Payality’s

PPP Loan Forgiveness Guide

DISCLAIMERThis guide is being provided for informational purposes. Final decisions regarding loan forgiveness are at the sole discretion of the lender and SBA. The SBAguidance referenced is subject to, and will likely, change. This guide should not be considered legal, accounting, investment or fiduciary advice. Clients shouldconsult their attorney or other professional advisor. 1

Loan Forgiveness Considerations

Use of Loan during 8-week covered or alternative covered period

Full-Time Equivalency Count before and during 8-week period

Average earnings comparison from QTR 1 2020 to 8-week period to determine wage reductions of 25% or more for any employee

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Use of LoanThe Loan Amount eligible for forgiveness is reduced by the amount of the EIDL Emergency Loan Advance received (up to $10,000)

• Gross Wages

• Capped at $15,385 per employee

• If the owner of the business is paid as an employee, their wages are capped at their total 2019 wages times 8 divided by 52 or $15,385, whichever is less. (For example: The owner had wages of $72,000 in 2019. $72,000 x 8 = $576,000 divided by 52 = $11,076.92)

• FFCRA Emergency Sick Pay or Extended Family Medical Leave Pay cannot be included in gross wages

• State Unemployment Insurance

• Employers Cost of Employee Health Insurance Premiums

• Employers Contribution to Retirement Plan

75% or more on Payroll Cost

• Mortgage Interest

• Rent

• Utilities

Up to 25% on other eligible expenses (in place before Feb 15, 2020)

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8-Week Covered Period Two Options Available

Covered Period – Starts on the day the PPP loan was deposited. Includes check dates that occur within the 56-day covered period except for the final check date that can include wages earned through the end of the 56-day period. For example: Loan was deposited on May 1. The 56-day covered period is May 1 - June 25. All check dates during this period plus the last check date paid after June 25 for wages earned up to June 25.

Alternative Covered Period – This option is only available for businesses with a bi-weekly or more frequent pay frequency. Starts on the first day of the pay period after the loan was deposited. Includes check dates for pay periods that occur within the 56-day period except for the final check date that can include wages earned through the end of the 56-day period. For example: Loan wasdeposited on May 1 and the beginning date of the next pay period is May 10. The 56-day alternative covered period is May 10 -July 4. All Check dates for pay periods during this period plus the last check date paid after July 4 for wages earned up to July 4.

There are ongoing discussions in Congress to delay the start date of the 8-week covered period to allow more time for businesseswho have temporarily closed or significantly reduced staff to restore operations before using the PPP loan for payroll cost. Stay tuned for more updates.

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PPP Payroll Cost Reports Payality has created reports to track the payroll cost over the chosen 8-week period

PPP Payroll Cost – Summary Does not cap for wages in excess of $15,385 or owner limit (see employee detail report)

Does not include Employer Cost of Health Insurance Premiums

PPP Payroll Cost – Employee Detail Shows wages by employee to determine if any employee or owner has wages above the allowed cap

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PPP Payroll Cost Reports on Payality Online PPP Payroll Cost – Summary PPP Payroll Cost – Employee Detail

From Reporting Menu, Type PPP in Title then Click Search. Click on DD PTY PPP PayrollCost Link

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Put a check mark in Override Dates and then choose the first check date based on covered or alternative covered period chosen

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From Reporting Menu, Type PPP PayrollCost in Title then Click Search. Click on PPP PayrollCost – EmployeeDetail Link

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Full-Time Equivalency (FTE) Employee Counts

Full-Time Equivalency (FTE) Calculation – Average hours per week for each employee divided by 40 and rounded to the nearest 10th (capped at 1.0). For Example: An employee is averaging 24.05 hours per week over the covered period: 24.05/40 = .60125, rounded to the nearest 10th = .6

The FTE for the 8-week period is compared to the FTE for either Feb 15, 2019 – Jun 30, 2019 or Jan 1, 2020 – Feb 29, 2020 (Client chooses)

For Seasonal Employers it can be any 12-week period between May 1, 2019 and September 15, 2019.

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FTE ExceptionsFTE Count will not be reduced for the following Events

• Borrower has rehired employees and restored FTE levels by June 30, for reductions that occurred between February 15, 2020 and April 26, 2020 (the safe harbor period)

• The borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;

• ii. the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;

• iii. the offer was rejected by such employee;

• iv. the borrower has maintained records documenting the offer and its rejection; and

• v. the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.

