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Newburg Update for 5/14/2020 – PPP & EIDL SBA Loan Updates

May 14, 2020 Uncategorized Comments Off on Newburg Update for 5/14/2020 – PPP & EIDL SBA Loan Updates

PPP- Tracking Your Payroll Costs and Eligible Expenses

Timing of your payroll. Depending on your payroll schedule, you may want to adjust the timing of your payroll date to accommodate as many payroll cycles where possible. For example, if your PPP loan gets deposited in your bank account on April 27, you could use the funds only on expenses incurred during the eight weeks following April 27 (i.e. next payroll run should include the payroll period beginning April 27 and the last payroll run should include the payroll period end date of June 21, with a paycheck date of June 21). Those companies on monthly payroll should strongly consider increasing the frequency of their employees’ pay to best capture the eight week spend. One of the areas within the PPP revolves around this issue of incurred vs. actually paid and the submission/support requirements are not 100% clear.

Consider a new bank account approach. While there is no explicit requirement to set-up a separate bank account, it has been recommended and many businesses often prefer to keep their tracking most accurate. Having a separate account makes the process easier to support in that you know exactly your spend and what is left over after the 8 week spend period. You can transfer the funds into your checking/operating account and/or payroll accounts as you spend the funds. Important to earmark and maintain support for each transfer.

For example, using the dates from the above, you can transfer the funds from the PPP account to the operating account to cover the payroll that was run following 4/27.  It is not worth changing the account on file with the payroll company for the ACH debits to a new account for the 8 weeks.  We suggest planning with the payroll company to change the frequency of the pay date/period if needed to get the 8 weeks covered as incurred.  If for some reason you are coming close to the final 8 weeks and need more payroll coverage to meet the 75% there should be some flexibility on working with the payroll company. While back-pay is not allowed, you can consider bonuses earned during the period as well.

Develop a tracking plan and consider the following :

  • Each pay period transfer, the net calculated amount after you remove any salary and wages in excess of $100,000, paid to each employee of the payroll from the PPP account into the operating account. The gross payroll is then taken by your payroll provider out of the operating account. The maximum allowable weekly salary per individual during the 8 week period is $1,923 (including owners). Note: The Salary for the entire eight week period is a maximum of $15,385 per individual ($100K times 8 weeks over 52 weeks in a year).
  • Note that health insurance premiums, employer retirement benefit payments, and employer state taxes while included in “payroll costs”, are not subject to the $100,000 limit. Each month transfer (or pay directly) the exact amount of health insurance premiums for all employees and company owners (employer contributions). You may want to consider using the PPP funds to cover 100% of the health insurance premiums during the 8 week period.  Note, long term disability and life insurance benefits are NOT included in the “payroll costs” definition. Prepaying future coverage periods is also not eligible.
  • Each month either pay directly or transfer the exact amount of utilities, rents/leases, or interest on debt applicable for the eight week period (make sure these permitted non-payroll costs do not exceed 25% of your spend). Note also that any interest or rent payments may only be on agreements in place as of February 15th.
  • Only use the PPP account for these PPP related expenses during the eight week spend.
  • Maintain support for each expenditure within the PPP account.
  • Consult your payroll advisor as they may have additional tracking resources for you within their software.

Loan Forgiveness Amount of the PPP

While final regulations have not been issued and forgiveness details could change, the current provisions state, to maximize forgiveness, you must use at least 75% of the eight-week spend on ‘payroll costs’. The remaining spend can go to specified ‘non-payroll’ costs which include debt interest, rent and utilities.

It is important to note that the PPP is primarily meant to help employers pay their employees throughout the 8-week period after receiving the loan. The intention of Congress in creating the PPP was to keep U.S. workers employed. For that reason, small business owners should make an effort to meet the 75% threshold, particularly if their goal is to maximize forgiveness.

Good-Faith Certification

It should be noted that on May 13, 2020 the SBA provided an update via FAQs #46 which addresses how the SBA will review borrowers’ required good-faith certification concerning the necessity of their loan request. Click here https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf and scroll to the bottom at #46 for full details.

The clarification essentially notes that PPP loans over $2 million will be subject to certification/audit. The SBA does not formally define or provide further benchmarks for what makes the PPP loan request necessary to support a Company’s ongoing operations. Further, it appears their audits will be based on the particular facts and circumstances specific to each borrower.

There is a New Exemption on Re-hiring Employees

This newer item of clarity could greatly improve your FTE count and help you maximize forgiveness. Employees who were laid off or put on furlough may not wish to be rehired onto payroll. If the employee rejects your re-employment offer, you may be allowed to exclude this employee when calculating forgiveness. To qualify for this exemption:

  • You must have made a written offer to rehire in good faith
  • You must have offered to rehire for the same salary/wage and number of hours as before they were laid off
  • You must have documentation of the employee’s rejection of the offer

Note that employees who reject offers for re-employment may no longer be eligible for continued unemployment benefits.

Rehiring Grace Period

While the amount of potential forgiveness is initially reduced by your average FTE headcount during the eight-week spend, there is a second “cure-all” or grace period if fully restored by June 30, 2020.Business owners can rehire any staff that were laid off, put on furlough, or brand new hires to restore FTE headcount and reinstate any compensation deficiencies that were decreased by more than 25% to meet the requirements for forgiveness. You have until June 30th to do so. If your eight-week forgiveness period ends before June 30, we believe you can still use the grace period if you reinstate headcount and/or wage level. Just be sure to apply for forgiveness after June 30. We anticipate final guidance to include further clarity regarding this provision within the PPP.

PPP vs. EIDL Loans – Expenditures & Forgiveness

The two biggest stimulus programs for small businesses are the SBA’s Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL). While the PPP program exhausted funds quickly and is now in its second round of funds, the EIDL program has been very slow to rollout. Many businesses who applied for the EIDL (directly with the SBA) may have forgotten about it as it feels like such a long time ago.  Hopefully that is changing as we have seen over the last week a considerable increase of clients receiving the EIDL loan terms. Last week, the SBA announced that EIDL loans will be capped at $150,000 and all new applications will only be accepted for ‘agricultural’ businesses.

PPP vs. EIDL Loans and Expenditures

Question: Can a business utilize funding from both loans?

Answer: Yes. Both can be utilized but not for the same costs. The application period for PPP loans runs through June 30, 2020, but the EIDL application period runs through December 2020.

You Cannot Use Funds From Both Loans for the Same Purposes

For example, you cannot use both EIDL and PPP towards “payroll”. As long as you do not use the EIDL for payroll costs, your PPP eligibility will not be affected. If the EIDL is used for payroll costs, your PPP amount will have to be used to refinance the EIDL. We recommend the EIDL loan be used for other working capital expenditures. Avoid using the EIDL for payroll costs, rent, utilities, and interest on debt payments.

Your EIDL Advance Grant Will be Deducted from the Loan Forgiveness Amount of the PPP

The EIDL allows small business owners to request an advance grant of up to $10,000. As an advance grant, it will not have to be paid back. However, if you receive an EIDL advance and a PPP loan, proceeds from the advance will be deducted from the loan forgiveness amount.

To illustrate, for example ABC Company gets a $25,000 PPP loan, then later receives a $5,000 EIDL advance. The amount of the advance would be deducted from the forgivable amount of the PPP loan. So even if the company follows all of the loan forgiveness rules, the most that can be forgiven is $20,000.

Visit our COVID-19 page for more information:

https://www.newburg.com/covid-19/

Contact us directly at info@newburg.com should you have any further questions.

 

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