Guidance on the Paycheck Protection Program (PPP) is still trickling out of US Dept of the Treasury and SBA.  Our COVID-19 Task Force continues to review all new information coming out from these organizations, and is frequently discussing our position and interpretations with other accountants, attorneys, and bankers.

It may seem like there is either conflicting information or that nobody has the final “right” answer to several questions…both of those are true.  The guidance that has come out so far regarding these PPP loans leaves a lot up to interpretation.  This may be intentional to allow for flexibility.  The frustrating part of this is for many questions there isn’t a “right” answer, we just need to use our best judgement and be prepared to defend our decisions.

Given that, here are the latest developments and our positions on certain items.

• A new application was sent out on Thursday (4/2) night.  Here is a link to the new app:  https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf
  • We continue to help clients with these applications.
• Any PPP loan amount not “forgiven” will convert into a note due in 2 years with a 1% interest rate.  This rate is higher than the 0.5% rate that was initially out there.  Initial payment on the loan is deferred 6 months…interest accrues during that time.
• Average Monthly Payroll Calculation
  • Time Period:  The PPP application says most companies will use 2019 payroll to calculate average monthly payroll while the guidance says the last 12 months.  These two are conflicting.  Our position is that if the business’ payroll has been pretty consistent over 2019 and into the beginning of 2020, then we will default to using 2019 numbers.  If there were significant changes during Q1 2020 in the payroll, we will run the numbers 4/1/19- 3/31/20 to compare.  The borrower will need to make a judgement as to which average monthly payroll cost seems more accurate and go with that number.  We suggest having the calculation both ways to provide to the bank for discussion.  Seasonal businesses use 2/15/19 – 6/30-19 and new businesses use 1/1/20- 2/29/20 for the calculation.
  • Cap of $100,000 compensation.  In our calculations we cap the salary, wages, tips, commission, bonus, guaranteed payments, at $100k.  There are some discussions of capping all salary and benefits at $100k but that is not our interpretation of the information that has been put out to date.
  • Benefits added to compensation.  We add to the compensation (salary, wages, tips, commission, bonus, guaranteed payments): employer paid healthcare, retirement contributions and state and local taxes assessed on compensation (SUTA).
• The payroll calculation banks are suggesting vary from bank to bank.  Many banks have put out their own calculators and, again, these vary from bank to bank.  The US Dept of the Treasury put out a Q&A doc that states borrowers are responsible for providing an accurate calculation of payroll costs and attests to that in their application.  Lenders are expected to perform a good faith review but they may rely on the borrower representations, including with respect to amounts required to be excluded from payroll costs.  https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequenty-Asked-Questions.pdf
  • We have reviewed the legislation and guidance and feel confident that our calculation methodology is accurate and represents the intent of the legislation.  Over the weekend we saw some bank produced calculators that are slightly different than our approach.  We are able to make the average monthly payroll calculation using a specific bank’s calculator if necessary to help our clients.  This would require our clients share that calculator with us.  If a bank is not requiring the use of their calculator, our preference is to use our methodology.
• Affiliation Rules:  on Friday night affiliation rules applicable to the PPP were published.  https://home.treasury.gov/system/files/136/Affiliation%20rules%20overview%20%28for%20public%29.pdf
  • There are four tests for affiliation based on control for the PPP.  Some of these could affect our clients that have ownership or management relationships among multiple organizations with employees that, when added together, are more than 500.
• Participating Banks:  The SBA has set up a “find an eligible vendor” tool.  You can find eligible PPP lenders by zip code:  https://www.sba.gov/paycheckprotection/find

Please keep in mind that the positions we are taking now may change as more guidance comes out.  As you begin collecting payroll information and working on your loan application, let us know if you need assistance.  We are here to help.  Reach out to your WR Partner or you relationship manager.  You can also email our COVID-19 task force for assistance:  COVID19TASKFORCE@websterrogers.com.

Sincerely,

WR COVID-19 Task Force