Small Business Association (SBA) Payroll Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) loans are being dispersed now.  

PPP Timeline

Period in which the loan must be madeFebruary 16, 2020 – June 30, 2020
Payroll expenses considered to compute the monthly averageOne year before the loan originated
Period to spend the loan8 weeks from the date the loan is deposited in your account

As a reminder, PPP loans can be used for payroll costs, including retirement plan funding, employer-paid group health insurance premiums, mortgage interest or rent, and utilities. Those receiving loans should be aware that there are very strict guidelines for these loans. Here’s what you need to know:

  •  Scams abound. While most are on the individual/personal return side, we do expect to see scams related to PPP and other loans. Remember, the IRS will not ask for personal information in a call or email. Scammers are becoming increasingly sophisticated so be on guard.
  • We strongly recommend setting up a separate account for any federal funds you receive. This will make it much easier to track how the funds were spent. 
  • The period for the loan forgiveness is based on the loan origination date. You have just 8 weeks to use the funds. There is erroneous information from a variety of sources regarding the use of these funds – including financial institutions. We recommend using your loan proceeds for eligible expenses as soon as possible.

Mistakes Can Impact How Much Is Forgiven

There are rules on what you can do with the funds. Making a mistake can easily  impact your PPP forgiveness:

  • Using less than 75% of your loan for payroll
  • Reduction of Full-Time Employee headcount during the loan period
  •  Using funds to pay an employee who makes more than $100,000 annually
  • Failing to “true up” your employees if you reduced employee pay since the quarantine. You must make your employees whole if you reduced their regular pay or your forgiveness will be reduced. 
  • Be aware that the guidelines for FTE can be confusing.  CARES Act Section 2301(c)(3), which pertains to the employee retention credits, defines a full-time person by referencing IRC Section 4980H.  A full-time employee is an individual who works an average of at least 30 hours per week. A full-time equivalent employee is determined by adding the hours of part-time employees on a monthly basis and dividing by 120 [IRC Section 4980H(c)(2)(E)].  Until guidance is received otherwise, we suggest using this computation to determine the FTEs for those employees who work fewer than 30 hours per week. Employees working at least 30 hours per week are counted as full-time employees. 

Our Most Recent Questions

Can I use my PPP loan for payroll that covers work performed before the loan was disbursed?

Yes, the funds are based on the date payroll is paid, not the pay period. Remember that the period of the loan forgiveness starts on the loan origination date.

How do I apply for loan forgiveness?

All the information is not yet available.  Expect to have extremely detailed documentation when the period ends.  Again, please consider putting your distribution in a separate account. This account should be used for payroll and payroll-related expenses such as employer payroll taxes, health insurance benefits, rent, mortgage, utilities.

Tip: Consider the impact of funding your employer profit sharing and pension contributions during this 8 week period.   

Jill Kuksa & Deb Hanselman