Tag Archives: Paycheck Protection Program

Save the Date! Complimentary Webcast February 4: Stimulus 2.0 – Employer Boot Camp – What You Need to Know Now

Join our labor and employment attorneys Rebecca Dobbs Bush and Kelly Haab-Tallitsch and corporate and banking attorney Andrew Podgorny on Thursday, February 4 from noon to 1:30 PM CT, as they discuss the key provisions of Stimulus 2.0: The Consolidated Appropriations Act, 2021 that your company needs to know now, including:

  • Expansion of Employee Retention Tax Credit – important new information
  • FFCRA voluntary extension and various provisions impacting employee benefit plan administration
  • Changes to the Paycheck Protection Program and Second Draw PPP loans – high level summary

A Q&A will follow. We hope you can join us!

STIMULUS 2.0: The Consolidated Appropriations Act 2021 – Key Provisions for Employers

Contributed by Rebecca Dobbs Bush, December 22, 2020

While it has not yet been fully passed and enacted into law, the full text of the Consolidated Appropriations Act, 2021 was released days ago and announced as having bipartisan support. Within the over 5,500-page Act, are several provisions designed to assist smaller businesses and those hardest hit by the economic challenges presented by the COVID-19 pandemic. As is common with legislation, the Act essentially presents only an outline of Congress’ intent and leaves relevant agencies to fill in the details of that outline. Pursuant to mandates in the Act, most agencies, such as the IRS, are directed to publish clarification within weeks of enactment.

While we await further guidance and clarification, the below list highlights those provisions, not specific to particular industries, that businesses should be aware of:

  • Paycheck Protection Program (PPP)
    • Borrowers now have the green light to claim deductions for any and all expenses paid with loan proceeds, regardless of whether or not they obtain forgiveness of their loan amount.
    • Employers are permitted to cover additional categories of non-payroll costs with PPP loan proceeds, such as:
      • “covered operations expenditures” which means “payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses”
      • “covered property damage costs” which means “a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation”
      • “covered supplier costs” which means payment to a supplier of goods for goods that are “essential to the operations of the entity at the time at which the expenditure is made; and is made pursuant to contract, order, or purchase order…”
      • “covered worker protection expenditures” which means an “operating or a capital expenditure to facilitate the adaptation of the business activities of an entity” to comply with guidance issued by HHS, CDC, OSHA or any equivalent requirements issued by state or local government since March 1, 2020. This may include expenses to create a drive-through window facility, an indoor, outdoor or combined air or air pressure ventilation or filtration system, a physical barrier such as a sneeze guard, an expansion of indoor or outdoor business space, or onsite or offsite health screening capability.
    • Clarification that “payroll costs” for purposes of PPP loans, includes group life, disability, vision or dental insurance benefit costs.
    • Simplified forgiveness application process for PPP loans up to $150,000.
    • “Second Draw Loans” for the Paycheck Protection Program
      • Eligible entities:
        • includes those employing less than 300 employees (now including nonprofit organizations) AND
        • Those that had “gross receipts” in a quarter during 2020 that represents a 25% reduction from gross receipts of the entity during the corresponding quarter in 2019.
      • Maximum loan amounts are 2.5 times the average monthly payroll costs up to $2 million (NAICS 72 entities can obtain 3.5 times the average monthly payroll costs up to $2 million).
      • An entity that returned all or part of a prior PPP loan has an opportunity to reapply.
      • Entities that did not obtain the maximum amount of PPP loan available to them based upon the regulations in place at the time of their initial application, may request a modification to previous loan amount.
  • Expansion of the Employee Retention Tax Credit
    • Expanded eligibility:
      • Participation in the Paycheck Protection Program does not lead to disqualification where the payroll at issue is not funded by PPP loan proceeds.
      • Gross receipts for the calendar quarter are less than 80% of the gross receipts for the employer in the same calendar quarter during 2019 (was previously required to be less than 50%).
      • Previously, those with more than 100 employees could only take the credit in regard to wages paid to an employee that was not providing services.  Those at or under 100 employees could take the credit in regard to wages paid to any employee. This threshold was increased from 100 to 500 employees.
    • Extension of the program through July 1, 2021
    • 50% credit for qualifying wages increased to 70%
    • Instead of “qualifying wages” capped at $10,000 per employee, revised to $10,000 per employee per calendar quarter.
  • Unemployment Insurance benefits
    • An additional $300 per week for all receiving unemployment benefits through March 14, 2021.