• When an employee of the borrower is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule during the covered period or the alternative payroll covered period (FTE reduction event), the borrower may count such employee at the same full-time equivalency level before the FTE reduction event.

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FTE Reports FTE Count for 8 Week covered or alternative covered period

The PPP Loan Forgiveness report calculates both FTE and the wage reduction. Part 1 (shown here) calculates the following forgiveness criteria:

1. Compensation during covered period (to determine if any employee has received more than the $15,385 cap)

2. Hire/Term Date to identify possible FTE exceptions

3. Average Hours Per Week

4. FTE Value based on SBA’s New Formula with total FTE count at the bottom.

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FTE Reports FTE Count for Look Back Reference Period (Either Feb 15, 2019 –June 30, 2019) or Jan 1, 2020 – Feb 29, 2020) or any 12-week period between May 1, 2019 – Sep 15, 2019 for seasonal employers

The FTE Look Back Period Count report calculates the FTE during the Look-back reference period.

This is the FTE count that will be compared to the FTE count during the covered or alternative covered period to determine forgiveness reduction based on any decrease in FTE Count

Divide the FTE count during the covered period by the FTE count during the look back period. That percentage is multiplied by the Forgivable amount of the loan (Loan minus EIDL Emergency Advance)

For Example:

FTE Count during 8 –week period 5

FTE Count during Look Back Period 6

Loan Forgiveness Percentage .8333%

Loan Amount (Minus EIDL) $100,000

Forgivable Amount of Loan $83,333

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FTE Reports on Payality Online FTE Covered or Alternative Covered

8-Week periodFTE Look Back Period Count

From Reporting Menu, Type Loan in Title then Click Search. Click on PPPLoanForgivess Link

From Reporting Menu, Type Look in Title then Click Search. Click on PPP FTE Look Back Period Count Link

Put a check mark in Override Dates and then choose the first check date based on covered or alternative covered period chosen

Scroll Down to Output Options and Click on Output Format and choose Microsoft Excel from the drop-down menu

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Wage Reductions The SBA released new guidelines late Friday May 22 that once again made changes. The new guidance changes the way wage reductions are now calculated. It is now based on reductions of the employee’s average regular rate of pay earned per hour (or salary), not the average weekly reduction in wages.

In other words, a reduction in wages that is attributable to a reduction in the number of employee’s hours will not be counted as a reduction in compensation for the 75% or more test so that borrowers will not be double penalized for both a headcount and wage reduction.

For example, an employee works full-time earning a salary of $1000 per week ($25/hour based on 40-hour week) must earn at least $750 per week ($18.75/hour based on a 40-hour week) if they continue to work full time.

For hourly employees, you compare their average regular rate of pay earned per hour during the 8-week covered (or alternative) period to their average regular rate of pay earned per hour from Jan 1, 2020 to Mar 31, 2020.

For example: An employee works an average of 40 hours per week and earns $720 ($18 per hour average) from Jan 1, 2020 to Mar 31, 2020. In the 8 week covered period they work an average of 20 hours per week and earn $280 per week ($14 per hour average) The reduction calculation would divide the $14 average per hour for the covered period by the $18 average per hour for the Jan -Mar 2020 period ($18) to determine the reduction percentage

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Wage Reduction Exceptions

Borrower has rehired employees and restored wage levels by June 30, for reductions that occurred between February 15, 2020 and April 26, 2020 (the safe harbor period)

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Wage Reduction Report

Wage Reduction is calculated as follows:

(1) Average Earnings per Hour during 8-week covered Period

(2) Divided by Average Earnings Per Hour from Jan 1 – Mar 31, 2020 (2)

(3) = Percentage Difference

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Wage Reduction Report on Payality Online Wage Reduction

(Same Report as the FTE Count during 8-Week Covered Period)

From Reporting Menu, Type Loan in Title then Click Search. Click on PPPLoanForgivess Link

Put a check mark in Override Dates and then choose the first check date based on covered or alternative covered period chosen

Scroll Down to Output Options and Click on Output Format and choose Microsoft Excel from the drop-down menu

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PPP Loan Forgiveness Estimation Calculator

Payality has created a PPP Loan Forgiveness Estimation Calculator that can

be found on:

PAYLALITY’S COVID-19 Web Page

Or

CLICKING HERE

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