New FAQs, Clarification on the Paycheck Protection Program
The impact of the COVID-19 emergency has had a widespread impact on individuals, families, and businesses. The implementation of forced business closures and shelter in place orders have left many companies facing surreal challenges. With limited or no opportunity to generate revenue, businesses have been forced to terminate or furlough employees leaving many without jobs and income to pay essential bills. It was recently reported that from March 15, 2020 – April 4, 2020, the number of unemployment claims filed in Pennsylvania was 1,135,053, an astounding amount. To help address this issue, Congress initiated the Paycheck Protection Program (PPP) to provide needed funds to help businesses retain employees. The quick rollout of the program with limited guidance has left many with detailed questions about loan calculation, the application process, and more.
The Treasury recently issued a list of Frequently Asked Questions (FAQ) to provide additional clarification. To help clients, prospects, and others, Klatzkin has provided a summary of key topics addressed below.
- Employee Calculations – There has been some confusion about how to calculate the number of employees. The FAQ outlines the methods available for calculating the total number of employees. In general, borrowers can calculate total payroll costs using data over the last twelve months or from the 2019 calendar year. Seasonal businesses should use the average monthly payroll for the period between March 1, 2019, and June 30, 2019. To meet the employee-based size standard, applicants can use average employment over the same periods when making employee calculations. The flexibility in the calculation is designed to allow a higher number of businesses to qualify.
- Payroll Cost Calculation – The FAQ provides essential information about the calculation of payroll costs. First, it states that payroll costs per employee should include the amount of compensation paid to an employee, including salary wages commissions, as well as the cost of family medical leave, or sick leave, allowance for separation or dismissal, and similar costs. Compensation will be capped at $100,000 annually for an employee. In addition to compensation, payroll costs include the employer portion of amounts paid for benefits such as healthcare premiums or employer contributions to a retirement plan. Also, the employer portion of state and local taxes assessed on compensation is an allowable payroll cost. For a sole proprietor or independent contractor, compensation should reflect net earnings from self-employment.
- Lender Applications – When the program was rolled out, applicants were directed to use the application form created by the Small Business Administration (SBA). Still, many lenders use their loan application and certification forms. This created confusion amongst applications about the correct forms to use. The FAQ clarifies that lenders are allowed to use their online systems and forms to collect the same information as the SBA forms. However, lenders will still be required to submit applicant data through the SBA system.
- Application Resubmission – Since information and guidance on the PPP are coming at a fast pace, some are concerned about the need to submit a new application that conforms to the latest news available. The FAQ makes it clear to lenders and borrowers to rely on law and guidance available at the time of application. However, those who have submitted an application that has not yet been processed may be requested to adjust based on the latest clarification/guidance available.
- Loan Forgiveness Period – The eight-week period begins once the lender makes the first disbursement. Typically the lender must disburse the funds within ten days of the loan application being accepted. The amount of forgiveness is contingent on the borrower’s payroll costs over an eight-week period.
Treasury Secretary Steven Mnuchin said yesterday at a press conference that the Trump administration will likely seek an additional $250 billion to support the PPP. We will continue to monitor legislative activity closely and keep you apprised of developments.
As more business owners evaluate funding opportunities available through the PPP, it’s likely more clarification and guidance will be issued. Although there have been some unexpected complications to the application process with specific lenders, interested businesses are encouraged to start the application process as soon as possible. If you have questions about the Treasury’s clarification or need assistance with another COVID-19 business issue, Klatzkin can help. For additional information, click here to contact us.
The above represents our best understanding and interpretation of the material covered as of the date of this alert – April 8, 2020. Things are moving at a rapid pace, and as such, information is subject to change. This post is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from an accountant.