그러나 "급여"라는 단어가 "임금" 또는 "급여"라는 개념을 불러일으키는 반면, PPP 대출의 경우 "급여 비용"이라는 용어는 확실히 더 광범위합니다. 예를 들어, 자영업으로 인한 순이익을 포함하는 것 외에도(자신을 비즈니스 소유자로서!) 급여, 커미션, 급여 및 기타 현금 보상(직원당 연간 $100,000 한도)과 함께 급여 비용에는 일반적으로 다음이 포함됩니다.

• 휴가, 육아, 가족, 의료 및 병가 수당
• 단체 건강 보험(보험료 포함),
• 은퇴 혜택; 그리고
• 주 및 지방세.

However, while these expenses can generally be included in the amount of a PPP loan eligible for forgiveness, and self-employed individuals can even include some of their own earnings from the business as payroll (even if not actually received as a W-2 salary, in the case of partnerships or sole proprietorships), the SBA and Treasury rules limit the ability to include some of these other ‘employee benefits’ payroll-related expenditures if they are made on behalf of business owners themselves (who work at/for the company).

More specifically, the following expenses are not considered Payroll Costs:

• Group Health Coverages, to the extent that costs are for:
  • S corporation owner-employees with 2% or more ownership, or their family members;
  • Schedule C/F businesses; 또는
  • General partners.
• Retirement Benefits, to the extent that costs are for:
  • An owner-employee of a C corporation or an S corporation (excluded only when costs exceed 2.5 ÷ 12 =20.8% of the 2019 contribution made by the employer);
  • Schedule C/F businesses;
  • General partners.
• State and Local Taxes, to the extent that they are attributable to:
  • Schedule C/F businesses; 또는
  • General partners.

Reductions In Loan Forgiveness For Not Maintaining Headcount Or Sufficient Compensation

As noted earlier, the primary purpose of the Paycheck Protection Program was to safeguard the employment status of small business workers. Accordingly, some businesses that received PPP loans, but that failed to adequately protect worker’s compensation, may be ‘punished’ via a reduction in the amount of their PPP loan that is eligible to be forgiven.

Or at least some of them are…

As while the Paycheck Protection Program did originally include requirements for businesses to maintain certain employee headcount requirements to be eligible for forgiveness on their PPP loans, on October 8, 2020, the SBA and Treasury announced that borrowers who received loans of $50,000 or less would not be subject to such reductions in forgiveness. Which, notably, ‘covers’ more than two-thirds of PPP borrowers (but only about 10% of loan dollars). However, borrowers who took larger loans must still deal with a variety of rules that can result in a reduction of the forgivable amount of their loan.

More specifically, reductions in the forgiveness of PPP loan proceeds spent on eligible expenses during the Covered Period are generally applied for both reductions in the number of Full-Time Equivalent (FTE) employees (the number of cumulative 40-hour workweeks a business’ employees perform) during the Covered Period (as compared to a reference period) and reductions in (non-highly-compensated) workers’ compensation in excess of 25% (to prevent businesses from claiming they maintained headcount but then drastically cutting compensation for all the employees they kept on payroll). In other words, businesses had to maintain at least the same number of full-time equivalent employees at the start and end of the Covered Period, and those (non-highly-compensated) employees had to maintain at least 75% of their compensation (i.e., a not-more-than-25% reduction in compensation) to remain fully eligible for PPP forgiveness.

There are, however, a variety of exceptions to the required thresholds of which business owners should be made aware.

Determining How Reductions To Full-Time Equivalent (FTE) Employee Headcount Will Reduce Paycheck Protection Program (PPP) Loan Forgiveness

Some businesses that received PPP loans were able to maintain their employee headcounts and hours throughout their Covered Periods. In such instances, the reward that those businesses receive is the ability to completely ignore this part of the forgiveness process!

Of course, not all businesses – even with a boost from the Paycheck Protection Program – were able to maintain employee headcount. The penalty for not doing so is a reduction in the amount of the business’ PPP loan that would otherwise be forgiven (with some exceptions, discussed later).

More specifically, a business must compare its average weekly Full-Time Equivalent (FTE) Employees during the Covered Period (or, if elected, the Alternative Payroll Covered Period) to its FTEs during either the period from January 1, 2020 – February 29, 2020, or during the period from February 15, 2019 – June 30, 2019. Notably, businesses can pick the more favorable of these periods (the period in which there were fewer FTEs) for the comparison.

In general, to compare the number of average weekly FTEs during the Covered Period and the comparison period, it is necessary to determine the average weekly FTEs during both periods. A standard FTE is equivalent to one 40-hour workweek, regardless of the number of individuals it takes to get to the 40-hour mark. Thus, a single worker who works 40 hours in a single week is equivalent to one FTE for that week. Similarly, if two workers each work 20 hours in a week, they would also constitute, together, a single FTE, as would 8 workers each working 5 hours per week, and so on.

