Discussing EPSL Update & PPP Loan 2, FFCRA Updates: The Consolidated Appropriations Act

Thank you to everyone for joining us today, those of you joining us live and those of you watching the recording after the fact. Today is December 29th, 2020, which is important to note because the situation will continue to change over time. And quite frankly, if we haven't learned anything about rolling with the punches in 2020, I don't know if we ever will. So expect some of these things to continue to change and evolve, and we'll continue to keep you abreast as they do. So my name is Matt Vaity, and today we're going to be talking about some recent updates to the, to the PPP situation along with a few other things. But after months of negotiations, Congressional Democrat and Republican leaders and the White House came to an agreement on the next round of COVID-19 relief legislation. So the results of those negotiations have come to be the 2021 Consolidated Appropriations Act, which was introduced in Congress on December 21st, 2020, and was signed into law this past Sunday. So the Consolidated Appropriations Act includes another round of COVID-19 stimulus funding and further relief for taxpayers affected by COVID-19. There is a $900 billion COVID-19 relief package as part of the Consolidated Appropriations Act. Included in that is about $284 billion for a second round of PPP loans, along with some other things that we're going to touch on today. And so for the content of this presentation today, we're going to be speaking to things that relate specifically to small to medium-sized businesses. So if you're here looking for information about, you know, personal-related tax things or extension of unemployment, that is not going to be anything we'll be covering today. So this is business-specific. So we'll be talking about the FFCRA, PPP loans, employee retention tax credits, and a little bit more trickled in there throughout. So as mentioned, this bill was a long time in the making, but it was also even longer to to read through. So the bill was nearly 6,000 pages, which obviously has us all questioning a good bit of what all was in there. But as a friendly reminder, none of what you're going to hear today is legal or financial guidance. We're providing our interpretation of the rules as we understand them. This comes from not only reading the bill, portions of the bill, multiple articles, listening to and fact-checking other interpretations, and also our experience already serving hundreds of companies throughout this process over the last 8 or 9 months here. So I'd like to say again, as I always do in these webinars, and I encourage you to go back and check some of the prior ones we'll reference throughout, but it's been incredible to watch how businesses and people have come together this last, this year to find ways to serve each other. So we thank you all for being part of the positive solutions that make our business community great, because positivity and positive leadership are the only way we're going to emerge from this stronger than before. So we appreciate your help and support there. And before we dive in, I'd also like to point you to some resources that we'll be referencing throughout. So please check out our new podcast, HR Simplified, where we break down complicated HR topics with experts and make them easy to digest for you. Had a great slate of guests on there, including Bob Burg, um, New York Times bestselling author, sold nearly a million copies of The Go-Giver. That episode will be dropping next week. So highly recommend checking that out on Spotify, Apple Podcasts, wherever your provider of choice is. It's everywhere. And then of course, subscribe to our YouTube channel. We're going to be referencing several other videos throughout this. And if you go to ergpayroll.com and hit the homepage, there's a COVID-19 button right at the top of the screen with just tons of COVID-19-related free templates, free Q&A, everything you could want for free. We're doing our best to give away as much information for free to clients and non-clients alike so that we can help all other businesses to navigate these unique times. So hopefully, if you found anything helpful, we'd love to hear about it in the chat and see how we can continue to help you. Once again, my name is Matt Vady. I'm not going to spend any time really talking about myself here. This isn't about me. If you're curious at all, interested in me, you can Google me. My name is pretty Googleable. Do jot down my email though. This will also be sent out after the presentation. And for those of you watching online after the fact, just jot that down because any questions that you have, we're probably not going to have any question for live Q&A today. So just go ahead and drop me a note or put it in the chat and we'll do our best to answer them all later. Via email if you provide your email as well. But today we're going to be talking about those PPP updates, the ERTC expansion, and the FFCRA leave updates. And once again, I'll refer you to some other pieces of content if you're not familiar with what some of these things are to establish some baseline info, but we're going to talk about the changes to them, not necessarily recapping exactly what they are. So as a reference is on the screen, if you want to keep up to updates with this at all times and in real time, follow me on LinkedIn for consistent