BiggsKofford’s PPP Support Team has been actively assisting clients with the calculations needed to complete Payroll Protection Program (PPP) loans. The law was only passed 10-days ago (amazing what has happened in just 10-days). In that time, the SBA has released a draft application, initial borrower and lender instructions, updated the application, and then released 2 more clarification notices in the form of FAQ’s. With each release of information, the application process and rules for calculating the loan amount have become less muddy.

The good news: BiggsKofford has been interpreting the rules correctly all along – and our interpretations have been confirmed with each release of additional information from the SBA.

Below are some common questions or confusion that our clients have encountered when applying for these loans. Hopefully these will help you complete your applications:

  1. Some banks have been asking for Trailing-Twelve-Month (TTM) payroll information to calculate Average Monthly Payroll. (Not Necessary)
    1. The SBA has indicated that most borrowers can simply use Calendar Year 2019 payroll to calculate Payroll Costs. (Although the SBA says the borrower may choose to use a current TTM payroll, if they want).
  2. Some banks were subtracting Federal Withholding, Employee FICA, or Heath Insurance contributions from the calculation of Payroll Costs. (Wrong)
    1. The SBA clarified that Gross Payroll should be used for the calculation of the loan amount and forgiveness. Gross Payroll is before withholding for Employee FICA, Federal WH, or Medical Benefits.
  3. The SBA confirms that Employer FICA is not included in the calculation of Payroll Costs.
  4. The $100k payroll limit is for wages only. Health benefits and retirement contributions do not need to be allocated to each employee for the purpose of determining payroll over the 100k limit.
  5. The $100k payroll limit is calculated on an annualized basis. So, an employee that made $50,000, but only worked for 3-months in 2019 would have half of their payroll excluded for the Average Monthly Payroll calculation.
  6. Employers that use PEOs can rely on payroll reports from the PEO and don’t need to produce 941s or a W-3 with their own FEIN on it.
  7. Payments to independent contractors (1099’s) are NOT included in Payroll Costs. Those contractors are eligible to apply for their own loan. (Although there is still no guidance if or how those contractors might get their loan forgiven?).
  8. Adding to the confusion, banks and even payroll providers have been offering payroll calculators and reports that contain improper calculations of the eligible Payroll Costs (mostly underestimating the loan amount). If you relied upon these PPP Loan Calculators from your payroll provider or bank, you may want to double-check their math and ask if you can re-submit for a better loan number before the loan is finalized.

There are more details and questions answered in the FAQ’s from the SBA. We’ve made those FAQ’s available on our website if you want to read them for yourself. Click HERE.

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