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What is the time period for calculating payroll under the Paycheck Protection Program?

Posted by Bonita Hatchett-Bodle

Apr 20, 2020 3:31:27 PM

An applicant may determine the number of employees and payroll by using a 12-month look-back period or by using the information from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in business from February 15, 2019, to June 30, 2019, may use the average monthly payroll costs for the period January 1, 2020, through February 29, 2020. The Small Business Administration (SBA) stated that borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use the SBA’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).

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Topics: payroll costs, Paycheck Protection Program

Are federal taxes included in determining payroll costs?

Posted by Bonita Hatchett-Bodle

Apr 20, 2020 3:23:44 PM

The Small Business Administration's FAQs addressed the method borrowers must use in order to account for federal taxes when determining payroll costs for maximum loan determination and for the allowable uses for Paycheck Protection Program (PPP) loan proceeds. The SBA clarified that payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) tax and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax.

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Topics: payroll costs, Paycheck Protection Program, federal taxes

How does a borrower substantiate payroll costs under the Paycheck Protection Act? What are the lender’s obligations?

Posted by Bonita Hatchett-Bodle

Apr 16, 2020 1:00:26 PM

The maximum loan amount under the program is equal to the employer’s average monthly payroll cost during the one-year period prior to the date the loan was made, and then multiplied by 2.5. The lender is not required to replicate or investigate all of the borrower’s calculations but may rely upon the borrower’s attestation of the accuracy of the calculations. The guidance indicates that lenders are expected to perform a good faith review, in reasonable time, of the borrower’s calculations and supporting documents concerning average monthly payroll cost. Further, if the lender identifies errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documentation, the lender is encouraged to work with the borrower to remedy the issue. The documentation that several financial institutions are requiring includes business and sole proprietor tax returns, quarterly payroll reports, reports prepared by third party payroll processors and any other information that supports the applicant’s requested loan amount.

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Topics: payroll costs, Paycheck Protection Program

Under the Paycheck Protection Act, are employee benefits included in payroll costs?

Posted by Bonita Hatchett-Bodle

Apr 16, 2020 12:58:24 PM

The CARES Act limits the amount of compensation that may be included in the average payroll costs calculation to $100,000 per employee. The exclusion of annual compensation in excess of $100,000 applies only to cash compensation and not to non-cash benefits, including employer contributions to defined-benefit or defined-contribution retirement plans, payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums and payment of state and local taxes assessed on compensation of employees. Accordingly, benefits costs that cause the total payroll to exceed $100,000 per employee may be included when determining the applicant’s maximum loan amount.

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Topics: CARES Act, payroll costs, Paycheck Protection Program

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