updates on these topics and more. All right, so let's talk about what I know most of you are here to hear about, and that is the PPP loan updates. So if you're following along and you've got the bill in front of you, which we will link to the bill in the follow-up email as well as in the comments on the YouTube channel, this starts on page 2042. So there is a— there are $248 billion in the bill earmarked for a second round of PPP, Paycheck Protection Program loans. In the new relief package, it includes additional funding for new PPP loans. So for people that have not got them before, and for people to get a second loan, which we're going to get into in just a moment. So that ability to obtain a second PPP loan for small business facing significant revenue declines in any 2020 quarter compared to the same quarter in 2019. We have clarifications providing the deductibility of business expenses paid with forgiven PPP loans, and this was a material change from existing IRS guidance. So we're going to dive into that a little bit further. And then there's also some loan eligibility for Section 501 not-for-profit organizations for the first time. That's new. And then there's $15 billion earmarked for live venues, independent movie theaters, and cultural institutions. So I think we can all agree that that's fantastic to hear so that we can support our brothers and sisters in the entertainment and communal atmosphere. So let's dive into this, the second round of PPP here. What is it? Who is it for? How do you get it? All that good stuff. So the second round of PPP loans are available not only to first-time qualified borrowers, but also to borrowers that previously received a PPP loan. So some of the limitations have changed a little bit. It's got limited eligibility the second time. They're really focused on the smaller and harder-hit businesses. So think under 300 employees, being being one of the first things. You have to have used the entire amount of your first PPP loan or are on par to do that prior to obtaining the second loan, which what I've read and found in some other places that they're actually going to require you to have your forgiveness application submitted prior to applying for the second loan. And most importantly, one of the restrictions that we look at this is you're going to have to be able to show a 25% loss in revenue or gross receipts during Q1, Q2, Q3, or once Q4 closes here in 2020 versus 2019. So if in Q2 of 2020 you were down 25% or more versus Q2 of 2019, you can select that as your quarter that you're going to use to show that you are eligible for this loan. And so that's important to note, right? Because you can't say, all right, we were down 25% in Q2 versus Q1 of 2019. Now it has to be quarter to quarter, but just one quarter, and it's your quarter of choice. So that's really exciting for people that did suffer loss, particularly at the outset there, that you can choose which one you're going to use. Now, if you were not in business or only in operations for a part of 2019, You're still going to have some, some ability to use comparable quarters. We expect more guidance on that soon. But one thing you should be aware of as you look at this, especially for you second-time borrowers, that it did not remove or change the necessity requirement. So all borrowers must be able to certify that the current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant. Is how they state it. And so that's really important because you're going to be asked to certify that as of the date on which the PPP loan is submitted— loan application is submitted, excuse me. Now, one thing that's worth noting is this max amount of $2 million. So for a lot of you saying, well, I'm not as worried about that, but that's a pretty substantial drop. The first loan was up to $10 million, and obviously we all read and heard a lot about some of the, you know, gripes around who this was really targeted for and who it was helping. Once again, we're focusing on those smaller and harder-hit businesses and we're reducing the amount of the loans here and the eligibility for that. But when I'm calculating how much I'm eligible for, I have the option to calculate my maximum loan amount by multiplying my average total monthly payroll in the 1-year period prior to the date on which the loan is made. So if the loan was made on December— or excuse me, January 15th, I'd be able to use the year leading up to that, or I can just use calendar year 2019 average monthly payroll and then times that number, which, whichever one I choose, by 2.5. So it's going to look and feel pretty similar to the first round. We're using that 2, 2.5x multiplier, but a little bit of variance as far as the periods that I'm using to measure that. So now when we look at a couple of other things that are interesting here is that we've got maximum loan amounts for the hospitality industry have been increased. So anybody that has NAICS code 72, which is typically restaurants and hotels, are permitted to use a 3.5x multiplier of their average monthly payroll costs to calculate their maximum up to the $2 million cap. And so that's exciting. Once again, obviously the hardest hit industry has been the restaurant service and hotel industry. So the covered period— originally the SBA provided that the covered period, the time from which a borrower must use the funds to qualify for for forgiveness would be an 8-week period