1

2

Don McAnelly, CPA/ABV, CGMAPrincipal | Director of Rehmann Healthcare

Management Advisors

Danielle Matley, CPA, MBA, CHBCSenior Manager | Accounting & Business Solutions

3

Where did the money

come from

How your loan amount was

calculated

What the loan can be

used for (eligible costs)

How to best maximize

your loan forgiveness

During this webinar, our presenters will discuss:

4

5

March 13, 2020

Pandemic declared

March 27, 2020

CARES Act signed into law

April 17, 2020

HHS stimulus deposits continue

April 10, 2020

HHS stimulus round 1 deposited

April 3, 2020

PPP applications opened

April 16, 2020

PPP round 1 funding depleted

April 24, 2020

SBA releases guidance on how to

calculate PPP loan amounts

June 30, 2020

PPP applications close

April 27, 2020

PPP round 2 of funding opened

183,542Loans distributed to healthcare

industry in round 1 of funding

$40BLoan amount distributed

to healthcare industry

in round 1 of funding

$12%Portion of total round 1

funding distributed to

healthcare industry

April 26, 2020

Medicare Advance Payment

Program suspended

6

• Administer funds, fully SBA guaranteed

• Work with current bank; some accepting new

relationships

• Good faith assumption

• Internal QC processes differ

Banks’ Role• 2.5x average monthly payroll costs

• Up to $10 million

• Businesses & some non-profits with <500 employees (generally)

Loan Calculation

• Average based on prior twelve months (2019 or 12 ME 3-31-20)

• Wages + health insurance + retirement benefits + state

unemployment, less excluded costs

o Does NOT include independent contractors

• Excluded costs:

o Excess salaries >$100,000 per person

o COVID-19 sick & family leave payments

o Self-employed considerations:

• With Employees

• Owner Sch C net profit up to $100,000; Plus

• Employee wages (up to $100k) + health insurance +

retirement benefits + state unemployment – COV-19 pmts

• Without Employees

o Up to $100,000 Sch C net profit

o No owner health insurance or retirement benefits

Payroll Costs

31

24

• 8 week period post loan

• Likely to be handled by your bank

• Various SBA rules will need to be followed

• The SBA reserves the right to audit these loans ($2m loans)

• First six months of payments deferred, then unforgiven portion &

accrued interest converted to 24-month loan at 1%

Forgiveness Process

7

Over-arching intent of the Act:

• Rehire and retain employees

• Call them back to work

• Off Unemployment

• Provide working capital

• Not to give employees a bonus – not meant to be a windfall

Forgiveness Rules:

• Meant to provide guidelines for use of the funds

• Remember there is no such thing as a Free Lunch

• You may not achieve 100% forgiveness

8

• Payroll costs: means more than you may think

• Facility lease (rent): (make sure you have a

copy of your lease agreement, dated prior to

2/15/20)

• Interest: on Covered Mortgage debt (dated

prior 2/15/20)

• Utility payments: including electric, natural

gas, water, phone, fax, etc. (similar costs from

2019 tax return…use caution here)

• Interest on other preexisting debt: you can use it for this, but it is not forgivable cost

9

Payroll Costs Include:o Wages, Salary, etc. ($100k rule)

o Vacation, Sick, Parental, Family Medical leaveo ‘COVID-19 hazard pay’- be reasonable

o Group Health Insurance o Health, Dental, Visiono Company contribution net of Employee

portiono Retirement Plan Contributiono State Unemployment Taxes

Payroll Costs Exclude:o Employer SS & Medicareo Federal Unemployment

10

For full loan forgiveness, you must:• Expend all the loan proceeds within eight

weeks of the loan origination date (when

you got the money)

• Spend it on eligible/forgivable & Incurred

costs

• 75% of loan proceeds must be spent on

‘Payroll costs’

• Review forgiveness reduction rules:• Reduction in number of employees

• Reduction relating to salary and wages

11

Incurred and Paid• Incurred: you must realize (incur the expense during the eight-week period) –

Accrual Basis of Accounting• Paid: you must pay for the expense during the eight-week period – Cash basis of

Accounting

Tracking of Funds• Use a separate bank account

75% Payroll Rule• Forgivable Payroll costs must be at least 75% of total costs• Remaining 25% is used for other costs (rent, utility, mortgage interest)• 3 to 1 ratio must be maintained• Problem with this rule = likely to have an issue with the following reduction

calculations

12

Separate and distinct tests

Reduction in number

of employees

Reduction relating to

salary and wages

13

Average FTE Calculation

1. Determine the average weekly number of FTEs for the eight-week forgiveness period

2. Determine the average FTEs in the Prior Period (Look Back Period)

• Need to calculate PT to FT equivalents

• We believe 30 hours is an FTE

• No extra credit for those working more than 30 hours/week

• Prior period average is calculated using either of the following ranges:

