Can I use 100% of PPP funds for payroll?

YES, the goal of the PPP was to retain employees.

Are health insurance contributions paid on behalf of owners an eligible payroll expense?

No, do not add employer health insurance contributions made on behalf of a self-employed individual, general partners, or owner-employees of an S-corporation, because such payments are already included in their compensation.

Are retirement contributions paid on behalf of owners an eligible payroll expense?

Do not add employer retirement contributions made on behalf of a self-employed individual or general partners, because such payments are already included in their compensation; However, retirement contributions for S corporation owners are eligible costs.

What are the reasons an employer can use the EZ form to request forgiveness?

 

    • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020; AND the Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period.

 

    • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020; AND the Borrower was unable to operate during 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 Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

 

The PPP Flexibility Act moved the safe harbor measurement dates from June 30, 2020 to December 31, 2020, does a borrower have to wait until December 31, 2020 to measure FTE reductions and salary/wage reductions?

No, the application states December 31st or the day the application is filed can be used to measure the salary/wage/FTE reductions.

What is the maximum amount of wages paid to an employee during the covered period that can be forgiven?

The PPP allows loan forgiveness for payroll costs — including salary, wages, and tips — for up to $100,000 annualized per employee or $15,385 per individual over the 8-week period. The new interim final rule establishes the 24-week maximum for full loan forgiveness at $46,154 per individual.

What is the maximum amount of salary paid to an owner during the covered period that can be forgiven?

While the employee compensation limit for the 24-week period is three times the 8-week limit, the PPP Loan Forgiveness Application states “any owner-employee or self-employed individual/partner” has a maximum forgivable salary in the 8-week period of the smaller of 8/52 of 2019 income or $15,385. For the 24-week period, the forgiveness calculation is limited to 2.5 months’ worth (2.5 ÷ 12) of 2019 net profit, up to $20,833.

Why is the forgivable salary amount of an owner capped at 2.5 months of income instead of 24-weeks of income?

Because the maximum loan amount for a business is generally based on 2.5 months of the borrower’s average total monthly payroll costs during the one-year period preceding the loan, a borrower with one other employee would receive a maximum loan amount equal to five months of payroll (2.5 months of payroll for the owner plus 2.5 months of payroll for the employee). If the owner laid off the employee and availed itself of the aforementioned safe harbor, the owner could treat the entire amount of the PPP loan as payroll, with the entire loan forgiven. “This would not only result in a windfall for the owner, by providing the owner with five months of payroll instead of 2.5 months, but also defeat the purpose of the CARES Act of protecting the paycheck of the employee,” the interim final rule says. “For borrowers with no employees, this limitation will have no effect, because the maximum loan amount for such borrowers already includes only 2.5 months of their payroll.”

Can I use 100% of PPP funds for payroll?

YES, the goal of the PPP was to retain employees.

Are health insurance contributions paid on behalf of owners an eligible payroll expense?

No, do not add employer health insurance contributions made on behalf of a self-employed individual, general partners, or owner-employees of an S-corporation, because such payments are already included in their compensation.

 

Are retirement contributions paid on behalf of owners an eligible payroll expense?

Depends, do not add employer retirement contributions made on behalf of a self-employed individual or general partners, because such payments are already included in their compensation. However, retirement contributions for S corporation owners are eligible costs.

What are the reasons an employer can use the EZ form to request forgiveness?

  • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020; AND the Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period.
  • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020; AND the Borrower was unable to operate during 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 Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

The PPP Flexibility Act moved the safe harbor measurement dates from June 30, 2020 to December 31, 2020, does a borrower have to wait until December 31, 2020 to measure FTE reductions and salary/wage reductions?

No, the application states December 31st or the day the application is filed can be used to measure the salary/wage/FTE reductions.

What is the maximum amount of wages paid to an employee during the covered period that can be forgiven?

The PPP allows loan forgiveness for payroll costs — including salary, wages, and tips — for up to $100,000 annualized per employee, or $15,385 per individual over the 8-week period. The new interim final rule establishes the 24-week maximum for full loan forgiveness at $46,154 per individual.

What is the maximum amount of salary paid to an owner during the covered period that can be forgiven?

While the employee compensation limit for the 24-week period is three times the 8-week limit, the PPP Loan Forgiveness Application states “any owner-employee or self-employed individual/partner” has a maximum forgivable salary in the 8-week period of the smaller of 8/52 of 2019 income or $15,385. For the 24-week period, the forgiveness calculation is limited to 2.5 months’ worth (2.5 ÷ 12) of 2019 net profit, up to $20,833.

Why is the forgivable salary amount of an owner capped at 2.5 months of income instead of 24-weeks of income?

Because the maximum loan amount for a business is generally based on 2.5 months of the borrower’s average total monthly payroll costs during the one-year period preceding the loan, a borrower with one other employee would receive a maximum loan amount equal to five months of payroll (2.5 months of payroll for the owner plus 2.5 months of payroll for the employee). If the owner laid off the employee and availed itself of the aforementioned safe harbor, the owner could treat the entire amount of the PPP loan as payroll, with the entire loan forgiven.  “This would not only result in a windfall for the owner, by providing the owner with five months of payroll instead of 2.5 months, but also defeat the purpose of the CARES Act of protecting the paycheck of the employee,” the interim final rule says. “For borrowers with no employees, this limitation will have no effect, because the maximum loan amount for such borrowers already includes only 2.5 months of their payroll.”