeopardyForty Hours is Used to Calculate Average Full-Time Equivalents by PersonEmployees who Choose not to Work Do NOT Reduce FTE Count – FTE ExceptionEmployees that are Re-hired by June 30, 2020 Do NOT Reduce FTE Count – FTE SafeHarborThe Application Currently Expires on October 31, 2020Even so, More Questions RemainPAYCHECK PROTECTION PROGRAM (PPP)

PPP Loan Forgiveness Application – SBA Form 3508 How to Apply for Forgiveness:- SBA Loan application has four (4) components:1.2.3.4.6Complete SBA Form 3508, Loan Forgiveness Calculation Form and PPP Schedule ASubmit paper or electronic forms to your Lender (or the Lender that is servicing yourloan) according to Lender’s instructionsPPP Loan Forgiveness Calculation FormPPP Schedule A – Summary Information for FTE and Wage/Salary ReductionsPPP Schedule A Worksheet – FTE and Wage/Salary ReductionsOptional PPP Borrower Demographic Information FormPAYCHECK PROTECTION PROGRAM (PPP)

Form 3508 CalculationAnother Employee Count**Note the Alternative Payroll Covered Period isavailable only if payroll is weekly and bi-weeklyBorrower might not readily know the affiliates to include7PAYCHECK PROTECTION PROGRAM (PPP)

Form 3508 Loan Forgiveness Calculation8PAYCHECK PROTECTION PROGRAM (PPP)

Covered Period and Alternative for Some Payrolls Covered Period General Rule-- Alternative Payroll Covered Period for weekly or bi-weekly payroll periods--9Eight-week (56-day) period begins on the PPP Loan Disbursement Date. For example, if theBorrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period isApril 20 and the last day of the Covered Period is Sunday, June 14Under the existing guidance, this require payroll periods that cross the last day of theCovered Period to be prorated to exact days in the periodEight-week (56-day) period begins on the first day of first pay period following the PPP LoanDisbursement Date. For example, if the Borrower received its PPP loan proceeds on Monday, April20, 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 theAlternative Payroll Covered Period is Saturday, June 20This avoids the allocation of payrolls at the end of the periodDoes not change the Covered Period for non-payroll costsPAYCHECK PROTECTION PROGRAM (PPP)

Payroll Costs for Forgiveness- Timing 10Payroll costs are considered paid on the day that paychecks are distributed orthe Borrower originates an ACH credit transactionPayroll costs are considered incurred on the day that the employee’s pay isearnedPayroll costs incurred but not paid during the Borrower’s last pay period of theCovered Period (or Alternative Payroll Covered Period) are eligible forforgiveness if paid on or before the next regular payroll date. Otherwise,payroll costs must be paid during the Covered Period (or Alternative PayrollCovered Period)Therefore, no special payroll processing is required on the last day of theCovered Period (or Alternative Payroll Covered Period)For each individual employee, the total amount of cash compensation eligiblefor forgiveness may not exceed an annual salary of 100,000, as prorated forthe covered period ( 100,000 *56/365 15,385)PAYCHECK PROTECTION PROGRAM (PPP)

Payroll Costs for Forgiveness - Timing Cash compensation-- Other Compensation – Total Amount Paid by Borrower for-11Gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical orsick leave, other than including leave covered by the Families First Coronavirus Response Act), andallowances for dismissal or separation paid or incurred. Differs from Form W-2, box 1No more than 15,385 should be counted for an employee during the covered period or alternativepayroll covered periodEmployer contributions for employee health insurance, including employer contributions to a selfinsured, employer-sponsored group health plan,Employer contributions to employee retirement plans,Employer state and local taxes assessed on employee compensation (e.g., state unemploymentinsurance tax), andDo not include employee contributions when calculating payroll costs because employee amountsare included in the gross wages used for cash compensationPAYCHECK PROTECTION PROGRAM (PPP)