beginning on the date the borrower received the loan proceeds. And then in subsequent, subsequent amendments, we moved it to 24 weeks. And then in this latest round of PPP, borrowers are able to choose the length of their covered period, so long as it is at least 8 weeks, but not longer than 24 weeks. And so that's a subtle change, but it makes a big difference over the control over how to handle potential reductions in workforce once the PPP funds are exhausted. We've run into this several times with some of our clients, and just that 8 or 24 left them with, you know, not quite enough time to get full forgiveness in the, uh, 8 weeks. But then they started laying people off in closer to the end of the 24 weeks and then lost out on the FTE calculation. So one thing to keep in mind though here is that this is a 5-year term loan at 1%. I know everyone wants forgiveness, but even if a portion is unforgiven and it is necessary to keep your business open, this is a fantastic program and great rates if you need it to if you need the money. So certainly no bad outcome there if you are in a situation where this money is going to be imperative to the operation of your business. So we've got a host of other updates as it relates to PPP. I'm going to start first with the use of funds component. So we've expanded some of the use of funds. And I say we, I just realized I keep— I get so used to saying we about everything. I've got the team mentality. I had nothing to do with any of this. So if— don't blame me or don't celebrate me as it relates to any of this, because we obviously have nothing to do with it. It's all I'll stop saying we so much, but Congress, who is responsible for this, did expand the types of expenses for which PPP loans can be used, which applies to existing PPP loans. So if you already have a loan and you have not obtained forgiveness yet, you should be paying close attention here. Because in addition to payroll, rent, covered mortgage interest, and utilities, you can now use things like covered operations expenditures. So this could be payments for business software, cloud compute— cloud computing services that facilitate business operations. And so this could be things like your payroll and HR softwares. And so all the great ERG clients on the line, your ERG expenses are now going to be a part of this, or things like account or tracking of supplies, inventory records management expenses, things related to— and there's a list of these and we'll, we'll be Sending a, a blog post alongside this for you to kind of take a peek at and see if you've got anything that's covered in there. Also covers property damage costs related to property damage and vandalism or looting during public disturbances that occurred during 2020 that was not covered by insurance or other compensation. So I pray that nobody on the line had this, but if you did, great news, you'll be able to use some of your PPP funds towards it. You also have some covered supplier costs, so things to cover cost of supplier goods that are essential to the operations of the entity at the time at which the expenditure was made and is made pursuant to a contract or order in effect at any time before the covered period, or with respect to perishable goods in effect at any time during the covered period. So if you've got supplier costs, and this, this might be some of your supplier of good costs, this could be for a restaurant for production of goods, different things, and once again, we'll provide provide some lists of qualifying expenses there as well. So covered worker protection expenditures, so think PP— think PPE here. So what did you have to invest to keep your employees safe and to comply with requirements or guidance issued by the CDC or OSHA or any state or local government during the period beginning March 1st and ending on the date which the national emergency declared by the President expires. So anything any of those expenses related to PPP, PPE, and PPP. I will make it through this without getting them mixed up too many times. But those expenses, things like PPE, physical barriers that were put in place, expansion of indoor/outdoor space, ventilation or filtration systems, and drive-through windows. Even if you haven't had to do it, you've obviously seen it at a ton of places. And so those types of expenses will now be eligible as well to be used in your PPP loan and for forgiveness. So that's really exciting for folks that are impacted by that. All right, let's look at a couple of other material updates here as well. So first and foremost, one of the biggest things people were concerned about was the tax treatment of the PPP loan. So business expenses can be deducted for PPP-paid expenses. So we fixed the IRS double dip here. So PPP loans will not be included as taxable income. Expenses paid with the proceeds of a PPP loan that is forgiven are now tax deductible. So that's right, expenses paid with the proceeds of a loan that is forgiven are now tax deductible. So this covers not only new loans but also existing and prior PPP loans, reversing the previous guidance from the Treasury and IRS, which did not allow deductions on expenses paid for with PPP proceeds. In addition, any income tax basis increase that results from the borrower's loan will remain even if the PPP loan is forgiven. So All good stuff there. Simplified forgiveness, any loans under $150,000, you're gonna have a