Okay, you got your PPP funding, Congratulations! This article is going to help you navigate the Do’s and Don’ts and best practices to ensure you qualify to have your loans forgiven. We will discuss what you can and cannot use the funds for in order to have the funds forgiven and what documentation you will need. We also will cover the Frequently Asked Questions that we get from our clients when it comes to using the PPP funds. At HR Wise our HR Professionals have been researching and updating our clients on the next steps to take with guidance from the Small Business Administration and Centers of Disease Control and Administration.
Loan Utilization
For full forgiveness the loan must only be used on specific items:
If applicable, one of the first items to use this loan on is to pay of existing debt on the Economic Injury Disaster Loan (EIDL).
- This includes all cash compensation, salary wages, tips and commissions
- Payment for vacation, family, medical and sick leave is included as well. However it CANNOT BE emergency sick and paid leave provided through the CARES Act. This is due to forgiveness on taxes of this compensation is already set in place and is considered “double dipping”.
- The cap per employee is $100,000. If you have employees being compensated at a higher rate you may due so, however the amount that surpasses will NOT BE INCLUDED in forgiveness.
- Benefits and 401k can be included in payroll cost on top of cash portion listed above.
- Payroll costs EXCLUDES:
-
- Workers comp, additional fees and federal taxes
-
- This portion of the loan was set in plan to ensure business continuity.
- All expenses paid in this portion of the loan must have been set in place PRIOR TO FEBRUARY 15, 2020.
-
- For example you may not use the proceeds on rent when the lease agreement was signed March 1st, 2020.
-
- As the borrower this will be something that you will NEED DOCUMENTATION TO VERIFY.
- The proceeds may NOT BE USED for rent or a mortgage on personal property. The proceeds should solely be used on business properties.
- It is important that you do not have any reduction in salary.
- You will want your payroll costs to reflect a pre-crisis stage.
- Employees may refuse to come back to work. (This will be discussed in full later in the blog).
-
- However you may not need the SAME EMPLOYEE to return in place. Instead keep in mind the typical headcount and cost of payroll at the pre-crisis stage.
- We are still waiting on further guidance on this subject from the Small Business Administration.
-
Best Practices to Track Expenses
One of the most important aspects of this loan is that it may be forgiven if used on items listed above. Business owners all over the nation will now be attempting to follow these guidelines. This section will discuss best practices to track all expenses linked to your PPP loan to better ensure forgivness.
- When possible set up a separate bank account to pull PPP funds from.
- Maintain all documentation that ties back to utilization of PPP loan proceeds. This includes: payroll, rent, mortgage interest and utilities during covered period.
- Ensure that all documents clearly display the date to prove it fell within the 8 week covered period. The period starts the day you have access to your funds.
- Mortgage notes, rental agreements and proof of utilities must have been set in place/incurred before 02/15/2020 (have documentation)
- Maintain a separate file for payroll reports and payments made with PPP loan proceeds
- **** BACK UP ALL FILES ****
Employees are Refusing to Go Back to Work
There are a multitude of reasons why an employee may not want to return to the workplace as soon as the stay-at-home orders have been lifted. It is important that as a leader of your company that you explore their reasoning with empathy and concern. Be sure to have a plan in place to ensure your staff’s health and safety. This will be our “new normal”. It is important to acknowledge at no point can you force employees to go back to work.
Some Frequently Asked Questions on This Topic Include:
If this response is documented in writing from the employee then the employer has the right to enforce their normal time and attendance policy. Also it is important to acknowledge that refusal to work (in this circumstance) may result in that employee no longer being eligible for the unemployment insurance benefits.
At this time employees do have the right to refuse returning to work due to “feeling unsafe.” It is important that as the employer you are explaining to staff the procedures being put in place to better ensure the staff’s health and safety. Such as physical distancing, sanitation procedures and materials such as masks and gloves are available in the workplace. If possible, allowing this employee to work remotely is another possible solution.
Yes, new hires may be included in payroll as long as your payroll does not exceed where it was at in the pre-crisis stage. A new hire can be a solution to replacing employees who are not wanting to return to work as well as bringing on another furloughed employee in their place.
PPP loan borrower’s forgiveness amount will not be reduced should the company make a good faith attempt, in writing, to re-hire a laid-off employee and the former employee declines the job offer. Again, the borrower must have “made a good faith, written offer of rehire” and the employee’s rejection must be documented.
- The SBA and Treasury plan to issue an interim final rule excluding such laid-off employees from the loan forgiveness reduction calculation in the near future.
HR Wise llc Recommends To Make All New Hire Offers in This Set Fashion
- Call employee and confirm an up to date email address. Inform them that the new-hire offer will be delivered via email. DOCUMENT WITH A CALL LOG all attempts confirming dates and times the employee was reached.
- Document when the email with the new-hire offer was sent. Mark this email with both a high importance read receipt as well as a delivery receipt.
- Be sure to inform your employee that they will need to respond to the email in a timely fashion.
- Document the employees acceptance/rejection of the job offer.
- Keep all documentation organized and easily accessible. This will later be presented to your lender had your payroll receded more than 25% than it was at it’s “pre-crisis” stage.
***Taking these necessary steps can help prevent potential minimization of your PPP loan proceeds to be forgiven.***
Receiving Loan Forgiveness
What would reduce the maximum forgiveness amount?
There are two scenarios where a borrowers forgiveness amount could be reduced. These include:
- The number of Full-Time Equivalents has reduced
- There is a reduction in salary or wages per employee while the headcount remains unchanged.
- If payroll recedes 25% or more there will most likely be a reduction in the borrowers forgiveness amount.
**It is extremely important to try and keep the company’s payroll as close to the pre-crisis stage as possible.**
How can an employer request loan forgiveness??
- Submit a request to the lender who serviced the loan. The lender has 60 days to make a decision.
- Final rules on this process are anticipated to be clarified up completion and publication of SBA rule
**It is most important to stay WELL DOCUMENTED in the 8 week period that you utilized the loans expenses.**
Additional Resource
If you still have additional questions regarding the PPP Loan please click here and access the FAQ document provided by the Small Business Administration with the consultation from The Department of Treasury.