Withum COVID-19 Bill Update – 5/21/2020

May 22, 2020

On April 3rd, Treasury released a PPP Borrower Information Fact Sheet that was meant to clarify key questions with respect to the application process. In particular, this document reaffirmed the definition of “Payroll Costs” (Page 2) and clarified that salaries include bonuses and other forms of compensation subject to the $100k cap. It also clearly shows that “other compensation” such as vacation pay and severance were separate items, to be included over and above the cap. The guidance aligned with the way the law was written.  

In the newly-released loan forgiveness application, the SBA defines “payroll” to include an employee’s Cash Compensation and Non-Cash Compensation. Then it further defines Cash Compensation (see below), which is capped at $15,385 per employee during the covered period, to INCLUDE any form of cash compensation such as severance and vacation payouts. This was a very subtle change that went unnoticed by many. This change is contrary to the way the law is written and will have a meaningful impact on borrowers who were expecting these forms of compensation to be “over and above the cap.” We recommend that you review your calculations to determine what impact, if any, this change produces. We will be monitoring this issue as the SBA seems to have silently reversed its prior guidance.

Cash Compensation: Enter the sum of gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical or sick leave, not including leave covered by the Families First Coronavirus Response Act), and allowances for dismissal or separation paid or incurred during the Covered Period or the Alternative Payroll Covered Period. For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the Covered Period; therefore, do not enter more than $15,385 in Table 1 or Table 2 for any individual employee. 

Reminder Section:  (what should I be doing):

  • Call your payroll company about claiming the payroll tax deferrals and employee retention credits that were made available in the CARES Act.
  • Talk to your payroll company about the Sick Pay Bill (passed prior to the CARE Bill).
  • Be in constant communication with your bank (about status of your PPP application).
  • Consider speaking with your bank to discuss changes to terms of existing debt facilities. The banking system remains strong.
  • If you have already applied for the PPP, start forecasting how you intend to spend the funds and how to qualify for the highest amount of forgiveness possible.

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