simplified one-pager to complete here. So obviously, that's great news. A large percentage of folks had less than $150,000 on that initial loan, and we'll probably have, you know, something similar on the secondary loan if they should double go back after it. But you should be aware, however, that while the forgiveness application is simplified, all of the rules still apply, right? So rather than going through the process of showing how borrowers arrived at certain numbers, the simplified application merely asks borrowers to self-certify. So given the liability that's attached to making a false certification to the SBA, we advise everybody to go ahead and use the long-form application to ensure that the certifications made on the simplified form are true and correct, and then retain that— retain that and all your employment records, everything related to this, put it in a specific file and go ahead and have that available for a period of 3 years following the submission of the forgiveness application. So make sure you've got everything that you're using to validate whether or not this was a legitimate forgiveness, and you've got all that documentation and you're holding on to it for about 3 years. So, so the EIDL or E-I-D-L reduction, uh, so another one here a lot of people are excited about. Your PPP forgiveness is not going to be reduced by the amount of an EIDL payment reduction.. So prior to the passage of the new act, borrowers that received an EIDL advance— advances between $1,000 and $10,000— had that amount subtracted from their total forgiveness, which in effect had the effect of repaying the EIDL advance. So it didn't really help a lot of folks in that regard. But now the act provides that EIDL advances will not reduce PPP loan forgiveness. The SBA has actually indicated that borrowers that already received forgiveness and had their EIDL advance deducted from such forgiveness may be able to amend their forgiveness applications, and we're expecting further guidance there, so stay tuned for that. So if you've already completed your PPP forgiveness application and you reduced EIDL from that amount, you should be able to go ahead and amend that and recoup that. So another piece is the deferral of employees' portion of payroll tax. So back in August, President Trump issued a memo allowing employers to defer the withholding, deposit, and payment of the employee portion of OASDI or Social Security and Medicare. This was under the Railroad Retirement Act Tier 1 tax under Section 3201. And you can learn about this in some of our prior videos if you want to go back and take a peek at that. But basically anybody with wages less than $4,000 per biweekly pay period, you could defer, not necessarily let go of those taxes, but defer them for payment. And so under the new memorandum, employers are required to increase the withholding and pay the deferred amounts ratably from wages and compensation paid between January 1st— or excuse me, under the old, they were required to do that between January 1st and April 30th, 2021. Now you can do this throughout the year, over the course of the entire year of 2021, instead of just over the first quarter. So, uh, pretty big update there for employees that owe that money back. And finally, this one is, uh, you know, not something we would normally cover, other than that I know it's going to make a lot of people very happy, but that is that there is a temporary temporary allowance of full deduction for business meals. So the bill temporarily allows for 100% business expense deduction for meals rather than the current 50%, as long as the expense is for food or beverages provided by a restaurant. So this is to encourage employers to be patron— patroning the restaurants in your area. So really exciting. And the provision is effective for expenses incurred after December 31st, 2020, and expires at the end of 2022. So Nice, as I know a lot of people, present company included, were a bit befuddled why it went from 100% to 50%. Now we're back to 100%, and we can take advantage of that going forward. So let's look at the— that's it related to PPP. And there's a lot more to that, obviously, but that's my job for you is to simplify it, put it in a nutshell. I've given you the high, the high notes of everything going on with the PPP. And as you require more detail, don't hesitate to reach out. Like I said, email us matt@ergpayroll.com. Happy to answer any questions I can offline. Submit them in the chat, and I'll— we'll create a running list after the meeting as well. So let's talk about employee retention tax credit updates. So what is actually new? If you're not familiar with these employee retention tax credits, because I do feel like they're a wildly underutilized component of this, we covered them in a session called Coronavirus Updates for Employers: What If I Didn't Get a PPP Loan? If you search this in YouTube, you will find our video for it. Probably just search "What if I don't get a PPP loan?" But you will also get this deck as a follow-up to this conversation, and you can simply click on the link right here and shamelessly make sure you subscribe when you, uh, do go ahead and check out that video. But if you aren't familiar with the Employee Retention Tax Credits, highly suggest getting familiar with that because I think a lot more people should be paying attention here, particularly as we look at some of the retroactive