Owner-employee, a self-employed individual, orgeneral partner Caps on the Amount of Loan Forgiveness The lower of the individual’s applicable compensation across all businesses in 2019 or 100,000 Times 8/52, which is 15,385 maximum Schedule C fliers are capped by their owner compensation replacement, calculated by multiplying the2019 net profit times 8/52, not to exceed 15,285 General partners are capped by the amount of their 2019 net earnings form self-employment (reducedby claimed section 179 expense deduction, unreimbursed partnership expenses and depletion from oiland gas properties) multiplied by .9235 that takes into account SE taxes multiplied by 8/52, not toexceed 15,285 No additional forgiveness is provided for retirement or health insurance contributions for Sch C filerand general partners, as such expenses are paid out of their net self employment income Owner-employees are capped by the amount of the 2019 employee cash compensation and employerretirement and health care contributions made on their behalf

Non-Payroll Costs for Forgiveness 13Eligible nonpayroll cost must be paid during the Covered Period or incurredduring the Covered Period and paid on or before the next regular billing date,even if the billing date is after the Covered PeriodCovered mortgage obligations: payments of interest (not including anyprepayment or payment of principal) on any business mortgage obligation onreal or personal property incurred before February 15, 2020 (“businessmortgage interest payments”)Covered rent obligations: business rent or lease payments pursuant to leaseagreements for real or personal property in force before February 15, 2020Covered utility payments: business payments for a service for the distributionof electricity, gas, water, transportation, telephone, or internet access forwhich service began before February 15, 2020Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amountPAYCHECK PROTECTION PROGRAM (PPP)

Non-Payroll Costs for Forgiveness – Beginning ofPeriod Example Covered Period Begins May 6, 2020 and Ends June 30, 2020Telephone Service period is April 1 – April 30, 2020 which is invoiced onMay 1, 2020 and due on May 7, 2020-14Payment is timely on May 1-5, 2020 - Not counted because expense was incurred andpaid prior to the covered periodPayment is timely on May 6-7 2020 – Entire amount counts because it was paid duringthe covered periodPayment is late on May 8 – June 30, 2020 – Entire amount counts because it was paidduring the covered periodPayment is very late after June 30, 2020 - Nothing can be included because it was notincurred nor paid during the covered periodPAYCHECK PROTECTION PROGRAM (PPP)

Non-Payroll Costs for Forgiveness – End of PeriodExample Covered Period Begins May 6, 2020 and Ends June 30, 2020Telephone Service period is June 1 – June 30, 2020 which is invoiced onJuly 1, 2020 and due on July 7, 2020-15Payment is timely on July 1-7, 2020 – Entire amount counts because expense wasincurred in the Covered Period and paid before the next billing date of August 1, 2020Payment is late on July 8 – August 31, 2020 – Entire amount counts because it wasincurred during the Covered Period and paid before the next billing datePayment is very late after August 31, 2020 - Nothing can be included because it wasnot paid before the next billing date notwithstanding the fact that the expense wasincurred during the Covered PeriodPAYCHECK PROTECTION PROGRAM (PPP)

Form 3508 – Schedule A16PAYCHECK PROTECTION PROGRAM (PPP)

Form 3508 – Schedule A (Cont’d)How does this impact health care and retirement plans for owners and self-employeds17PAYCHECK PROTECTION PROGRAM (PPP)

Adjustments That ReduceLoan Forgiveness18PAYCHECK PROTECTION PROGRAM (PPP)

Salary/Hourly Employees Wage Reductions DuringCovered Period Applies before application of the FTE reduction analysisDesigned to protect wages for employees whose annualized cashcompensation for all pay periods in 2019 are less than 100,000For each protected employee:---19Step 1: Determine if pay was reduced more than 25%- Compare the annual salary or the hourly wage during the covered or alternativepayroll covered period with that of Q1- Comparison or rates instead of actual payments, eliminates the issue created by 8weeks not being 75% of 13 weeksStep 2: For those with a greater than 25% reduction, determine if the Salary/HourlyWage Reduction Safe Harbor is met on June 30, 2020- Comparison is to “Average” salary/wage rate on June 30th so back wages may berequiredStep 3: For those not meeting the safe harbor, determine the Salary/Hourly WageReductionPAYCHECK PROTECTION PROGRAM (PPP)

