Let’s Talk….FORGIVENESS!

… PPP Loan Forgiveness Application

As of 5/20/2020Jonathan Gallagher, CEOCraig Coleman, President

Justina Davis, Project Manager, HR EliteShelley Addy, CHRO

Phil Gilreath, VP of Operations

Agenda

• Review – Loan Forgiveness Factors

• Clarification of Forgiveness Rules

• PPP Loan Forgiveness Application & Documentation Requirements

• Open Questions and Answers

Disclaimer

• We are providing this information based on our “interpretations” of the CARES act. Much information is still awaiting clarification from the SBA and the Treasury Dept. Always consult your attorney, CPA and lending institution first.

PPP Loan ForgivenessWhat is included in the forgiveness calculation for the PPP Loan?

• All “payroll costs” for the 8 weeks following the funding of the loan

• Any “utilities payments” for the 8 weeks following the funding of the loan (gas, water, electric, transportation, telephone, internet, etc)

• Any rent or/and mortgage interest on commercial buildings (for mortgages or leases signed prior to 2/15/20

PPP Loan Forgiveness RequirementsWhat must be done to achieve 100% forgiveness?

• Maintain your FTE count

• Maintain at least 75% of salary/hourly wages

• Spend 100% of funds correctly on payroll and qualified non-payroll expenses (minimum 75/25 split)

PPP Loan Forgiveness Application

• Released 5/15• Provides clarification for:

• Covered Periods• FTE Definition• Safe Harbors• Documentation Requirements

Clarification on Forgiveness (Covered Period)• Covered Period: Eight weeks (56 days) begins the date funds are disbursed to the borrower.

For Example: If the borrower receives its PPP loan proceeds on May 5, then the first day of the Covered Period is May 5 and the last day of the Covered Period is June 30.

• Alternative Payroll Covered Period: Borrowers with a biweekly (or more frequent) payroll schedule may elect to use an eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the Alternative Payroll Covered Period [APCP]).

Example on next slide.

• Payroll Costs Incurred AND Paid: Costs Incurred but not Paid during 8-week period are included if paid on next scheduled payroll period

Alternative Covered Period Example

Bi-weekly Payroll 4/20

Loan Funding Date 4/20

Pay Frequency Bi-weekly

Pay Dates Friday

First Pay Period AFTER Loan Funding 4/26 – 5/10

8-week Covered Period 4/20 – 6/14

Alternative Payroll Covered Period 4/26 – 6/20

If the borrower receives its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following the disbursement is Sunday, April 26, the first day of the APCP is April 26 and the last day of the APCP is Saturday, June 20

Semi-monthly Payroll 4/20

Loan Funding Date 4/20

Pay Frequency Semi-monthly

Pay Dates 17th & Last day of the mo.

First Pay Period AFTER Loan Funding 5/1 – 5/15

8-week Covered Period 4/20 – 6/14

Alternative Payroll Covered Period N/A

Clarification on Forgiveness (FTE)Confirmed lookback periods

• 2/15/2019 – 6/30/2019• 1/1/2020 – 2/29/2020• Seasonal Employers:

• 2/15/2019 – 6/30/2019 OR;• Any consecutive twelve-week period between 5/1/2019 – 9/15/2019

40 hrs/wk defined FTE• Avg # hrs paid per week/40 hours à Round to nearest tenth• Maximum for each employee is capped at 1.0• May elect to use 0.5 for employees who avg <40 hrs/wk

Clarification on Forgiveness (FTE cont’d)FTE Reduction Exceptions

• Include as FTE if offer to rehire during the Covered Period rejected• Include as FTE any employee during the Covered Period who:

• Fired for cause• Voluntarily resigned• Voluntarily requested & received a reduction of hours.Note: Apply only if position was not filled by a new employee.

FTE Safe Harbor - Exempts borrowers from loan forgiveness reduction based on FTE levels and meets two conditions:

• Borrower reduced FTE levels between 2/15/20 – 4/26/20 AND;• Borrower restored FTE levels by 6/30/20 to FTE levels in the pay period that includes

2/15/20

Example - FTE Lookback & Safe Harbor

Option Lookback Period Lookback FTE

Covered Period / Alternative Covered Period FTE

Safe Harbor FTE (6/30)

1 Feb 15 – Jun 30, 2019 2118+ FTE (Option 2)

<18 FTE (Look at Safe Harbor)

15+ FTE (Exempt)

<15 FTE (Reduction)2 Jan 1 – Feb 29, 2020 18

3 Pay Period that includes Feb 15, 2020 15

1

2

Step 1 - Calculate FTE levels for lookback periods

Step 2 – Pick the most advantageous lookback period

3

Step 3 – Calculate FTE level during Covered Period / ACPC and compare to lookback