updates as it relates to ERTC. So In the bill, they've extended the CARES Act Employee Retention Tax Credit through June 30th, 2021. It also expanded the ERTC and contains a few technical corrections, and some of the expansions most importantly are an increase in the credit rate from 50% to 70% of qualified wages, an increase in the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter is absolutely huge. And a reduction in the required year-over-year gross receipts decline from 50% to 20%. We've also seen an increase from 100 employees to 500 employees in the number of employees counted when determining the relevant qualified wage base. And rules allowing new employers who were not in existence for all or part of 2019 to be able to claim the credit have actually come out on this as well. So really exciting stuff as it relates to the ERTC. And I think most importantly are some of the things here when we look at what it's doing retroactively to the effective date of the CARES Act, which brings us all the way back to, to March. So provides that employers who receive PPP loans may still qualify for the ERTC with respect to wages that are not paid with forgiven PPP proceeds. So you could still get some retroactive credits here. It also clarifies the determination of gross receipts for certain tax-exempt, certain tax-exempt organizations like nonprofits, and also clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee, consistent with IRS guidance. So like I said, eligibility is expanded, size of the credit's expanded. We've got some retroactive things in nature for 2020. These particular tax credits are recouped on your 7200 or your 941. We're expecting to see some updates here towards the end of the year for those forms for anything happening for 2020. And we are also working closely with a firm to help you recoup these credits. So if you don't know what I'm talking about, and you want some more information on how to get these credits, our partner will help you find the credits. Their only fee is to take a small percentage of any credits that they find, so you don't pay them unless they find credits for you. So that sounds like a great deal to me, which is why we partner with them. So if you're interested in that, once again, you've got my email address. If not, definitely go back and check out the first one so you're at least familiar with what we're talking about. And quickly, I'd just like to thank Grow by ERG. This webinar is sponsored by Grow. If you're looking to improve your brand and digital footprint, Grow by ERG is the place to go. You can check them out at growbyerg.com. Grow helps small businesses do just that— grow. They apply their proven framework to provide you with your own marketing team. You can learn more at growbyerg.com. All right, so I've got a future as a— as doing in— in— in— what are they called? In ad reads or whatever. All right, so let's talk about FFCRA. This is the last and really important part because changes here will affect everybody. It's one of the few things that you— few decisions you have to make as it relates to all this. So what is new as it relates to FFCRA? Once again, I will guide you back to our YouTube page if you are not familiar with FFCRA. If you are a small small business and you don't know what I'm talking about when I say FFCRA or EPSL and EFMLA, then you have likely been out of compliance over the last 9 months. And so I would recommend checking out some of these and understanding what you need to be providing to your employees in the forms of not only these paid leaves, but also notifications to them about their eligibility for said leave. So lawmakers decided that they were not going to extend the FFCRA. So hence my FFCRA extension question mark, but instead will allow employers to decide if their company will continue to provide paid leave and therefore be eligible for the payroll tax credit. So you'd still be eligible for the tax credit if you decided to offer the leave, but you are not mandated to offer the leave going into Q1 of 2020— 2020, 2020, 2021. So offering EPSL and EFMLA are optional after December 31st. And that means that employees would no longer be entitled by law to take EPSL or EFMLA, even if they have a qualifying reason, because you as the employer could say, hey, we're not— we're no longer extending this. So if you choose to offer the paid leaves, you can still receive a tax credit if you follow the current EPSL and EFMLA rules, including job protection. So you can't grant somebody EFMLA, and then when they come back, say, oh, we don't have your job for you anymore. The extension of the tax credit will be available for leaves taken through March 31st, 2021, so Q1. Now here's the most important part of this. So if you decide to do this, it's important to understand what the process is going to look like. You're not— the employees are not going to get new hours to use. The unused portion of their original allotment that remains on January 1st is how much they have available through March 31st. So for example, if I was out sick for a week and I've used 40 hours of my EPSL between April 1st and December 31st, now I've got 40 out of my 80 left. So I used 40 in 2020, I had 80 to start, now I've got 40 available. Once again, if that doesn't make sense to you about emergency paid sick leave, go back to some of the prior webinars and we break down exactly what that means. So there is a