Be assured that we will be providing more insight as more developments unfold to our contacts and clients in the days and weeks to come. 

ATTENTION Paycheck Protection Program Loan Recipients: REVISED Forgiveness Application Issued

Contributed by Rebecca Dobbs Bush, June 23, 2020

As written about previously, the Paycheck Protection Program Flexibility Act, while short in text, went to great lengths in helping borrowers extend their “covered period” and maximize forgiveness.  As such, the previously issued forgiveness application needed to be revised.

Last week, on June 16, 2020, the SBA released a revised forgiveness application, a short-form and corresponding instructions for both. Generally, the short form is available for: 1) self-employed individuals; 2) those that did not reduce salaries by more than 25% and did not lay off any employees; or 3) those that did not reduce salaries by more than 25% and laid off employees, but did so because they were complying with CDC and OSHA guidance. The latter category is a new category of borrowers that no longer have to worry about prorated forgiveness. The revised applications and instructions can be found here:

Full Application

Instructions for Full Application

EZ Form

EZ Form Instructions

Specifically, the new Safe Harbor that exempts a borrower from having to worry about maintaining employee headcount is available for a borrower, that in good faith, is able to document the following:

…that it was unable to operate between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and precision, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

In addition to the above, the revised forgiveness application and corresponding regulations and instructions clarify that maximum “payroll costs” are revised to the following:

 Prior to PPP Flexibility ActPursuant to PPP Flexibility Act
Self-employed/sole proprietors/ ownersCash Compensation limited to: $15,385 (for an 8-week covered period)Cash Compensation limited to: $15,385 (for an 8-week covered period) OR $20,833 (representing 2.5 months of compensation with a 24-week covered period elected)
EmployeesCash Compensation limited to: $15,385 (for an 8-week covered period)Cash Compensation limited to: $15,385 (for an 8-week covered period) OR $46,154 (representing 24-weeks of payroll with a 24-week covered period elected)

Borrowers that intend to rely upon the new Safe Harbor should work with knowledgeable counsel to ensure adequate documentation is prepared for reference in the event an SBA audit occurs at a later date.

Forgiveness Requirements Relaxed with Passage of Paycheck Protection Program Flexibility Act

Contributed by Rebecca Dobbs Bush, June 5, 2020

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act. Notable changes will allow businesses more time to spend loan proceeds on permitted costs. This is significant relief for those businesses that were unable to continue operations and bring employees back to work.  With many of those employees being lower paid, paying them to stay at home was not well received as it interfered with the higher amounts of unemployment compensation they could otherwise receive.

The significant changes allowed by the PPP Flexibility Act are:

  • The period during which borrowers have to account for payroll and non-payroll expenses has been expanded from 8 weeks to 24 weeks.
  • Borrowers are only required to spend 60% on payroll costs and can spend 40% on non-payroll costs.  This is revised from the previous ratio of 75/25.  (Note that the definition of payroll and non-payroll costs remains unchanged).  This means a borrower has 16 weeks longer than originally legislated to cover rent and other permitted non-payroll costs.
  • Certain scenarios can provide for a borrower to be excused entirely from the FTE calculation. This means an employer that is unable to maintain the same employee levels during the 24-week period may not need to have the forgiveness of a loan prorated based upon a reduction in their average FTEs.
  • Repayment terms are modified.  Notably, the first payment will not be required to be made within 6 months of loan origination.  Instead, a borrower has 10 months from either the date the covered period ends or from 12/31/20 (whichever is later) to apply for forgiveness.  Initial payment is not due until forgiveness is determined.
  • The previous “cure” deadline of 6/30/20 where borrowers could rehire employees and/or reinstate salary levels has been extended to 12/31/20.
  • PPP borrowers are permitted to utilize the provision of the CARES Act that permits delay of payment of payroll taxes.

