With funding from the Paycheck Protection Program reaching the hands of business owners, we are receiving many inquiries regarding proper documentation, use, and general best practices. Below you will find guidelines for best practices and answers to some of the most frequently asked questions. As the treasury continues to issue guidance, we will provide updates.
1. Keep PPP money in a separate account. It may be easier to document loan proceeds were for allowed uses only.
2. Start a payroll spreadsheet by employee: hours paid and gross pay for each week. As the weeks go by, this will give you the 8-week covered period eligible for forgiveness.
3. Add to spreadsheet additional allowed costs: health insurance and any retirement plan contributions.
4. Use PPP money for the following allowed non-payroll costs (up to 25% of loan amount):
- Rent (real estate leases)
- Interest on obligations in existence on 2/15/2020
- Utilities: electricity, gas, water, transportation, telephone or internet access
Note: amounts in 2,3, and 4 are going to in the forgiveness calculation and you need to keep support for all (see below)
5. Pull the following historic data:
- Employees and hours for the period February 15, 2019 - June 30, 2019 to calculate your full-time equivalent (FTE) (A)
- Employees and hours for the period January 1, 2020 - February 29, 2020 to calculate your full-time equivalent (FTE) (B)
- Calculate FTE equivalent on 8-week spreadsheet (C)
- You need these figures to calculate a reduction in workforce ratio - C/either A or B (whichever gives higher number).
6. Employee reduction in pay:
- Pull payroll info for 2020 Q1 by employee.
- More guidance is needed since Q1 is 12 weeks and covered period is 8 weeks. We expect we will get a formula for average weekly pay or a pay rate so that we are comparing apples to apples; otherwise virtually everyone would have a 25% decrease in pay since we are comparing 12 to 8.
- Compare to 8-week period for employees with more than 25% reduction in pay.
- More guidance is needed here since Q1 is 12 weeks and covered period is 8 weeks. We expect we will get a formula for average weekly pay or a pay rate so that we are comparing apples to apples; otherwise virtually everyone would have a 25% decrease in pay since we are comparing 12 to 8.
- Employees with annualized pay of over 100,000 are excluded from this calculation.
7. Re-hire exception: If you reduced your workforce between 2/15 and 4/26 but you restore your FTE count and/or employee pay by June 30th, you can exclude the restored employees from the reduction calculations.
- Historic records and calculations in 5a, 5b, and 6a should we supported by 941s. A reconciliation will make it much easier for bankers and SBA to process the forgiveness.
- Copies of payroll tax returns for the periods used.
- Cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, covered lease obligations, and covered utility payments.
9. What else will be needed:
- Certification from an authorized representative that: The documentation presented is true and correct; and The amount for which forgiveness is requested was used to retain employees, or make interest payments on mortgage obligations, rent obligations and/or utility payments in force prior to February 15, 2020
- Lenders have 60 days from receipt of documentation to render decision
- Add a memo to your files documenting the need for the loan
The Treasury is continuing to publish guidance so we will add any new information we receive to our COVID-19 Resource Center when published.