PAYCHECK PROTECTION PROGRAM: WHAT EVERY … · 2020-04-06 · • The Paycheck Protection Program...

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

UPDATED as of April 4, 2020

PAYCHECK PROTECTION PROGRAM: WHAT EVERY RESTAURANT NEEDS TO KNOW

2 PAYCHECK PROTECTION PROGRAM: WHAT EVERY RESTAURANT NEEDS TO KNOW

Today’s Speakers

• Adam Berebitsky – National Restaurant Industry Group

• Lisa Haffer – National Restaurant Industry Group

• Jim White – Tax Office Managing Partner

• Kevin Van Nortwick – Tax Office Managing Partner

• Joan Vines – Compensation & Benefits/GES Technical Practice Leader


Agenda

Welcome and Introduction Adam Berebitsky

The Paycheck Protection Program -Practical Applications for Restaurants

Jim White Kevin Van Nortwick

Interplay with Payroll Tax Relief Joan Vines

Concluding Remarks Adam Berebitsky

4A Conversation Regarding the New Employee Payroll Credits, the New and Old SBA Disaster Loan Programs, and How to Utilize Newly Created BDO Tools to Help Clients Maximize Benefits

**UPDATE AS OF APRIL 4, 2020** SBA Final Interim Rule


SBA INTERIM FINAL RULE ISSUED APRIL 2, 2020

What Happened?• The SBA issued Interim Final Rule on April 2, 2020.• Rule provides clarification but also makes significant changes

What Are Some of the Significant Changes?• Interest Rate: Increase to 1% from .5%• Use of Loan Proceeds: New requirement that at least 75% of the PPP loan proceeds

must be used on payroll costs• Amount of Loan Forgiveness: Up to the full principal amount of the loan and any

accrued interest• Independent Contractors: Cannot be included in an employer’s payroll; instead

must apply for their own loans


The Paycheck Protection Program -Practical Applications for Restaurants


Note regarding updates to this presentationOn April 2, 2020 (one day after this presentation), the SBA issued a Final Interim Rule that made many significant changes to the topics presented during our webinar. The most relevant ones are listed in a separate slide at the beginning of this deck, and will also be noted on the following slides within this presentation:

Use of Funds: Slide 8Interest rate: Slide 9Accrued Interest Forgiveness: Slide 9Loan forgiveness: Slide 12Sample Checklist: Slide 13Certifications: Slide 14

If an item changed by the Final Interim Rule was not contained in our original presentation, we did not revise the presentation to include it. BDO will issue thought leadership that will provide updates and insights related to Final Interim Rule changes as well as future guidance issued by Treasury and the SBA.


Payroll Protection Program (“PPP”): The Basics What is it?• The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs

including benefits. • Funds can also be used to pay interest on mortgages, rent, and utilities, but at least 75% of the loan proceeds

must be used for payroll costs.• Loan can be forgiven (more on that later)• Loans can be made between February 15, 2020 – June 30, 2020 (the “covered period”).

• We now know that banks started to accept applications on April 3, 2020.

Who Qualifies?• Small business concerns that have 500 or fewer employees • Restaurants, foodservice businesses, caterers and hotels that employ 500 or fewer employees per

physical location of the business• Must operate under the 72 NAICS Code (Accommodation and Food Services)

• SBA affiliation standards are waived for:• Restaurants, foodservice businesses, caterers and hotels with less than 500 employees• Franchises listed in the SBA’s Franchise Directory

• In the absence of further guidance, it is unknown whether each separate location qualifies for a loan

Guidance is needed to confirm treatment of: Consolidated corporations with multiple restaurant locations: appears to be multiple loans Restaurant groups with management companies that do not use the 72 NAICS Code (but the restaurant entities do)


Payroll Protection Program (“PPP”): The Basics

How Much Can I Borrow?Up to $10MM, capped at the lesser of:• $10MM • or• 2.5 times average total monthly “payroll cost” incurred in the one-year period before the date on

which the loan is made plus outstanding balance on Disaster Relief Loan made from 1/31/20 through date the PPP loan is made can be refinanced via the PPP

• If a business was not in existence during the 2019 period you can use 2.5 times the average monthly payroll between January 1 and February 29, 2020

What are the terms?• .50% fixed rate UPDATED TO 1% ON APRIL 2, 2020• Payments are deferred for 6 months; interest accrues over this period, but can be forgiven• Loan is due in 2 years; no prepayment penalty or fee if repay the loan early

When Can I Apply?• Starting on April 3rd, 2020


Payroll Costs Defined

What is Included in “Payroll Cost”? • Salary, wages, commissions • Payment of cash tip or equivalent (i.e., tips reported for W-2 purposes)• Payment for vacation, parental, family, medical, or sick leave• Allowance for dismissal or separation• Payment required for the provisions of group health care benefits, including insurance premiums• Payment of any retirement benefit• Payment of State or local tax assessed on the compensation of employees• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from

self-employment

What is Not Included in “Payroll Cost” • Salary, wages, commissions and tips in excess of an annual salary of $100,000, as pro-rated for the

period February 15, 2020 – June 30, 2020 • Certain taxes withheld during the period February 15, 2020 – June 30, 2020• Qualified Sick Leave wages for which a FFCRA credit is claimed• Qualified Family Leave Wages for which a FFCRA credit is claimed


ForgivenessCan My Loan Be Forgiven?Loans will be forgiven as long as the loan proceeds are used to cover the following costs over the 8-week period after the loan is made:• Payroll Costs• Interest payments on mortgages• Rent• Utilities• AND• Employee and compensation levels are maintained (see next slide)

How do I apply for Loan Forgiveness?• Submit a request to the lender that is servicing the loan at the end of the 8 week period.• Provide documents that verify:

• the number of full-time equivalent employees and pay rates and• the payments on eligible mortgage, lease, and utility obligations

• You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.


