For the business owners who received PPP Loan funds, the SBA released the Loan Forgiveness Application on Friday, May 15, 2020. To calculate payroll for forgiveness, you have 2 options:
1. Covered Period
The covered period is 56 days, starting on the date of funding. If you are funded on April 14, your 56 day time frame runs from 4/14 – 6/8. In this scenario, you will include payroll costs incurred during this period (actually earned during the 56 days). The costs should be paid during the time frame. The exception is for the last payroll of the period, if must be paid on or before the next regular payroll date.
2. Alternative Payroll Covered Period
If your payroll period doesn’t align exactly with the covered period of the loan, you can use an alternative period to get a full 8 weeks of payroll eligible for forgiveness without making a special payroll within the 56 days. Using this method, the covered period begins on the first day of the first pay period following the funding date and will extend 56 days (some pay will be outside of the 8-week time frame).
ABC company applied for and received a PPP loan. Funding date is 4/9 and forgiveness period ends 6/3 . ABC company has biweekly payroll with 2 employees. Payroll is biweekly, runs from Wednesday to Tuesday and is paid the following Friday, with a payroll paid on 4/3. One employee is salary making $60,000/year ($28.84/hour) and the other makes $15.50/hour and works 5 hours a day Monday, Tuesday and Friday and the 3rd Saturday of every month.
- Using Covered Period – the salaried employee will earn $9,230.76 for the 8-week period ($28.84 * 40 hours in a week * 8 weeks). The hourly employee will earn $15.50 * 5 ($77.50) every day they work. The hourly employee will work 4/10, 3 days in the next 7 full weeks, and 6/1 and 6/2 of the last week plus Saturday 4/18 and 5/16. The hourly employee will have $2,015 included in forgiveness (26 days). The last payroll will need to be paid no later than the 6/5 (the normal payroll pay date following the end of the forgiveness period).
- Alternative Payroll Covered Period – Include the gross payroll amounts for the pay periods dated 5/1, 5/15, 5/29, and 6/12.
For most employers, the easiest way to calculate payroll is using the alternate method, especially when their payroll is fairly consistent or if they were not operating at 100% when they received their funds.
The difference between this method and what we originally advised is 1) the amounts which have not actually been incurred during the time frame are incurred after the forgiveness period, not before and 2) we are including a payroll that is not paid in the forgiveness period (as opposed to including everything that was paid during the 8 week period).
If you have calculated amounts to pull from the forgiveness accounts for clients using our previous recommendation, you will need to adjust a payroll. If you need help with this, please let me know. Link to the application.
Tammy Busby, CPA, CGMA Strategic Advisor
Tammy has been with our firm for over 23 years. She likes to say that accounting has very little to do with math, and a lot to do with problem-solving, communication, and a little bit of mind-reading. She is the leader of our Coronavirus Response Team and has taken charge of interpreting new regulations and preparing our firm to help clients.