possible exception when your FMLA bank could reset if the employers use the calendar year and/or another fixed FMLA tracking period that starts before March 31st and the DOL fails to readopt the regulations they wrote related to FMLA. But I expect that we're going to see some clarity from the IRS, Department of Labor, both to provide guidance soon that will clear up whether those employers will need to offer additional hours. We'll keep you up to date as that continues to change, but for now, I would work off of the rule of thumb that people are going to have available what they have remaining from what they were eligible for in the first place. So if they were eligible for 80 hours of emergency paid sick, they used 40, they would have 40 remaining. So a couple things to think about in the short term as an employer is, will we continue to provide both paid sick leave and paid family leave to employees until March 31st? You know, while it's unclear if it would be lawful to provide one or the other, it seems highly unlikely that they would decouple the two. So if you're going to do it, you would be offering all or nothing. And are there any— currently any state or local jurisdictional orders or laws that provide more generous leave for employees? So certain states have obviously stepped in, set up things that are a little bit more generous as it relates to EPSL and FMLA. So be familiar with your state regulations and what's available to you. And finally, understand, you know, what this means as far as how you're able to recoup that money in the form of a credit against your taxes as you're, you're filing and paying, uh, in real time and understanding what your options are there before making a decision. So FFCRA extended but optional and rolling forward hours that were not used in 2020. All right, so what's next? So I think as an employer, the first thing you want to look at is deciding on Emergency paid sick leave, FMLA, what are we going to go with here? Obviously, we're right up against the wire. January 4th— January starts next week, so you've got very little time to make a decision on whether or not you are going to offer those leaves. And then obviously we'll have some updated forms on our website as it relates to the emergency paid sick leave time-off requests and emergency FMLA time-off request forms. If you don't already have those, they're for free on our website. We've got tons of free— any forms and templates and anything related to return from furlough, requesting time off, all that stuff you can find. Hit the COVID-19 button at the top of our website, and, and we've got tons of free templates out there for you. And if there's something you need that's not out there, once again, let us know. We're just trying to help support the local business community and the business community around the country, for that matter. So review your PPP eligibility and need for said loan, right? So going back to Great terms. If it's not forgiven, are you comfortable with the terms? And is it something that's necessary to run and operate your business? Absolutely. Get in line if you are eligible and need that. It's a fantastic program for small businesses. And then, as mentioned before, review the tax credits that are available to your company. So employee retention tax credits are a great example of just sort of one of the more overlooked components of this throughout where people have options to reduce their— yes, options available to you to reduce your tax burden for actions that you've already taken as an employer. It's a win-win. So if you've sat in on any of our prior webinars, you know I will always end with this, and that's to remember that 95% of your assets drive out the gate, walk out the door, log off of their computer every evening, It's your job to maintain a work environment that keeps those people coming back every morning. And so when we look at these options available to us, one of the things we have to do as employers is make sure they've got a place to come back to. So, tend the garden, make sure that you are creating a place where not only it's a great place to work, but also you're making wise decisions. I say this because I saw a lot of people make some strange decisions with trying to do the right thing for their employees, but sort of bypassing some of the available resources to their organization to be able to take great care of their people for the long haul. And they, they made some short-term decisions that will have long-term implications. So make sure that you understand what's available to you. And once again, if there's anything we can do for you, I'm Matt with ERG Payroll and HR. We are a mission-based payroll and human resources company headquartered in Columbia, South Carolina. We give 5% of all of our revenue to nonprofits around the country through donorschoose.org and through local homeless shelters. And we are doing everything we can to help support small businesses navigate these strange times in 2020 and apparently beyond. So anything we can do to help you, please, once again, my email is matt@ergpayroll.com, and I'll be happy to answer any questions after the fact that you can submit simply via email, or anything that came through in chat, we'll also respond afterwards. But I'm grateful for everybody spending a little bit of your time with me today, and if you have any further questions, let us know. Thank you so much.