ForgivenessThe PPP is an Incentive to Not Reduce Workforce:• Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.

Forgiveness amounts will be reduced for any employee cuts or reduction in wages using a pro-rata formula

Number of Staff: • Your loan forgiveness will be reduced if you decrease your full-time employee headcount.• FTE = 30 hours

Level of Payroll:• Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee* that

made less than $100,000 annualized in 2019.• * Does not have to be the same employee

Exception for Re-HiringYou have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Amounts of Forgiveness do not constitute taxable income


Sample Checklist to Prepare for SBA Loans (Updated April 4, 2020)

• Documentation that you had employees for whom you paid salaries and payroll taxes on or around February 15, 2020.

• Documentation of the dollar amount of average monthly payroll costs for the preceding calendar year

• Additional information may be required – check with your bank.


Certifications for SBA Loans

Borrowers must certify the following (relevant items only are listed):• The Applicant was in operation on February 15, 2020 and had employees for whom it paid

salaries and payroll taxes • Current economic uncertainty makes this loan request necessary to support the ongoing

operations of the Applicant.• The funds will be used to retain workers and maintain payroll or make mortgage interest

payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.

• The Applicant will provide to the Lender documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan.

• I understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs.

• During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under the Paycheck Protection Program.


Interplay with Payroll Tax Relief


Employee Retention Credit – What, Who and How MuchWhat is it?• A refundable payroll tax credit for employers who are harmed by COVID-19, but retain their

employees.

Who Qualifies?• Employers qualify for the credit if:

- Their operations were fully or partially suspended due to a COVID-19 related shutdown orderOR- Their gross receipts for the quarter were less than 50% of the gross receipts for the same quarter in the prior year

• Employers that receive a PPP loan do not qualify for the credit

How much is the credit?• 50% of qualified wages paid to employees between March 12, 2020 and December 31, 2020

– Capped at $10,000 of wages per employee

• The maximum available credit is $5,000 per employee (50% of $10,000)


Employee Retention Credit, continued

What are qualified wages for purposes of the credit?

• Employers with more than 100 full-time (at least 30 hrs. per week) employees (on average in 2019), count only wages paid to employees who are not working.

• Employers with 100 or fewer full-time (at least 30 hrs. per week) employees, count all wages paid to all employees.

• Qualified wages include the payment and the cost of providing health care coverage up to the $10,000 maximum.

• Emergency sick and FMLA payments mandated by the Families First Coronavirus Response Act by employers with fewer than 500 employees, do not constitute qualified wages (a 100% credit applies)


Employee Retention Credit – How to Get the Credit

• Identify the amount of qualifying wages perhaps by setting up a new payroll code in your system• New codes can track payments that qualify and your system might provide features that cut off at $10,000.

• Caution-• Most payroll systems do not currently have the allowed health care cost so new procedures must be established to get these amounts

added to the payroll disbursement for purposes of credit calculations.• The total amount from the from the Employee Retention Payment codes plus the health care cost (up to $10,000 per employee) will be

multiplied by 50% to determine the credit amount.

• Employers collect their own refund via offset to regular payroll deposits

• Guidance was issued on March 31, 2020 making it clear that the Employee Retention Credit can be offset from the employers total federal deposit for each pay period.

• This guidance also provides the refund procedure to be used when the credit amount exceeds the regular total payroll deposit.

• Form 7200

• Should be processed within 2 weeks of filing.


Deferral of Employer Payroll Taxes What is it?• Delay the payment of the employer portion of Social Security tax (6.2%) that would otherwise be due

and payable by December 31, 2020

Who Qualifies?• All employers except an employer who “has had” loan forgiveness under the PPP.

• Guidance is needed to determine if loan forgiveness triggers payment in full of amounts deferred prior to approval of loan forgiveness.

What is the deferral period?• 50% of the deferred amount can be deferred up to December 31, 2021, and any remaining amount can

be deferred up to December 31, 2022.

What is the impact on my FICA Credit?• Generally, the FICA Credit equals the amount of employer social security and Medicare taxes paid or

incurred by the employer on tips received by the employee. • During the period of deferral, the employer is treated as having made timely deposits of applicable

taxes, as long as payments are made when due under the schedule noted above.• Guidance is needed to confirm that this allows restaurants to claim the FICA Credit during the deferral

period.


Putting the Pieces Together

You retain employees; Government covers 100% of the cost of payroll* at no cost to you:• FFCRA mandated sick and leave provisions• SBA loans that are fully forgiven

- *SBA loans that are partially forgiven: you and the Government split the payroll costs

You retain employees; Government covers part of the cost of payroll to help you conserve cash:• Employee Retention Credit• Payroll Tax Deferral


Next Steps


My Head is Spinning….What Should I do?

• There is no one size fits all solution.

• A complete analysis of all of the facts and circumstances should be performed.

• In the restaurant industry, there are non-tax advantages to keeping your existing workforce intact by continuing to pay wages:− Shortens the time needed to return to normal operations− Accelerates economic recovery− Avoids costs to locate and train new employees− Builds brand loyalty


Questions?

PAYCHECK PROTECTION PROGRAM: WHAT EVERY … · 2020-04-06 · • The Paycheck Protection Program...

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