As another year comes to a close, we recommend finding time to reflect on 2021…
Well, I am sure you have seen the updated PPP loan forgiveness information released by the SBA this past Friday. If not, you can access it here. You’re going to also want to check out this summary of the PPP loan which outlines costs eligible for forgiveness, as well as a host of other things.
This afternoon, we sat through a 2-hour webinar put on by NAPEO about applying for PPP loan forgiveness. The webinar slides are included here, but the whole thing is EXTREMELY complicated and confusing. The sample company they go through in the PowerPoint only has 5 employees, and it took us 2 hours to go through it. I think you need a NASA engineer to figure this out!
Be prepared to engage professional help when you start the forgiveness request process. There are still a ton of unanswered questions, and we are sure the SBA and the Department of Treasury will be sending out new items weekly to make our lives so much better… (I’m sure you can sense the drips of sarcasm)!
One thing that has been answered (sort of) is the definition of the FTE, or Full Time Equivalent employee. We will do our best to explain how an FTE is calculated.
Based on the formula in the forgiveness application, a full-time person must average at least 40 paid hours every week for the 8-week time period following your receipt of the loan proceeds. You arrive at this by adding the hours paid over the 8 weeks and dividing it by 8 to make sure they average 40 hours or more. This is considered an FTE and gets a score of 1.0 on the formula chart counted as 1 full-time employee equivalent.
If an employee missed time for being out on leave or if you hired them after the 8 weeks started, whatever week they did not work any hours would be counted as zero hours. The people that don’t make the whole FTE 1.0 are also added to the total by dividing their average hours worked over the 8 weeks by 40 hours.
So, let’s say an employee averaged 32 hours; you would divide 32 by 40 and get .80. In the worksheet form on page 9, you would put .80 on the Average FTE line. That’s all this person would count toward the total number you need to reach.
There is a simplified method of giving all part-time employees a 0.5 toward the FTE (or one half of an FTE). This would be advantageous for anyone that has a lot of part-time people with short hours per week.
Sounds simple right?
They also have another safe harbor built-in for FTEs, if you bring an employee’s wages back to his or her previous wages by June 30th, 2020. This, of course, opens up a whole host of additional issues. For instance, if you bring them back to previous wages for one pay period, does that count? If you bring them back before June 30th does that count? Lots of unanswered questions and the formulas are very complicated.
Next, you have to look up the allowable time periods for calculating your targeted FTE count to reach for 100% forgiveness.
The good news is that the required FTE number you need to reach can be lowered by: 1) anyone you released and then offered them their job back but they refused, 2) anyone that was terminated for cause, 3) anyone that resigned of their own accord, and 4) anyone that volunteered to lower their hours due to their own personal issues. You will need extremely good documentation for all these reasons to lower your FTE Headcount.
You need to figure out your final required FTE count and your achieved FTE count before you get to the next section. Your payroll forgiveness will be based on the amount of pay averaged in the same time period you used to calculate your headcount compared to the amount paid during the 8-week period since receiving the PPP loan proceeds. Your payroll must be at least 75% of the previous pay, and any amount paid less than the 75% will be counted against your forgiveness amount.
This is just the beginning of what is going to be a very complicated workflow for all small to medium-sized businesses that took the PPP loan to help stay afloat.
We will be digging further into this every day for the foreseeable future, so we can help advise everyone on the best way to move forward.
- SBA Forgiveness Application – This is the document put out by the SBA Friday evening.
- CARES Act allows tax-free student loan assistance – This is great information for anyone that employs people with student debt. I hope to have more details about this soon.
- Groom Summary Letter – This is the summary of the SBA document released this past Friday.
- NAPEO Forgiveness Webinar – This is the PowerPoint presentation mentioned above that attempts to walk you through a PPP loan forgiveness application for a fictitious 5-person company.
We will be sending out these updates daily, if possible, as we clarify more details. Please feel free to send any questions to us, and as we come across the answers, we will try to get the information to you.