Salary/Wage Reduction Example – Fact PatternDo any of the following apply (i) offer to rehirerejected, (ii) fired for cause, (iii) voluntarilyresigned, or (iv) voluntarily requested reductionof hours? In all cases, the position was not filledby a new employee.Enter WhetherEmployee is Hourly orAverage Annual SalaryOr Hourly WageWages and SalariesPaid During FirstMaximum Single PayPeriod Amount During 2019Employee NameSalariedFirst Quarter 2020Quarter 2020(If Hired in 2020 Enter Zero)Employee 1Salaried52,00013,0001,000NoEmployee 2Salaried104,00026,0002,000NoEmployee 3Hourly2513,0001,000NoEmployee 4Hourly156,8251,000YesEmployee NameAnnual Salary orHourly Wage as ofFebruary 15, 2020Employee 152,00031,20052,0004,800320Employee 2104,000104,000104,00016,000219Employee 32515154,800320Employee 415--20Average Annual Salary Average Annual Salary oror Hourly Wage BetweenHourly Wage as ofFeb. 15 and April 26, 2020June 30, 2020PAYCHECK PROTECTION PROGRAM (PPP)Wages and Salary for the 8Week Covered PeriodHours Worked for the 8-Week Covered Period--

Salary/Wage Reduction Example – Results21Employee NameWages in Excess of 100,000(Yes/No)Protected Wages(Yes/No)Wage and Salary SafeHarbor Met(Yes/No)Employee 1Employee 2Employee 3Employee 4NoYesNoNoYesNoYesNoYesNoNoNoEmployee NameFirst Quarter 2020Average Annual Salaryor Hourly Wage75 Percent ofProtected WagesCovered Period WagesPaid for Employeeswith Protected Wages75 Percent ProtectedWages Less CoveredPeriod Wages PaidReduction Relating toSalary and WagesEmployee 1-----Employee 2-----Employee 32519154Employee 4----PAYCHECK PROTECTION PROGRAM (PPP)1,200-

Adjustments That Can Reduce Loan Forgiveness Full-Time Equivalency (FTE) Reduction Calculation-What is a FTE---Observation:-22For each employee, enter the average number of hours paid per week, divide by40, and round the total to the nearest tenth. The maximum for each employee iscapped at 1.0A simplified method that assigns a 1.0 for employees who work 40 hours or moreper week and 0.5 for employees who work fewer hours may be used at theelection of the BorrowerSimplified method eliminates need for hours worked; just identify full time andpart time employeesPAYCHECK PROTECTION PROGRAM (PPP)

Comparison of Regular and Simplified FTEDeterminationExample 1 Previously, 3 employees @ 10 hrs. equals .9 FTE regular method or 1.5 FTEsimplified method Covered period 1 employee @ 30 hrs. equals .8 FTE regular method or .5 FTEsimplified method If more work is being done be fewer people regular appears betterExample 2 Previously, 3 employees @ 20 hrs. equals 1.5 FTE regular method or 1.5 FTEsimplified method Covered Period 3 employees @ 10 hrs. equals .9 FTE regular method or 1.5 FTEsimplified method If all non-full-time employees are working fewer hours simplified methodappears better

Adjustments That Can Reduce Loan Forgiveness(Cont’d) Full-Time Equivalency (FTE) Reduction Calculation-- If Borrower has not reduced the number of employees or the average paid hours ofemployees between January 1, 2020 and the end of the Covered Period there is noFTE reductionOtherwise determine the quotient by dividing the Total Average FTEs during thecovered period by the Average FTE during the Borrower’s chosen reference period butnot to exceed 1.0FTE Reduction Safe Harbor for Rehires-Borrower is exempt from the reduction in loan forgiveness based on FTE employeesdescribed above if both of the following conditions are met:1.2.-24Borrower reduced its FTE employee levels in the period beginning February 15, 2020, andending April 26, 2020Borrower then restores its FTE employee levels by not later than June 30, 2020 to its FTEemployee levels in the Borrower’s pay period that included February 15, 2020If salary/wages are not restored there may still be a reduction to loan forgivenessunder the Salary/Wage reduction rulePAYCHECK PROTECTION PROGRAM (PPP)

Adjustments That Can Reduce Loan Forgiveness(Cont’d) FTE Reduction Exceptions that do not reduce Loan Forgiveness:-- 25Any positions for which the Borrower made a good-faith, written offer to rehire anemployee during the Covered Period or the Alternative Payroll Covered Period whichwas rejected by the employeeAny employees who during the Covered Period or the Alternative Payroll CoveredPeriod but only if the position was not fill by a new employee- were fired for cause- voluntarily resigned- voluntarily requested and received a reduction of their hoursThese exceptions are critical to prevent reduction of loan forgivenesswhen employees cannot be brought back through no fault of theBorrowerPAYCHECK PROTECTION PROGRAM (PPP)

