How to fill out the PPP Loan Forgiveness Application | Step by Step Directions

All right, good afternoon everybody. Thank you to those of you joining us live and to those of you watching the recording. Today is July 8th, 2020, which is important to note because the situation seems to be changing by the hour as it relates to Coronavirus updates, PPP loans, CARES Act, all this fun stuff. So if— for these most up-to-date updates, please visit our website ergpayroll.com. Make sure you subscribe to our list and also subscribe to our YouTube channel for recordings of videos like this and many others. So today we're going to talk about one of the most unique topics we have seen for employers in quite some time. And that is the impact of the economic programs put in place to help weather the storm during the coronavirus pandemic, specifically the PPP loans and their forgiveness. My name is Matt Vadie. I'm the CEO of ERG Payroll and HR, headquartered in Columbia, South Carolina. And today we're going to walk step by step through the forgiveness application and also cover some of the most commonly asked questions during the forgiveness application process. I know we haven't seen— many of you are recurring guests to our webinars, and thank you for that. We haven't seen many of you in a couple months, and you know, there was a big reason for that. It's, uh, it's been a little bit of death by webinar here over the last few months. And so we wanted to allow some, some other voices to share on things that were topical to them. And for us, a lot of what related to human resources and payroll were in the initial, uh, components of the application process and the regulations that came out with FFCRA. And so, you know, here we are back after you've got your loans approved and you've spent the money, and now it's time to actually apply for the forgiveness. And we've got some more valuable content to share. So, and we know that that's incredibly important to provide things of value. So I will say it looks like, you know, you guys have been doing a fantastic job of supporting each other and coming together over the last few months to find ways to serve each other. And we've been talking a lot on these webinars about the power of positive leadership And the positivity is going to really be the only way that we're all going to emerge through this together. And so I'm excited to see what's been happening, and I'm more excited to share these resources with you. And I do want to remind everybody, if you haven't been to our website, most of you signed up there, but we have right on the homepage of our website, we have everything COVID-19, CARES Act, PPP related right there on the homepage. And you can make sure that you get all the most up to date. Templates, resources. We're doing our best to give away as much free, uh, applicable content as humanly possible to help serve businesses. So with all that said, I want to spend our time today focused on the content, and I'm excited to be joined today by Nick Annan from Elliott Davis. And I'll share a little bit about Nick, and if you're looking for more info on me, you can certainly just search my name, Matt Beatty. There's information about me online, so I won't bore you with my, my background or any of that fun stuff. I will just say that, that my passion is helping companies create high-performing workplaces, and I love helping companies solve their people problems through the combination of technology and guidance, really to help them do what our name says, and that's to engage, retain, and grow their number one asset, ERG, their people. And so this is a challenging time for all of us as leaders, and a time where we need to really exercise empathy, tact, and strong leadership. And I'm excited to be joined by Nick today. Nick comes to us, um, he is a— has over a decade of experience in public accounting, currently serves as the market leader for the Accelerate program in Columbia for Elliott Davis. As the market leader, he's responsible for goal setting and managing the local team, creating and executing business development plans, and implementing firm initiatives. In his role as a senior manager, Nick serves as a controller and CFO advisor to his clients, including projects such as consulting on annual business planning and facilitating the due diligence process for a company sale. Nick is instrumental in helping owners grow their business through accounting, finance, and operations advisory support. Uh, thank you so much for joining us today, Nick. I'm really excited to hear from you on this very highly, uh, anticipated topic.

Yeah, thanks so much for the introduction, Matt, and thank you for asking me to join the webinar to lead this, this conversation today. I mean, since this program was introduced at the end of March, I've served as one of our firm's subject matter experts on the Paycheck Protection Program, and it's been like any— unlike any 2-month period in my career. You know, just like when we feel we've got the program identified and settled new wrinkles introduced that we have to deal with. Fortunately, the program's got easier and more flexible as the time has gone on, but it's as the country has had to continue to deal with the ongoing effects of this pandemic. So just as we all get started here, and here I'm gonna—

I got a couple of things real quick, Nick. I'll toss it over to you. All right, so just real quick for everybody out there, we're gonna be running through the PPP updates. As Nick alluded to, some some of the things that have most recently changed and making sure that we're up to speed on where we're at with everything. Then we're gonna be walking through the application step by step. So make sure you've got a notebook, something handy to take down notes. This is gonna be a very practical conversation. And also we will be distributing the recording after the fact. So don't, if you miss something, don't stress about it. And we're gonna also be covering the FAQs during that process. I will say we're probably not gonna have time for Q&A today, Please submit your questions in the chat. And if they come up where we can cover them during the conversation, we'll be happy to, or if not, we'll address them with either an FAQ email after the fact or address you directly, uh, with via your contact information that we have. So I did want to take a moment before we dive in to just introduce one of our partners, and that is Klaris Solutions. Uh, Klaris Solutions is a Work Opportunity Tax Credit optimization expertise firm. I'm joined by my friend Teresina Maxwell on the call today. Teresina, and I've unmuted you. Um, just if you don't mind sharing a little bit about Clarus and welcoming your clients, we'd love that.

Sure. Thank you. Um, yes. And we, Matt, we, uh, just appreciate working with you in many ways as well. So like Matt mentioned, um, I'm with Clarus Solutions. We work with a lot of clients on the federal tax credits specifically as it relates to employment, um, which is why we work so well with Matt. Uh, we just really care about helping people, individuals find good jobs and helping employers to see who might qualify for tax credit as they're looking to hire. So that's really what the Work Opportunity Tax Credit is about. It's a federal tax credit if you hire folks who are on food stamps, even those who are on unemployment. Now, The way the law is currently written, it has to be 6 months on employment, but there is currently a bill in Congress that would change that so that as you do start to rehire, there hopefully will be a law that's passed to give you a tax credit for just helping to spur on the economy and help hire some of these folks that have unfortunately been let go through this time. So that's what Clarus is about. Helping folks, helping companies take advantage of the federal tax credit as it relates to employment.

