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PPP Loan Forgiveness ... HELP!

If you applied for and received a Paycheck Protection Program (PPP) loan you have probably reached the time to apply for loan forgiveness. The forgiveness application and instructions published by the SBA were revised on June 16, 2020. They can be difficult to follow and even intimidating to some. I want to make it easier for you by giving a step-by-step process to gather the numbers. The example I use assumes you have access to payroll reports in Excel format. If you do your payroll in Quickbooks, either desktop or online, the reports I refer to are easy to get and export to Excel. So, get behind your computer and let’s go.

Step 1) Calculate base period FTEs. This number should round to 1/10 and omit owner/employees. It will be used on Schedule A Line 11.

  • Export Payroll Summary Report by Employee to Excel for period January 1, 2020 through February 29, 2020. Be sure to include hours and rate on the report.
  • Export Payroll Summary Report by Employee to Excel for period February 15, 2019 through June 30, 2019. Be sure to include hours and rate on the report.
  • For each report do the following:
    • Determine how many pay periods in weeks are included and note it on a row. This is easy if you pay weekly or bi-weekly.
    • On a separate row below each employee create a formula to calculate the FTE equivalent for each employee. The formula will look something like =ROUND(IF employee is salaried,1,SUM(regular pay hours)/pay periods in weeks included/40),1)
    • Look at the results under each employee to make sure it makes sense. Full timers will be 1 or close to 1, part timers will be a lower number.
    • On a separate row below, for each owner/employee enter the calculated FTE.
    • On the next row below, subtract the owner/employee FTE from calculated FTE.
    • Sum each of the three preceding rows – the third is average FTE for the period.
    • Compare the average FTE for each report and choose the period with the lower number. This will go on Schedule A Line 11.

Step 2) Calculate covered period FTE and allowed payroll costs. These numbers will be used on Schedule A Lines 1, 2, 4, 5, 7, 8 and 9.

  • Export Payroll Summary Report by Employee to Excel for period beginning on the loan funding date and ending on the date 168 days later, or the last pay date, whichever is sooner.
  • Calculate FTEs for Table 1, Table 2, and owner/employees by doing the following:
    • Determine how many pay periods in weeks are included and note it on a row.
    • On a separate row below each employee create a formula to calculate the FTE equivalent for each employee. The formula will look something like =ROUND(IF employee is salaried,1,SUM(regular pay hours)/pay period in weeks included/40),1). This should look familiar – we used the same formula in Step 1.
    • Look at the results under each employee to make sure it makes sense. Full timers will be 1 or close to 1, part timers will be a lower number.
    • On the next row enter the FTE for each employee who is a non-owner/employee with earnings at a rate less than $100,000 per year. These are your Table 1 employees. The sum of this row goes on Schedule A Line 2.
    • On the next row enter the FTE for each employee who is a non-owner/employee with earnings at a rate more than $100,000 per year. These are your Table 2 employees. The sum of this row goes on Schedule A Line 5.
    • On the next row enter the FTE for each owner/employee regardless of earnings. This number doesn’t go anywhere, but if is greater than 1 then a separate table needs to be attached to the application listing the names of and payments to owner/employees.
  • Calculate Cash Compensation for Table 1, Table 2, and owner/employees by doing the following on separate rows:
    • For Table 1 employees (earnings at a rate less than $100,000 per year) enter gross pay (enter as a formula so it can be copied to each Table 1 employee). Sum this row and put it on Schedule A Line 1.
    • For Table 2 employees (earnings at a rate more than $100,000 per year) enter a formula to limit gross pay to a rate equal to $100,000 per year. The formula will look something like =ROUND(pay periods in weeks/52*100000),0). Sum this row and put it on Schedule A Line 4.
    • For owner/employees enter a formula to limit gross pay to 2.5 months at their pay rate, not to exceed a pay rate of $100,000 per year (capped at $20,833). The formula will like something like =ROUND(IF(gross pay/pay periods in weeks*52>100000,100000/12*2.5,(gross pay/pay periods in weeks*52)*2.5/12,0). Sum this row and put it on Schedule A Line 9.
  • Gather Employer contributions to employee retirement plans from the Total column of the report. Put this number on Schedule A Line 7.
  • Gather State and local taxes assessed on employee compensation from the Total column of the report (be sure NOT to include employers share of FICA and MEDI taxes). Put this number on Schedule A Line 8.

Step 3) If you know that no pay rates or hours were cut for Table 1 employees, check the box on Schedule A Line 3 and enter 0. If you did cut pay rates for Table 1 employees, get another Payroll Summary Report by Employee for the period from January 1, 2020 through March 31, 2020. Calculate average pay rates by employee and compare them to average pay rates on the covered period report. If the average rates on the covered report are at least 75% of the average rates on this new report, check the box on Schedule A Line 3 and enter 0.

Step 4) With lines 1, 2, 3, 4, 5, 7, 8, 9 and 11 already completed on Schedule A, add lines 1, 4, 7, 8 and 9 and enter the result on line 10. This is Payroll Costs that will be used on Line 1 of the PPP Loan Forgiveness Application. Add lines 2 and 5, enter the result on line 12. Divide this number by line 11 and enter the result on line 13. If this amount is greater than 1, enter 1. This is FTE Reduction Quotient that will be used on Line 7 of the PPP Loan Forgiveness Application.

Step 5) If Payroll Costs times FTE Reduction Quotient is greater than your PPP Loan amount, congratulations. You need only to fill out the forgiveness application, print the worksheets used in making the calculations, and gather payroll account bank statements, 941 forms and state unemployment reports that overlap the covered period, package it up and submit it to your bank.

If you don’t achieve full forgiveness using only direct payroll costs, you will need to gather rent, utility and employer paid health insurance premiums. These will require bank statements, canceled checks, copies of invoices, and even the lease agreement showing that the rental agreement preceded the PPP Loan Application.

If this all seems too difficult for you, we can help. Call us.

Russ Anderson - 801-281-4700


Russ Anderson | 10/12/2020