The SBA and US Dept of the Treasury released two new IFR’s on Friday evening. The Interim Rule on Loan Forgiveness expanded on some of the items found in the Loan Forgiveness Application and also added some new guidance. Below are highlights of the new guidance or changes/clarifications of old guidance found in the IFR.
Payroll Costs Eligible for Loan Forgiveness
Heretofore we have taken the position that payroll costs must be “incurred” during the 8-week period in order to be eligible for loan forgiveness, however the new IFR seems to strengthen the argument that any payroll costs “paid” during the 8-week covered period could be eligible. If this is the case, a payroll payment made at the beginning of the covered period that was for work performed prior to the 8-weeks would count as eligible payroll costs.
While we are not yet ready to completely change our position and advise clients to always count payroll costs paid but not incurred, we are open to the idea in the right situations. To be safe, we are advising clients to first run payroll numbers using the costs “paid and incurred” during the 8-weeks, and incurred during the 8-weeks and paid on the first payroll following the 8-weeks. If, after calculating those numbers and adding in the nonpayroll costs, the full loan amount is not exhausted, we would then recommend considering adding the payroll costs paid during the 8-weeks that were not incurred during that time.
Bonuses and Hazard Pay Are Allowed
There is nothing in the CARES Act or PPP guidance that says you cannot pay employees more than they would normally make during the 8-weeks, as long as it is for services performed up through that point in time and they are under the $15,385 cap for cash compensation. The IFR reconfirms that bonuses or hazard pay is allowed and qualifies as a payroll cost.
Caps on Compensation for Owner-Employees and Self-Employed Individuals
Owner-employees and self-employed individuals’ payroll compensation is capped at the lesser of 8/52 of 2019 compensation or $15,385 per individual across all businesses.
Owner-employees (receiving W-2 wages from the business) are able to add their employer retirement and health care contributions as qualified payroll costs.
Schedule C filers are not allowed to add any of their retirement or health care contributions to their qualified payroll costs. Likewise, general partners (partners who receive self-employment income) are not allowed to add any of their retirement or health care contributions to their qualified payroll costs.
Offer for Rehire Refused- A New Step
Earlier guidance explained that an employer would not have a reduction in forgiveness based on FTE reduction if an employee was offered their previous job back with the same hours and at the same rate/salary, and they refused. The previous guidance indicated the employer must provide the offer in writing and the refusal of the offer must be documented and records maintained. The new IFR adds the new step that the borrower must inform the applicable state unemployment insurance office of the employee’s rejected offer of reemployment within 30 days of the employee’s rejection.
We addressed the prior guidance in a previous e-blasts (PPP update- What happens if your employees refuse to come back to work? and PPP update 5/8/20- What we learned this week). The SC Department of Employment and Workforce has provided instructions for dealing with employees who refuse an offer to return to work. This addresses how an employer can perform the new step of notifying SCDEW that the offer for rehire has been refused.
As it has been since the beginning, the PPP program is ever-evolving. We will continue to monitor changes and do our best to make you aware of those changes that will impact you.
If you need assistance with your loan tracking or you would like to discuss your situation relative to PPP loan forgiveness, 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.