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The SBA issued on May 15, 2020 the PPP Loan Forgiveness Application Form which provides borrowers with additional guidance on the loan forgiveness calculation and clarified certain issues:
The Covered Period
The borrower may elect one of the following options:
DGC Observations: Borrowers with monthly payroll cycles appear to be excluded from this election. Clarification of a combination of hourly/bi-weekly and salary/monthly may be required.
Borrowers who qualify are more likely to elect the Alternative Payroll Covered Period as that generally delays the start of the eight-week covered period. Only in situations of higher FTE and salary/wage levels would a borrower elect the normal start of the covered period.
Payroll costs are considered incurred on the date the employee’s pay is earned. Payroll costs incurred, but not paid, during the Borrower’s last pay period of the covered period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.
Payroll costs are considered paid on the day that paychecks are distributed or on the day the Borrower originates an ACH credit transaction.
DGC Observations: This provision is a relief to many Borrowers as they thought they might have to modify payroll dates to fit within the “incurred and paid” eight-week period.
Amounts paid to owners (owner-employees, self-employed individual, or general partner) are limited to $15,385 or the eight-week equivalent of their applicable compensation in 2019, whichever is lower (2019 net profit divided by 52 times 8).
DGC Observations: It appears owners and general partners are excluded from the FTE and salary/wage dilution tests.
Full-Time Employees (“FTE”)
An FTE calculation is made by taking the average number of hours paid per week divided by 40, and rounding the total to the nearest tenth. The maximum number for each employee is capped at 1. A simplified method can be elected by the Borrower that assigns 1 to employees who work 40 hours or more per week and 0.5 for employees who work fewer hours.
Exceptions to the FTE Reduction Calculation (all applied during the covered period) include the following:
The Final Interim Rule issued 5/22 (page 14) added a requirement that in addition to offering in writing to rehire an employee at same hours and salary/wages that the employer should notify the unemployment office of such employee's denial of the employment offer. This notification to unemployment offices was not included in prior guidance.
DGC Observations: We initially thought that FTE would be calculated using 30 hours based upon the Payroll Retention Credit provisions of the CARES Act that referenced IRC Section 4980H for purposes of 100 FTE threshold. The number of hours for FTE determination was never addressed directly in the PPP Loan forgiveness calculation section of the Act.
Other Payroll-Related Costs
These additional costs include:
Eligible Non-Payroll Costs
These costs are calculated based upon the covered period and not the Alternative Payroll Covered Period.
An eligible nonpayroll cost must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the next billing date is after the covered period concludes.
DGC Observations: Unlike some experts, we do not believe that gas for vehicles is an eligible nonpayroll cost. The normal interpretation of utilities is electric, gas, water and oil relating to a premise occupied by the borrower. Vehicle gas purchases are usually not pursuant to a contract in existence as of 2/15/20. Additional guidance may be required for vehicle fleet programs.
The Other Allowable Nonpayroll Costs are calculated based on the covered period and not the Alternative Payroll Covered Period.
If you have questions or want to discuss how DGC can assist you with loan forgiveness calculation, please contact a member of your DGC client service team or George Shaw, CPA at 781-937-5125 / firstname.lastname@example.org or Kimberley Train, CPA, ABV at 781-937-5112 / email@example.com. You can also visit our coronavirus web page at dgccpa.com/coronavirus which is frequently updated with resources to help you deal with the impact of the coronavirus on you and your business.
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