Awesome. Thanks, Sarah. And they are fantastic at what they do. I would say if you hire more than 10, 15, 20 people per year and you are not currently taking advantage of Work Opportunity Tax Credits, you need to look into this program. And if you're using another vendor for this program, you certainly need to look into Klaris. I know that they outproduce companies like ADP 4 to 1 when it comes to the realization of tax credits. So they just do a tremendous job at what they do, and we're happy to be a partner of theirs. All right, and now Nick, I am going to work on passing the mic over to you at this time. So I'll, I'll let you go ahead and get started, and I'll work on passing the controls over here, my friend.

Yeah, it sounds good. I appreciate that. Um, so yeah, it's time to, time to get started. Looks like this, uh, engine is revving back up, you know, for those folks who, um, maybe don't have the PPP yet, but also, you know, those of you who have passed the initial 8-week period, you know, you can, you can be either considering filing for your forgiveness or maybe even, you know, extending to the 24-week period. So, all right, I gotta say, there you go, Matt. I was gonna say, I don't know, I don't know how to control your, your slide here, but I think I got it now. All right, see, I chose, when I was putting these together, I wanted to go kind of with a musical or a song title theme in the title. So as we get started here, PPP, once, twice, three times a stimulus, right? So we had first round, which was gone in two weeks, came back, got shut down a couple weeks ago, or a week ago, and now it's been reopened. So we've got the third, essentially, round here. President Trump signed into law on Independence Day, actually, the legislation which reopens it through August 8th. The program was previously shut down again, and many banks closed their portals a few days early to clear out their inventory of applications. So it remains to be seen, you know, which institutions would reopen. We know so far that definitely Bank of America and Chase Bank are going to reopen. But so if you or someone you know is still looking for a PPP, definitely ask around, check online. Some of those online SBA lenders may still be active as well. Unfortunately, you know, some borrowers returned their funds when there was some concern that the Treasury and the SBA would criminally prosecute organizations that had obtained their PPP loans if the agency deemed they did not meet their certification. That was later defunct when guidance was released that granted safe harbor to the loans that were under $2 million. But some of those organizations have asked, you know, can we reapply? Initial guidance right now says no. So if you received a loan and you returned it, that loan is considered paid off and the borrower cannot reapply at this time. But as we'll talk later in the updates area, you know, there may be some, a light on the horizon for you. Of that $650 billion that has been allocated to the program so far over those two waves, there's still $130 billion left. So we'll see what happens in the coming weeks. There's currently legislation circling through subcommittee that will allow organizations like chambers of commerce and direct marketing organizations to qualify. Currently, only 501 nonprofits qualify. So many of those chambers, marketing organizations, those are actually 501s. We'll have to give some thanks to our own— that bill is co-sponsored by Senator Tim Scott. So looking out for our marketing organizations, which are obviously crucial to the economy of South Carolina. At least in the course of the last few weeks, we've received two new versions of the PPP forgiveness application, as well as a number of new interim final rules. All of these help make some significant borrower-friendly changes to the program, some almost guaranteeing forgiveness in, in a few situations. In a few moments, you know, we'll walk through those two applications. I'll try to, during that time, highlight some of those key updates as well as, you know, maybe make you aware of some of the common mistakes or questions that we've seen and heard. So all that to say, you know, make sure you stay up to date with all the guidance. There's a link here that'll be in the slides that you can follow to the SBA site. Talk to your banker, talk to your CPA, talk to your HR and payroll company. All three of these advisors will be helpful to you in making sure you can successfully navigate this program. So on that website, the SBA website, they'll have all 23, as of today, 23 interim final rules, 49 answers to FAQs, and the forgiveness applications themselves. About a month ago, the rumor was that the SBA was sitting on 30 more FAQs that would provide additional guidance. So I was prepared to spend Memorial Day that weekend scarfing down hot dogs and PPP guidance. But yeah, I mean, of course those FAQs never actually came, presumably because they were watching Capitol Hill to see what would happen with legislation. And that's when we got the Flexibility Act. So Susan Collins, Senator Susan Collins, who's one of the main sponsors of the original PPP, has indicated that there are some additional FAQs coming in the next few days. So again, something to keep a watchful eye on. That, that's been an extremely helpful document as we've, you know, tried to navigate that.

How many people picked up on that? I know that many of you on this call are excited that there are nerds like Nick and I out here that will spend our weekend gobbling up all this information so we can spit it back out to you in a form that's consumable, unlike what we get from our government. So a round of applause for Nick in the comments.