FTE # equal to or greater than lookback FTE: No forgiveness reduction, no further action requiredFTE # less than lookback FTE: Utilize Safe Harbor (next slide)

Example - FTE Lookback & Safe Harbor

Option Lookback Period Lookback FTE

Covered Period / Alternative Covered Period FTE

Safe Harbor FTE (6/30)

1 Feb 15 – Jun 30, 2019 2118+ FTE (Option 2)

<18 FTE (Look at Safe Harbor)

15+ FTE (Exempt)

<15 FTE (Reduction)2 Jan 1 – Feb 29, 2020 18

3 Pay Period that includes Feb 15, 2020 15

Step 4 - Calculate FTE levels for pay period that includes Feb 15, 2020

Step 5 – Calculate FTE level on Jun 30, 2020 and compare to Step 4

FTE # equal to or greater than lookback FTE: No forgiveness reduction, no further action required

FTE # less than lookback FTE: Loan Forgiveness Reduction

4

5

Clarification on Forgiveness (Wage Reduction)Salary/Hourly Wage Reduction:

• “Last Full Quarter” defined as Q1 2020 for comparison• Compare average annualized salary for salaried employees;• Compare average hourly wage for hourly employees

Salary/Hourly Wage Reduction Safe Harbor – Exempts borrowers from loan forgiveness reduction if salary/hourly wage rates are restored by 30 June

Wage Reduction Safe HarborStep 1 – Determine if pay was reduced by more than 25% (compare Covered Period vs Q1 2020)

• < 25% reduction in pay - No reduction in loan forgiveness. No further action required.• > 25% reduction in pay - Proceed to Step 2.

Step 2 – Determine if Salary/Hourly Wage Reduction Safe Harbor met• Determine salary/hourly wage as of Feb 15, 2020• Determine if average salary/hourly wage between Feb 15 - Apr 26, 2020 is greater than or equal to Feb 15

pay level• Yes – Safe Harbor met. No further action required.• No – Determine if average annual salary/hourly wage as of Jun 30 is greater than or equal to Feb 15.

• Yes – Safe Harbor met. No further action required.• No – Proceed to Step 3.

Step 3 – Calculate loan forgiveness reduction (dollar for dollar reduction on wage reductions greater than 25%)

Loan Forgiveness Application Packet• PPP Loan Forgiveness Calculation Form

• PPP Schedule A

• Payroll Documents• Cash compensation paid to employees (payroll register and/or bank statements)• Tax forms for period that covers the Covered Period or Alternate Payroll Covered Period

• Quarterly tax filings (Form 941)• UI tax filings reported to the state

• Account statements documenting employer contribution to health insurance and retirement plans

• FTE – Documentation showing average FTE for selected lookback period and Covered Period

• Non-payroll – Documentation verifying obligations/services’ existence prior to Feb 15, and payments from the Covered Period.

PPP Loan Forgiveness Application

Loans in excess of $2M must be annotated by the

Borrower if applicable

PPP Schedule A

Both “Loan Forgiveness Calculation Form” and “Schedule A” must be submitted to the lender

Schedule A provides a more detailed breakdown of forgivable costs entered on the Forgiveness Calculation Form:

• Cash compensation

• Employer contributions to health insurance and retirement plans

• Compensation to owners

• FTE reduction as required.

Coastal Payroll PPP Loan Forgiveness ReportCalculates FTE for both lookback periods

Calculates reduction in wages comparing Covered Period wages to Q1 2020

Calculates FTE loan reduction %

Provides payroll cost breakdown and employee level detail

Coastal Payroll PPP Loan Forgiveness ReportCalculates FTE for both lookback periods

Calculates reduction in wages comparing Covered Period wages to Q1 2020

Calculates FTE loan reduction %

Provides payroll cost breakdown and employee level detail

Organizations Currently Partnered with Coastal Payroll:• V.2 of the CARES PPP Loan Forgiveness Report is scheduled for release on 29 May• Additional tabs will be added necessary to complete the Forgiveness Application:

Worksheet A, Table 1Worksheet A, Table 2Owner Employee CompensationSchedule A

• Additional detail will be added to separate employer contributions to health insurance and retirement plans during the Covered Period

Borrower Loan Document Archive

The listed documentation does not need to be submitted with the forgiveness documents but must be maintained for six years from the date the loan is forgiven or paid in full:

• Schedule A Worksheet – Utilized to assist in populating PPP Schedule A

• Documentation supporting individual employee wage levels

• Documentation regarding employee job offers and declinations, terminations for cause, or requests for hours reduction during the Covered Period

• Documentation supporting the FTE Reduction Safe Harbor

Questions?

Thank you!

coastalpayroll.com | (858) 565-2123