Comparison of Regular and Simplified FTEDeterminationExample 1 Previously, 3 employees @ 10 hrs. equals .9 FTE regular method or 1.5 FTEsimplified method Covered period 1 employee @ 30 hrs. equals .8 FTE regular method or .5 FTEsimplified method If more work is being done be fewer people regular appears to be betterExample 2 Previously, 3 employees @ 20 hrs. equals 1.5 FTE regular method or 1.5 FTEsimplified method Covered Period 3 employees @ 10 hrs. equals .9 FTE regular method or 1.5 FTEsimplified method If all non full-time employees are working fewer hours simplified methodappears to be better

FTE Reduction ExampleStep 1 - Determine the Reference PeriodOption #1 - Average Number of FTE Employees for February 15, 2019 to June 30, 2019 ("2019 Comparison Period")Beginning date for each week, Enter the number of employeesunless otherwise stated, for the hired as full-time or working on2019 Comparison Periodaverage 40 hours per weekFebruary 15, 201910February 22, 2019Enter the number of part-timeemployees for each weekSum all hours during the monthworked by part-time or variable houremployees. Do not count any hours Number of part-time/in excess of average 40 hours pervariable hours FTEweek for any one employee.employees390Weekly Average2.3012.3010390For Brevity Purposes, Only Illustrating the First Two Periods and the Last Two Periods2.3012.30June 28, 20191551654.1019.10June 29 to June 30, 20191551654.1019.10FTE Average for 2019Comparison Period15.90Option #2 - Average Number of FTE Employees for January 1, 2020 to February 29, 2020 ("2020 Comparison Period")Beginning date for each week, Enter the number of employeesunless otherwise stated, for the hired as full-time or working on2020 Comparison Periodaverage 40 hours per week27January 1, 20209January 8, 2020Enter the number of part-timeemployees for each week140Weekly Average3.5012.5095140For Brevity Purposes, Only Illustrating the First Two Periods and the Last Two Periods3.5012.50February 26, 2020841152.9010.90February 27 to February 29, 2020841152.9010.90FTE Average for 2020Comparison Period11.70PAYCHECK PROTECTION PROGRAM (PPP)5Sum all hours during the monthworked by part-time or variable houremployees. Do not count any hours Number of part-time/in excess of average 40 hours pervariable hours FTEweek for any one employee.employees

FTE Reduction Example (Cont’d)Option #3 - Seasonal Employers May Use a Consecutive 12-Week Reference Period Between May 1, 2019 and September 15, 2019 ("Seasonal Employer Period")Enter the first date the seasonal employer client would choose the 12-week consecutive referenceperiod between May 1, 2019 and September 15, 2019.Beginning date for each week ofthe consecutive 12-week period Enter the number of employeesbetween May 1, 2019 andhired as full-time or working onSeptember 15, 2019average 40 hours per weekMay 20, 201915May 27, 2019Enter the number of part-timeemployees for each week65/20/2019Sum all hours during the weekworked by part-time or variablehour employees. Do not count any Number of part-time/hours in excess of average 40 hours variable hours FTEper week for any one employee.employees160Weekly Average4.0019.00156165For Brevity Purposes, Only Illustrating the First Two Periods and the Last Two Periods4.1019.10July 29, 20191661604.0020.00August 5, 20191661553.9019.90FTE Average20.00Step 2 - Calculate FTEs for the Covered PeriodEnter the number of employeesBeginning date for each week of hired as full-time or working onaverage 40 hours per weekthe 8-week Covered PeriodApril 26, 2020May 3, 2020283Enter the number of part-timeemployees for each week1Sum all hours during the weekworked by part-time or variablehour employees. Do not c

6 PAYCHECK PROTECTION PROGRAM (PPP) How to Apply for Forgiveness: - Complete SBA Form 3508, Loan Forgiveness Calculation Form and PPP Schedule A - Submit paper or electronic forms to your Lender (or the Lender that is servicing your loan) according to Lender’s instructions SBA Loan application has four (4) components: 1.

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