Well, well, not, you know, I was joking with, with Matt as we were preparing for this. Uh, yeah, I thought, so I've probably done, you know, I don't know, 6 or 10 of these webinars, you know, different groups have had me come in, and I find that I really shouldn't prepare for the webinar until a few days beforehand because inevitably the first few times I did this, I'd prepare, and then, you know, the night before some big change came, and so that was just really frustrating. So like I said, it's been unlike any other 2 months in my career, but it's kept us on our toes. The application process did change dramatically with that Flexibility Act, though. That was one of the big changes. It was a welcome change. The program was built on the expectation that your businesses would be up and running by now. Not the case for many of you though, right? Especially bars, restaurants, hotels, retail, anything where people are coming into your doors, right, and are in your space. So now with a potentially second larger wave of Honestly, really a surge of the first wave of the virus coming through, who knows what's going to happen. I find myself often, you know, going back to what I just mentioned, you know, timestamping my commentary on webinars. You know, okay, this is how the program stands today. And so you might make decisions on the program today that you might not make in a month from now, depending on a change that could happen. So perfect example, I bet a lot of you got your funds in the first round. You know, you're coming up on the end of that 8 weeks. You may have made different decisions if you knew that they were going to extend it to 24 weeks or if that was going to be an option eventually. So after the Act was signed into law, we received a flurry of guidance as well as the two new application forms. The original one, original application, was a mind-numbing 11 pages long. Since then, they've cut out the instructions, which, you know, took up a good portion of that, put those in their own document, but they did create a 3-page EZ form. Which can be used by a certain subset of borrowers, and we'll discuss that momentarily. So now we'll want to take, you know, a few moments to walk down some of the key items on that application. Again, along the way, we'll try to highlight a lot of the changes, some of the common pitfalls. I've tried to accommodate many of the common questions that I've heard and that I get, and certainly we'll try to answer some along the way as we can. You know, as to Matt's point, time and complexity of the question may not allow us to answer everything, but, you know, we'll see what we can do along the way here. Now oftentimes, you know, I've seen a lot of folks ask questions on the webinars, but specific fact patterns can be so important to weighing in on the correct answer. So if I can move this slide forward—

just click on the screen, it'll move it forward.

Okay. Oh, look at that! It's my first time doing this. Great. All right, so let's talk about the forgiveness application form. And as you see in front of here, this is the top half of the EZ form. The top half of the application contains some boilerplate fields: business name, contact information, as well as your PPP loan amount. Hopefully you breeze through this section. If not, the rest of this whole process may be a challenge. The top section is the same regardless of whether using the EZ form or the normal forgiveness application. So there's a pair of fields to complete the number of employees at the time of the loan application and the forgiveness application. You see that kind of there in the, um, towards the middle, but still a little bit of top half of the screen there. Um, this is more of a hard headcount number, whereas most of the later calculations you'll do are for full-time equivalents. Those are not the same number. And frankly, you know, these two fields here that I just highlighted, we're not sure where these really have much bearing on the actual forgiveness application. Because when you calculate FTEs later and those roll into your any kind of reduction calculation, those two numbers here at the top of the form don't ever play into that. So not exactly sure the function of this. Below that, you'll see the Economic Injury Disaster Loan, commonly you might hear referred to as an EIDL loan advance amount. So these amounts were generally capped at $10,000 initially. And later borrowers, as the money was running low, borrowers were limited to $1,000 per employee, not to exceed $10,000. So when you complete your forgiveness journey and arrive at line 11 of the application, that maximum forgiveness amount, the SBA will reduce any amount forgiven by the EIDL advance that you receive. So that program was shut down for a short time but then has since reopened. One really crucial note there, if you're a recipient of the PPP and the EIDL, You cannot use those for the same purposes, so watch out how you use these two programs concurrently. Next, after that, the payroll schedule field. This is crucial. You'll want to select the box that corresponds with your regular payroll schedule. It determines when payroll costs are paid or incurred and thus are eligible for forgiveness. It's also going to drive the computation of full-time equivalent employees later on for several periods, and it'll be used to determine if a reduction in the amount eligible for forgiveness is required. So now the fun really starts after that with the covered period. So the covered period can now be as many as 4 different time frames. The default is that the covered period is the 24-week period beginning on the date you receive the loan disbursement. So that's, that's kind of the starting point. Only the costs paid or incurred within the 24-week period are generally eligible for forgiveness. Borrowers with a loan that was originated prior to the Flexibility Act on June 5th can elect to use the 8-week period instead. So the 8-week period might be more attractive than the 24 weeks if you, one, already spent all the PPP funds on eligible costs in the 8 weeks, two, you did not reduce any salary or headcount during the 8-week period, and three, you want to quickly forget about this entire experience. Um, one question I feel like I receive a few times a week is that does the 24 weeks basically give you the flexibility to choose when to fit your 8-week period in? No, the 24 weeks is the length of time that you have to spend the funds. So if you have a 24-week period, uh, for those who got their PPP after June 5th, or you've elected to take the 24-week period for those of you who got your PPP before June 5th, that's the length of time in which you have to spend the funds. Forget about the 8 weeks. And if anyone can point me to where people are getting this idea, I would love to see it because I've got this question almost daily, I think.

Hey Nick, so is there any downside to taking the 24 weeks?