▪ February 15, 2019 to June 30, 2019 or

▪ January 1, 2020 to February 29, 2020

3. Divide Step 1 by each average from the Look Back Period

Result: The resulting (largest) % is then multiplied against your total preliminarily eligible/forgivable costs

14

1. Company receives a $1m PPP loan

2. Calculate 8 week average FTEs

• 42 full time workers during the eight-week coverage period

• 16 part time workers during the eight-week coverage period all working 15 hours week

• Total of 50 FTEs

3. Determine ‘Look Back Period’ average FTEs

• Avg. monthly FTEs for 2-15-19 to 6-30-19 = 60

• Avg. monthly FTEs for 1-1-20 to 2-29-20 = 62

4. Calculate Fraction of PPP loan forgiveness max

• 50 FTE / 60 FTE = 83.33% - this is the better of the two options

• 50 FTE / 62 FTE = 80.65%

Run both calculations to see what gives you the most forgiveness

15

Intent of the rule The forgivable amount will be further reduced on a dollar for dollar basis by the amount of any drop-in compensation for any employee that exceeds 25% as compared to their last full quarter worked.

Process steps*:• Calculated on an employee by employee basis

• Include those employees who worked during both the eight-week coverage period and the last full quarter workedo Exclusions:

▪ you may exclude those making over $100k a year

▪ Those who refused to return to work

▪ Those who left employment (retired or terminated) further guidance needed

o Multiply the gross wages earned in Q1 2020 by a factor so that it equates to an eight-week comparable period (we have been hearing the use of 8/13ths as a factor)

o Compare 8/13ths of Q1 wages to the wages paid during the eight-week coverage period to determine if coverage period wages (by employee) are below the 75% level. If so, this is a dollar for dollar reduction in forgiveness.

*how we think this will work (more guidance to come)

16

Employee Q1 Wages8/13ths of

Q1 Wages75% Req.

Cov. Pd.

Wages

Cov. Pd.

<75%

Kip $12,500 $7,692 $5,769 $5,135 ($635)

Jennifer 11,380 7,003 5,252 5,095 ($158)

Sally 9,538 5,870 4,402 2,729 ($1,673)

Ben 7,385 4,545 3,408 2,526 ($883)

Kyle 14,325 8,815 6,612 6,744 $132

Jessica 14,318 8,811 6,608 7,005 $396

Sum (Negative #s Only) ($3,349)

$ for $ Reduction ($3,349)

17

FactsCompany received a $1m PPP loan

Total PPP forgivable costs were $900,000

FTE Calculation #1: 83.33% (slide 13-14)

Wage Reduction Calculation #2: $3,349

(slide 16)

Calculation #1

$900,000

x 83.33%

$749,970

Calculation #2

$749,970

- $3,349

$746,641

Of the $1 million loan received, $746,641 is forgivable.

18

Periods of time to include:

• 2/15/19 - 6/30/19

• 1/1/20 - 2/29/20

• The eight-week coverage period

Prepare for the forgiveness process:

• It is important to track your usage of the funds now

• The process will take longer than you think

• The CARES Act says you have 21 days to submit information

• SBA will make ultimate determination

• Your banker will be instrumental in this process

• Have your documentation in order and the more the better!

Make a spreadsheet by employee & by pay period:

Information to include:

• Hours worked

• Wages earned

19

Factors to consider:

• Customer/client demand for your products or services

• Limitations on your ability to offer products or services

• Anticipated impact to earnings and cash flow

• Ability to retain existing employees

• Existing cash reserves and access top other sources of funds

If the SBA reviews your loan, they may ask the following questions:

• Why was the PPP loan necessary to support your ongoing operations?

• How has the present economic uncertainty affected your current activity?

• What other sources of liquidity were available to your business at the time you submitted

your PPP application?

• To the extent other sources of liquidity were to your, would use of those sources have been

significantly determinantal to your business? If so, why?

Safe Harbor Certification: Current economic uncertainty makes this

loan request necessary to support the ongoing operations

20

Unforgiven PPP loan amount converts into a

1% 24-month loan with 6 months of payment

deferrals and no prepayment penalties

PPP loan dollars can continued to be used

for payroll & non-payroll expenses beyond

the 8 week coverage period

21

Don McAnelly, CPA/ABV, CGMAdon.mcanelly@Rehmann.com

Danielle Matley, CPA, MBA, CHBCdanielle.matley@Rehmann.com

Rehmann professionals are prepared and ready to provide

you with insight, expertise and the solutions you need.

For additional resources (webinars, podcasts, articles, etc.):

www.Rehmann.com/COVID-19