Key Takeaways for PPP Borrowers: The Forgiveness Application is Finally Out!!

Contributed by Rebecca Dobbs Bush, May 18, 2020

Late Friday, May 15th, the SBA released long overdue guidance on how to determine and apply for forgiveness of loans received under the Paycheck Protection Program. The application and corresponding instructions can be found here on the SBA website.

Within the application and instructions, several common questions have finally been answered:

  1. How do we calculate payroll costs?  Do we go by pay period date or pay date?  What if the 8-week covered period doesn’t match up with our payroll?

A payroll cost must be either incurred OR paid. Initially, the CARES Act indicated that it had to be both incurred and paid during the 8-week period. You look to costs paid or incurred during the 8-weeks (or 56 days) counting the date you received the loan proceeds. You can also adjust your 8-week period to an “alternative” covered period if your payroll is at least bi-weekly or more frequent.  In that case, you can begin the 8-week period starting with the first pay period that begins immediately following the date you received the loan proceeds.

Payroll costs are considered “incurred” on the day that the employee’s pay is earned.  Payroll costs are considered “paid” on the day paychecks are distributed or the date the borrower originates an ACH credit transaction.

This is not exactly a windfall that will allow you to randomly payout money in order to maximize forgiveness.  In terms of cash compensation, no individual employee can account for more than $15,385 (i.e., $100,000 prorated over 8-weeks).  This cap operates to limit the amount of cash payroll costs that you can account for.

2. Can we pay non-payroll costs early and use PPP loan proceeds for those?

The answer to this is: maybe. Again, this is better than expected with the original language in the CARES Act indicating the cost had to be both incurred and paid.  Instead, the forgiveness application indicates that a permissible non-payroll cost must be either incurred or paid during the covered period.  Going a bit further, the instructions permit borrowers to account for those non-payroll expenses “paid on or before the next regular billing date, even if the billing date is after the Covered Period.”

For example: A borrower’s eight-week “Covered Period” ends on May 31st. The borrower’s internet bill is paid on the 15th of each month.  That borrower can use PPP loan proceeds to pay the bill due on May 15th and also pay the bill that would otherwise be due on June 15th as long as three things apply: 1) the internet service being paid is one that began before February 15th; 2) the June 15th bill is paid before the expiration of the 8-week period on May 31st; and 3) the additional payment is not going to cause the borrower to have total non-payroll costs that exceed 25% of the total forgiveness amount.

3. What is an FTE?  And how do we count part-timers?

Full-Time has been clarified to mean 40 hours per week.  To account for part-timers, a borrower has two options.  The borrower can take weekly hours worked and divide by 40 to determine a percentage FTE for anyone working less than 40 hours/week.  Alternatively, and at a borrower’s election, employees working 40 hours/week or more can be counted as 1 and employees working on a part-time basis can be counted as a .5. 

4. In determining FTE headcount, do we have to account for people who can’t, or don’t want to, work?

No!  This is a big relief for those employers that have been struggling with natural attrition of their employees.  The instructions recognize certain circumstances where a borrower can claim an exception and account for an individual as a FTE even though they are no longer employed with the company as of the date of the forgiveness application.  These are: 1) an employee that was “fired for cause;” 2) an employee who voluntarily resigned; or 3) an employee who  voluntarily requested and received a reduction of his or her hours.

In the event a borrower is going to rely on one of the exemptions, they will want documentation for the file to substantiate the basis of the exemption in the event they are subject to an audit by the SBA at a later date.