We'll get to that in a second. It looks like there's really none, to be honest, but there is, there's one gray area, and I'm actually, I'll bring that up here in a moment. Great. When the Flexibility Act passed, one of the biggest questions, going back to your question, Matt, here is if I elect the 24 weeks, can I apply early? So if I use up my funds, say, by week 14, can I submit my application early? And as of last week, with the release of the 21st interim final rule, we know that answer is yes. The only caveat there is that if you've reduced an employee's salary by more than 25%, then that borrower must prospectively apply the reduction over the full 24 weeks. So as an example, say you file for forgiveness at week 12 and you have reduced someone by more than 25%. Say you've reduced them $50 too much. So what the application is going to expect you to do is to take that $50 reduction and take it out for the rest of the 24 weeks. So $50 times 12 weeks, your PPP forgiveness is going to be reduced by that amount. In that case, there is, you know, one nice positive to this is potentially a simplified application approach. Where you don't have to aggregate all the data for these non-payroll costs. You can simply use this 100% for payroll and apply for forgiveness using just the payroll data, so significantly less supporting documentation to gather. So here's the gray area to using this approach. Since the date of the forgiveness application becomes your safe harbor date, it appears that after an application is submitted And again, I want to highlight, it appears, it appears that after an application is submitted that there is no further requirement that the borrower maintain employee headcount through the entire 24-week period. If the borrower maintained the same number of employees and the same pay rate for those employees through the date it files the forgiveness application, there'd be no reduction in the amount of loan forgiveness. So you could file and then a few weeks later furlough if needed So we don't know right now if anyone, namely the SBA, would come back in a few years even to see the data for the full 24-week period, right? So your bank's probably not gonna care. You know, once your bank evaluates your forgiveness application and they get that money from the Treasury, they're gonna dust their hands off. You're never gonna hear from them again on PPP. The question is, will the SBA come back? So it appears that, that no, that they wouldn't. But at this point, without them definitively saying that, we can't, you know, can't be sure. So going on here with the payroll period or the covered period, it's crucial to remember the guiding principle of paid and incurred. So payroll costs are paid on the date the paychecks are distributed or that the ACH is initiated. Application instructions further provide that the payroll costs are incurred on the day they're earned. It provides additional flexibility by allowing the payroll costs that you incurred for your last pay period of your 8 or 24-week period, that that would be eligible for forgiveness as long as it's paid no later than the next regular payroll date. So even though the outflow of that cash comes after the covered period, you'd still be able to count it as long as it was in the normal flow, right, of your of your payroll. For non-payroll costs like your mortgage interest, your rent, utilities, for those to qualify forgiveness, those expenses must either be paid during the 24-week covered period or incurred during the 24-week period and paid by the next regular due date. So if you've got, you know, your cell phone bill, your cell phone bill that was billed during the period, but maybe you didn't pay during the period, as long as you're paying it before the next bill comes out,, then you're going to be okay to count that even though it's outside of your covered period. The alternative covered period— this is an exciting development— when the first application came out, you can— that can be selected by borrowers with a biweekly or more frequent payroll schedule. So you can choose that alternative covered period, which would be the 24-week or 168-day period that begins on the first day of the first pay period following your loan disbursement. So that basically allows you to neatly align your, your payroll within your covered period. It's also available if you want to use the 8-week period, so just adjust your language to say a 56-day period rather than 168-day period. And only— crucial note here— only the payroll costs follow that schedule. The non-payroll still follow the covered period as it starts on the date the funds hit your account. Let's see here. So this next box, getting down to the end of this snippet, this next box, I recommend you do not check this if you do not have to. If the borrower, together with affiliates if applicable, received PPP loans in excess of $2 million, check that box. You don't have to, don't, and we'll discuss that reason why in a couple minutes. So this is where the fun ends and the math begins. If you hit any of the following checkboxes that I'm about to describe, I recommend you use the 3-page EZ form. So one, you're self-employed and you have no employees, you can use the EZ form. You have employees and did not reduce the salaries or wages of those employees by more than 25% and did not reduce the number of hours. You experienced reductions in business activity as a result of health directives related to COVID-19. And did not reduce the salary or wages by more than 25%. So if you satisfy any of those conditions, you just add up your eligible costs. Let me move on to the next line here.

All right, so if you— that's okay.

Oh hey, look at that.

Yeah, that's a good side note. So if you click on— when we send out this presentation after the fact, when you click on these images, you're actually going to go right through to the links on the SBA site for you to use.

That's great. I love it.

That's a great resource. Yeah, Nick found the resources hidden right in plain sight.

Awesome. Yeah, so if you satisfy any of those conditions— trying to click it forward here as it goes— there it goes. Okay, you'll just be able to add up your costs, you know, put them on lines 1 through 4 here, perform your basic math in lines 5 through 7, get your forgiveness result on line 8. One page that's not in the snippet here, but when you click through to the actual resource, the next page after this is a number of certifications. Both forms have the certifications. They're worded differently on each one because some aren't applicable if you're not on the EZ-Form. But don't forget to read those certifications closely and be comfortable with what you're signing. If you don't satisfy any of the conditions I mentioned, I want to offer you my sincere condolences. You can fill out the regular form. And so we'll move on to that. So this is a PPP closing time. And so, you know, the, the regular form again is now shorter. They took all the extra instructions out, put them in their own document, and that's a helpful document. I mean, it really well defines the costs, the periods, that kind of thing. So, you know, definitely take a spin through there. It gives you a really good overview. But if you have to complete the page, the 5-page form, you're going to have to work from back to front. So complete the worksheet to the Schedule A, Schedule A, and then the application itself. And so that's how we're going to walk through it right now. The Schedule A worksheet allows us to perform a number of important calculations, which includes the eligible compensation for each employee. It'll cap the forgivable compensation of employees at $100,000 on an annualized basis. Note that you can pay people over $100,000 annualized, but you can only achieve forgiveness up to that limit. This table will also help you determine the number of full-time equivalent employees during the covered period, or alternative covered period if you elected that, if the forgiveness must be reduced due to a reduction in the salary of certain employees, if a reduction in the amount eligible for forgiveness is required because FTEs were reduced during the covered period.. So Tables 1 and 2, which you see there, will include all employees, no owners. It will include all employees making under and over $100,000 respectively. So Table 1 is folks who make under, Table 2 is for folks who make over. You can attach extra pages if you have more employees that won't fit on those tables. But again, to note, these tables will not include independent contractors, owner employees, self-employed individuals, or partners. As you go through the PPP forgiveness planning, expense tracking, you apply for forgiveness, it's important to remember that not everything on your payroll report counts for forgiveness. I've seen too many businesses where they've set up a new bank account and they're drafting, you know, payroll and rent and all the non-payroll things from that account, and that's going to be their tracking mechanism, so they expect to breeze through forgiveness, but that's That's not true. Not everything on that, that report counts. Only your SUTA taxes count. None of your employer FICA and Medicare tax counts. Also not the payroll fees. That seems to be a common question I hear as well. I know that may sound counterintuitive. I had this conversation with someone this morning, actually. Obviously your employer taxes are the cost of you employing your workforce, but that's just not how the PPP law is written right now. So please don't shoot the messenger. You can count gross pay up to the limits as outlined in the program. Make sure to double-check any customized PPP reports created by your payroll company. A number of payroll companies have these reports out there, but even as recently as yesterday, I saw a payroll company which was not calculating the amount correctly. They were making it net of all taxes, and that is just not right. So I'd hate to see it where someone counts on that number and loses out on forgiveness that they could have gotten. So just make sure, you know, if you're not sure, make sure you're talking to your, your advisors to really understand.

Let's just be clear, that wasn't ERG though, right, Nick?

Correct, that was not ERG. No, the offender will remain nameless.

All right, perfect.

So to determine the average full-time equivalent employees, FTEs, for the covered period. For each qualifying employee, determine the average number of hours they worked per week and divide by 40, and then round to the nearest tenth. The maximum amount for any employee is 1. Overtime does not help you. It does not push you past 1. Alternatively, you can skip that math and use an expedient, which the application provided. So that is 1 for every employee who worked 40 hours per week or more. And 0.5 for every employee who did not meet that standard. So as an example, if you had someone who worked 32 hours on average under a normal 40-hour workweek, that would be a 0.8 FTE. But you can opt to use the 0.5 method as well if that's, you know, a simpler way to apply it. It doesn't matter which one you choose, you just have to be consistent when you calculate across all different base periods that you're going to have to through this whole process. So the bottom of this page, which is the, the snippet there to the the right, that'll contain the calculation to see if you meet one of two safe harbors. And this one has to do with restoring the FTE count if it was lost through the beginning of COVID And if through these steps it's determined that you've restored your FTE from any reduction as a result of COVID then you'll actually pass one of the major hurdles to maximizing your PPP forgiveness. So all this data you just worked on will carry over now from this worksheet to the actual Schedule A itself. And so that's what we've got here. So lines 1 through 5, so these, these 1 through 5 right here will carry right over from what you just did. Lines 6 through 8 will include the additional non-cash payroll compensation that was incurred and paid on behalf for your employees. Again, not owners though. There's some additional limits here. The line 6, your health insurance, that's going to be for your standard group health and dental coverages. So not life, not disability, not workers' comp, just your standard, you know, group insurance coverages. Line 7 is for the employer contributions to retirement plans. So that can be 401, 403, SIMPLE, SEP IRAs, that kind of thing. Line 8 should be a fairly small number compared to the rest of your payroll. That's because this is really only state and local taxes assessed on your payroll, which is basically state unemployment. So take a, take a gut check when you put this together. If that number looks large, it may not be right when you start putting that together. Line 9 is where the owner compensation is entered. So payments to owner employees and partners are subject to some significant limitations, and those will be entered into the Schedule A here and included as cost for forgiveness. So for the 8-week period, the owner comp is limited similar to every other employee, 8/52 of $100,000. Or if their 2019 compensation was lower than $100,000, it'll actually be limited to that. If you elect the 24-week period, owner compensation will be capped at the amount for the original application, right, which would have been $20,833. So if you're doing the math there at home, that's $100,000 divided by 12 times 2.5. Owners cannot include health insurance when calculating forgiveness, but they can include the retirement subject to those, those caps. So that's included in those caps. Moving over now to the next side of the snippet here on the right side, lines 11 through 13 is where the forgiveness reductions due to any FTE reductions will start to come into play. So if you laid off employees, you may get hit with a forgiveness reduction through this calculation. Your forgiveness is reduced if your average number of full-time equivalent employees during the covered period is less than the average number of FTEs for any of the following base periods. And you get to pick, um, the more advantageous base period: February 15th, 2019 through June 30th, 2019, or January 1st through February 29th, of 2020. So that can be your— that'll be the denominator, one of those two periods, and your FTEs, average FTEs over the covered period, is your numerator. Any reduction in FTE won't count against you if that employee voluntarily resigned, retired, or asked for a reduced work schedule, if you terminated them for cause, if you cannot find employees, or you cannot restore business to a comparable level due to social distancing or other federal rules. So this provides a safe harbor from the reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity that the business was at before February 15th of this year. And that's again due to compliance with requirements or guidance that was issued after March 1st and before December 31st of this year by the Secretary Secretary of Health and Human Services, the Director of the CDC, or the Occupational Safety and Health Administration. That will have to be related to worker and customer safety requirements. So I know that's— that was a lot of words right there. And so, you know, really important note on that: we don't expect that this will be applied in situations where your business is down simply because people stopped hiring you to do work or your customers stop coming in. So if your reduction is not the direct result of a federal government mandate to shut down or reduce capacity, it may be hard to claim that. So, you know, if Matterize customers, you know, decided to, you know, stop engaging us for work, uh, well, hopefully they still need their, you know, some payroll processed, I guess. I mean, maybe I'd be the first to be cut, I don't know. But, you know, if, if we got cut simply because our customers, you know, just didn't have the the money to pay us because their business was down, we, we probably couldn't claim that. It is worded kind of liberally, so that may be an area that changes in the next, you know, few weeks or months. So we'll see. It's also important to remember that your responsibility as a business owner with the PPP— if you offer a job back to an employee, an employee turns you down because they're making more on unemployment, or even if you do hire them back and they were receiving unemployment, you've got the responsibility to report that to the unemployment office within 30 days. So the employer must affirmatively notify the unemployment office and maintain that documentation. So once you've completed this Schedule A, now we'll return to the first page. So actually, in between the Schedule A that I just showed and this page is, is that page of certifications. So again, that page that you'll want to look through. So now that we're back on the front page, you know, again, that top section we've already gone through. Kind of some boilerplate stuff there. All your payroll costs previously calculated on the Schedule A will be entered onto line 1. Lines 2 through 4 will be to enter your other non-payroll costs. And of course, a few things have been added to this as eligible since the program started. So one, you can now include qualified mortgage interest on personal property in addition to real property, so not working capital-wise— these should be for loans for real and personal property. Also, they need to be obligations on or before February 15th. You can also include lease expenses on personal property. So if you've got things like vehicles or copiers that you're leasing, you can add that in. Also qualified utility payments, so many things like your traditional water, power, sewer, gas, but also telephone, internet, and transportation costs. There has been no guidance barring cell phones, So certainly if that's a business expense, I would consider adding it in. Transportation cost is similarly vague. If you have a fleet of vehicles, other fuels being used in transportation for your company, then definitely consider including that. I talked with a customer and they had a number of tractors on their property where they were moving their product around. They're going to plan to include the fuel cost for those tractors. So with any of these, the caveat is going to be that they had to be obligations at February 15th of this year before. So if you've never paid for cell phones before, it's gonna be really hard to claim that now for the purpose of the PPP. That won't be allowed. For any of these expenses—interest, lease, utilities—you'll want to be able to prove it, that they were, you know, obligations at February 15th. So you can do that with signed lease agreements, mortgage documents, utility billing statements, or other dated invoices. So, you know, maybe start digging for those if you need to pull them up. Lines 5 through 7 consist of a number, a couple numbers that you've already calculated in the supporting schedules or adding data in lines 1 through 4. All right, so now we're getting to the home stretch. Your forgiveness fate will be decided by the lower of numbers, lower of the numbers entered in lines 8 through 10. And so it's either going to be line 8, which is the product of the total cost multiplied by the FTE reduction quotient. So if you've had that FTE reduction and you haven't been able to meet a safe harbor, you could be seeing a reduction there, and that would show up on line 8. Line 9 is the actual amount of the PPP loan you received, because of course you cannot get forgiven for any amount more than the loan. And then line 10, which is going to be the portion of the loan properly used, 60% towards payroll. So the Flexibility Act borrowers can now spend up to 40% towards the eligible non-payroll costs. That was previously 25%. If you use less than 60% of the loan for forgiveness during the covered period, you will continue to be eligible for partial forgiveness subject to that 60% cap. So your forgiveness is going to scale with how you use your funds. Um, just as an example, if you had a $100,000 PPP, you spent 50% or $50,000 on payroll, then the maximum forgiveness you'll be able to receive is $83,333. So that, that amount there. One way that I've been advising customers, if you decide to take advantage of the 24-week covered period, you might consider— and this is in air quotations— using the PPP just for payroll if you can. This could significantly streamline your application and your document process and You won't have to be collecting all those other, you know, signed leases that I just mentioned, but it makes it a lot easier. And to be clear, you can use the entire PPP for payroll. The 60/40 threshold is only the maximum threshold for how it can be used on payroll versus non-payroll.

And I don't think you can overemphasize that enough right there, Nick, on just how much simpler that will make things if you extend to the 24 weeks and then use that for payroll only. When you start to talk about all the additional things that it would require to complete this application otherwise, That's right.

Oh yeah, no, it's, um, that was, I think, was one of the best strategies that has come out as a result of the, you know, some of the different changes that we've got. Certainly makes it much more flexible. And again, I used, you know, air quotes on using the PPP, right? Because you're basically defining how you're using it, right? I mean, you've got to fall within the boundaries, but, you know, it's not until you submit your application where you said, oh, I'm gonna use it on rent, or I'm gonna use this much on payroll, you know. So you've got some flexibility in there. Cool. So, you know, one of the other questions there is, is what about the self-employed individuals with no employees? So with self-employed individuals, the forgiveness related to payroll cost is both purely mechanical and mathematically assured, just guaranteed. If you recall, the loan proceeds were calculated by taking 2.5 over 12 of the borrower's 2019 Form Schedule C net profit. That was your line 31. The forgivable payroll cost for a self-employed taxpayer, what's being referred to as owner replacement cost, that's also calculated by taking that, that same number, 2.5 over 12 of 2019 Schedule C. So if a self-employed taxpayer had $100,000 of Schedule C net profit in 2019, they would have borrowed $20,833, and they will be forgiven $20,833. So that's kind of nice. Let's see, I think Matt's got a snippet we want to show of if you are an ERG customer, where to get your reports from.

Yeah, so just wanted to quickly show everybody here. So I know that there's a portion of you listening in that are ERG clients and those that aren't, but just inside of the reporting section of your payroll system, access there on the top right. If you go down into the employer reports, we have the PPP loan forgiveness report for your payroll calculation right there. That's going to do some of the things Nick mentioned. Earlier, as far as making sure that we've just got the included items calculated into your payroll calculation. So just wanted to point that out real quick. And we've got a couple of questions come through here, Nick, before we move on to the next one. Let me pull this over here. For some reason, I can't share it with you. But I think that we've already covered this, but I thought it'd be good just to hit again. But who is eligible, if you don't mind hitting on those again, to use the form 3508EZ, and how does it differ?

Yes, so the EZ, um, it can be used by, uh, there's a couple criteria you can meet that would allow you to use it. So one, if you're self-employed and you have no employees, you can use it. If you did not reduce the salaries or wages of your employees by more than 25% and did not reduce the number of hours, so that'd be the second qualification. And the third is you experience reductions you experienced reductions in business activity as a result of any of those health directives related to COVID-19 and did not reduce the salaries or wages of your employees by more than 25%. So if you fit in any of those 3 boxes, you can use the EZ. And again, the EZ is much— the biggest difference there is you don't have to go through all the math and FTE calculation that we just talked about. With the other form because you're basically certifying on that EZ, you're going to certify that you met that criteria. And that's what's going to happen there. It's a good question.

Great. And I see some of your other questions on here. We'll be answering those probably in a follow-up email as well, just for time's sake. But I did just want to reiterate that particular point for those that weren't on at the beginning of the webinar. And once again, we will be distributing a recording of the webinar along with any of the resources mentioned. In the next 24 hours.

Cool. So, you know, now that you've gotten through your application, right, you're ready to turn it in. And we'll see, you know, some banks are going to have online portals, you know, some may just take the PDF form. But what happens when you, when you turn it in? The forgiveness application is due 10 months after the end of the covered period you select. If it's not submitted by that date, you're gonna have to start making loan payments. You can actually submit the forgiveness application after that time, after that 10 months. But again, you will have started to make payments, so you'll be out a little bit of cash. Once you submit it, the bank has 60 days to review and render an opinion on your application. They have 3 options. They can either approve it in full, they can deny it in full, or they can deny partially. If you disagree with that assessment, you have 30 days to appeal to the SBA, and the SBA has 90 days to review that appeal. Um, So if you do all the math on that, you know, 10 months plus all those periods, I mean, you, you can be looking at not knowing this answer of forgiveness almost for another 2 years. So hopefully not many people have to run into that situation, but because that— it does get hairy, you know. Right now, currently, whatever you use expense-wise towards your PPP is not deductible in your, in your tax return. The forgiven loan amount is not taxable income, but you don't get the deductibility of the expenses. So, tomato, tomato, that's something that, you know, Congress is looking to potentially change. That was not in their intent of the original law. In the end, the loan term of any unforgiven funds is extended from 2 years to 5 years. Now, the 5-year term only applies to the loans that were originated after June 5th, not retroactive. So if you had it before that date, you'll have to have a mutual agreement with your bank to get the 5-year term. And so I would love to hear how those conversations go. So last piece kind of on the application before we go into the updates, the documentation. And so again, go back to those instructions that list out there what you're going to have to, to supply. They're all listed there. But of all those things, I would say if you're using a reputable payroll vendor, check in with that rep to see what reports and assistance are there. Many are creating customized reports that will help with the process. But as I mentioned before, make sure to critically examine those reports, run them by, you know, whatever, you know, whatever CPA that you work with. The payroll reports will also come in handy when filling out the application. Bankers have essentially been told that they can perform more of a cursory review of the forgiveness application if it's accompanied by a reputable payroll vendor. And so before anyone submits that question, no, the SBA did not define what a reputable third-party payroll vendor is. Of course, Matt and his crew at ERG are doing a great job and have a variety of reports, as he's shown, on ways that they can assist. And so I think certainly if you've got those, they look great, and those will be helpful and will serve that purpose. Matt and I have actually already created connected on a number of mutual customers to help them, guide them through this whole process. And I think in those cases, those customers have been thankful for a team of advisors collaborating on their behalf, you know, trying to help them get through this. So you'll have to keep that documentation for the later of 6 years after which the loan is forgiven or it's paid off. So if you're one of those folks that ends up paying on a 5-year loan and you pay that out the full term, you're going to be hanging on to those documents for a while. So just put it in a safe spot. Cool. So coming down here to the home stretch of updates and my last song title, PPP, a change is going to come. We know it's going to happen. We don't know what it's going to be, but, you know, we just— I find myself, you know, watching whatever I'm watching in the evenings, you know. Actually, this weekend, obviously, I was binging Hamilton, and I couldn't sleep a couple times this week because I was singing a number of those songs in my head. But I find myself, as I'm watching those, just kind of refreshing my Google to see, oh, is there a new FAQ, or what's the news story out there right now? Because there's been some really interesting things to happen. So let's just discuss a couple of the updates. Obviously, in its short life, this has kept all of us on our toes— banks, borrowers, advisors such as Matt and myself. One of the biggest updates from this week If your loan is over $150,000, you should be aware that your company name, address, NAICS code, the jobs you support, your lender, and a loan bracket are now public information. I hope that's not news to you. I hope I didn't just break that, but that's out there right now. This was released on Monday. So your actual loan balance is not disclosed, but the bracket in which it falls is, and those brackets are $150,000 to $350,000. $350,000 to $1 million, $1 million to $2 million, and $2 million to $5 million. So if you haven't started to get unsolicited emails and calls, or calls from reporters, don't be surprised. As people look to write stories— there's a ton out there already about who obtained a PPP— it's gonna happen locally, everywhere. So hopefully that fervor blows over very quickly. If you're asked, I would recommend not agreeing to be interviewed. If you feel like you have to comment, maybe only provide a few sentences and written format. You know, I might say something like, COVID-19 has created a sudden, drastic, and unparalleled demand shock for the economy as a whole and our business in particular. The Paycheck Protection Program was a temporary bridge designed to allow companies to keep providing a paycheck for their hardworking employees even though the business was no longer generating enough revenue to pay them. Rather than making our employees navigate the difficult and uncertain employment process, we elected to obtain PPP funding to help them provide for themselves and their families. You know, there's all kinds of sensational stories out there, you know, about folks that got them, Kanye's companies, different politically connected companies, you know, and by the letter of the law, a lot of these companies are allowed to obtain them, right? And so, you know, it's unfortunate that some of the shaming is going to happen out there, but that's the way it's going to be. And frankly, if they have a $2 million loan or greater, they're going to answer through an audit process anyway. So to that extent, what if you're in that upper echelon of PPP borrowers? Out of over the 4.6 million PPP loans, less than 30,000 are for over $2 million. That's 0.6% of the total loans, just count of loans, but it makes up over 20% of the actual loan volume, about $107 billion out of the $514 already lent. So you remember that part at the beginning when I told you not to check that $2 million box if you don't have to? Well, this is why. We know that the SBA will perform audits of these borrowers. What does that audit look like? Who will perform the audit? What will they be looking at testing? We just— we have none of those answers. If you're one of the select few in this tier, I would recommend, you know, talking to your advisors. Make sure you're documenting your business environment. How did you come to decide to apply for the PPP? Did you engage in furloughs or salary reductions? Did you even contemplate those things? It will be crucial that you can articulate how you determined that you met that needs certification in good faith. One more, a more positive note: borrowers that are applying for PPP forgiveness are now allowed to take full advantage of the payroll tax deferment that's offered under the CARES Act. Previously, you can only take advantage up to the date that forgiveness was granted. It's a great benefit. You can defer the employer share of Social Security that's due between March 27th and December 31st of this year. 50% of that is due December 31st of 2021, and 50% is due at a year later in 2022. Essentially, it provides you an interest-free loan So it's wonderful, but make sure to track this liability. Payroll tax deposits, as Matt can attest, are not something you want to mess with. It's a third rail that you want to maintain sight on at all times. Since Memorial Day, you know, we've talked about this a couple times already, you know, the cases have been trending up sharply. In South Carolina, it seems like we set a case record almost every day. You know, some states have paused, even rolled back some of their reopening plans. All this is to set the stage that PPP may not be close to being finished. Not only has the covered period been extended to 24 weeks, but some legislators are talking about the PPP, the Preferred Paycheck Protection Program. Yes, you heard that correctly. I had a hard time getting on board when people called the PPP the P3 program, but I think I may have to join the course when it becomes the P4. I just can't string that many Ps together. Susan Collins, you know, I mentioned her at the beginning, one of the senators. She's got a history running an SBA, a state SBA, and is now a senator and helped sponsor this legislation. She's on record discussing the possibilities for this P4 program currently being negotiated. It would likely be for a lower employee count, maybe less than 300 or so. There also be some kind of revenue loss test, you know, by— she mentioned 50%, and it may also allow for some other expenses like PPE. So not PPP, but PPE, the personal protective equipment, or outdoor furniture, right? So if you're a restaurant, you can really only be serving people outside right now, so you need to be able to buy, buy things that will facilitate that. And the one about the forgiveness of existing loans, Could that get any easier? Well, if the next tidbit I'm about to share becomes law, it could just invalidate the entire hour that we all just spent together if you have a loan that's under $150,000. So last week there was a group of senators that introduced the Paycheck Protection Small Business Forgiveness Act, which would forgive loans of $150,000 or less if the borrower submits a one-page attestation form to the lender. It ensures that the lender would be held harmless from any enforcement action if this attestation contained falsehoods. So PPP loans of $150,000 or less account for over 85% of all the approved loans, so just the count again of loans, but only 27% of the actual funds delivered. So as this law has changed in the few months, so has that cost of compliance. You know, one senator estimates that the cost of applying for forgiveness of a PPP loan of this size is $2,000 for the— that's for the small business— and actually $500 for the lender. So if this legislation became law, it could potentially save small businesses over $8 billion and would save banks over $2 billion. So unfortunately, uh, No one can compensate us for the amount of time and grief we've all shared over this program in the last 2 months, but it's certainly been a fun ride, and I'll pass the baton back again. It's certainly been a pleasure to join today. Thank you so much for that, Nick.

That was very helpful, very educational for all of us that are having to fill this out. And I don't know what's going on with the font here on the Elliott Davis slide, my apologies, but please make sure you check out Elliott Davis at ElliottDavis.com. They're one of the top 40 accounting firms in the country. They've got a team of nearly 750 dedicated and strategic professionals throughout the Southeast. For those of you that are here close to us in this region and even across the country, they can serve you and meet you at your point of need. Fantastic people to work with, and we're grateful for the time that you spent with us today, Nick. And I think we've all got a lot to do as we walk away from this. I know that you've given us a lot to think about. And I think just generally, I want to back this up and say, hey, we need to continue to communicate with our teams on what our strategy is as an organization, what this has meant to us, not only over the last 3 to 5 months, but also what it's going to mean for the next 3 to 5 months as we continue to assess our route forward. That means how are we getting back to the office? What does that mean? You know, for an example, this past week, we were anticipating coming back in early July to our sort of full-time office status, where we had to reverse course and say, look, cases are spiking. We're going to allow everybody to work with the flexible schedule they have been. And we have to be flexible with how we're going to plan and know that those things are going to change consistently. This target continues to move. So make decisions and plan to the best of your ability. But most importantly, I think we need to— we've seen a great opportunity for organizations to continue to update their policies and procedures. The sort of ripple effect of all this over the next 14 months We're continuing to see COVID-related legal cases, COVID-related employment cases, COVID-related— just ripple of employment practice and law and liability continue to happen. So make sure that you've got your policies and procedures up to date and you're analyzing those with professionals beyond just the financial implications here. And once again, my name is Matt Beatty. I'm with ERG Payroll and HR. We're so grateful that you would take some time out of your day to join us. I hope that you got value out of today's session. ERG Payroll and HR is a payroll and HR provider headquartered in Columbia, South Carolina. We are payroll with a purpose. We are a mission-based organization that gives 5% of all revenue to nonprofits to help support the causes of educating our impoverished youth and transitioning the homeless back to permanent housing. If you need help with payroll, HR expertise, or HR software, then please don't hesitate to reach out. And thank you again to Nick, Teresina. We appreciate everybody who's joined us today. Have an awesome day, and we will follow up with some of these questions that you guys hit up in the Q&A as well. Have an awesome day. Thanks, guys.