One caveat to this rule, however, is that a single worker cannot comprise more than 1 FTE per week, even if that individual works for more than 40 hours during the week. Thus, while two workers who each work 30 hours per week will constitute (30 x 2) ÷ 40 =1.5 FTEs, a single individual working 60 hours in a week will be equal to just 1 FTE!

Once the numbers of average weekly FTEs during the Covered Period and the comparison period are known, the two amounts must be compared. And, in general, any decrease in the number of average weekly FTEs from the comparison period to the Covered Period will result in a reduction of the forgivable amount of the PPP loan.

For borrowers that do fail to maintain their FTE headcount, the adjustment to their PPP forgiveness is relatively straightforward:the otherwise forgivable amount of the PPP loan will be reduced by the same percentage as the percentage drop in FTEs from the comparison period to the Covered Period. So, for instance, a 20% drop in average weekly FTEs from the comparison period to the Covered Period will typically result in a 20% decrease in the amount of the PPP loan a business received that would otherwise be forgiven.

Safe Harbor FTE Calculation

Incredibly enough, there is yet another election that business owners can choose to make when calculating whether they maintained employee headcount and/or the amount by which their headcount (and thus their forgivable PPP loan) was/is reduced.

Instead of using actual hours worked to calculate FTEs, the business can opt to use a safe harbor method, where all employees who work 40 hours or more during a week are counted as 1 FTE, while all employees who work less than 40 hours during a week are counted as one-half of an FTE.

Perhaps not surprisingly, this is an all-or-nothing decision. A business can’t, for instance, use the safe harbor in some weeks, but not others. Or for some employees, but not others. It’s either used for all the employees for every week of the Covered Period or for none of the employees in any week of the Covered Period.

Using the safe harbor method to calculate FTEs will usually alter the number of FTEs for comparison purposes.

It’s important to note, though, that while using the safe harbor method of calculating FTEs would have resulted in a negative outcome in the example above, its use can actually result in either a positive or a negative effect on forgiveness, depending on the specific set of facts and circumstances.

Exceptions To Reductions In Loan Forgiveness Due To A Drop In FTEs

Although Congress was intent on making sure that PPP loan proceeds were used to keep workers employed through at least the end of the Covered Period, it recognized that there would be some situations where doing so would not be possible, for reasons largely (if not entirely) outside of an employer’s control. In particular, some business owners with lower-wage employees raised concerns that the enhanced unemployment benefits made available as a part of the CARES Act were actually resulting in employees not wanting to return to work until the increased unemployment benefits ended (potentially rendering the employer unable to meet the ‘maintain headcount’ requirement for its own PPP forgiveness).

Accordingly, Congress, the SBA, and Treasury, collectively crafted a series of exceptions to the general rule for reductions in forgiveness. Thus, a business will not have its forgiveness amount decreased for any of the following situations occurring during the Covered Period or Alternative Covered Period:

• The borrower made a good-faith, written offer to rehire an individual that was rejected by the employee;
• The employee was fired for cause;
• The employee voluntarily resigned;
• The employee voluntarily requested and received a reduction in their hours;
• The borrower made a good-faith effort to restore any reduction in hours at the same pay, but was rejected; 또는
• The borrower tried but was unable to hire similarly qualified employees for unfilled positions by December 31, 2020.

A careful reading of the above exceptions reveals that they are not blanket exemptions for an employer that covers every 직원. Rather, they are acceptable ‘excuses’ to ignore a drop in FTE count specific to an individual employee.

By contrast, there are two additional exceptions to a drop in FTEs that can be used broadly, across a business, for all employees. They are when either:

• The borrower is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19; 또는
• The borrower reduced its number of FTEs between February 15, 2020, and April 26, 2020, but restored its FTE count by the earlier of December 31, 2020, or when its application for forgiveness is submitted.

For certain businesses, these two exceptions to the ‘normal’ FTE reduction rules can be huge. They are effectively ‘get-out-of-jail-free cards’ that will eliminate any and all FTE reductions that would otherwise apply (though PPP funds will still need to be spent on eligible expenses during the Covered Period to be eligible for forgiveness).

For businesses that are unable to return to the same level of business activity as before February 15, 2020, due to compliance requirements, it’s as simple as documenting the public health requirement and the corresponding drop in business activity (read “gross revenue”).

Meanwhile, for businesses that reduced employee headcount or hours at some point between February 15, 2020, and April 26, 2020, it just needs to reverse those decisions by the end of the year. Thus, now may be a critical time for such businesses to consider bringing back employees, as the difference between rehiring staff on December 15, 2020, for example, and January 15, 2021, could be the difference in thousands (or even tens or hundreds of thousands) of additional forgiveness!

Reductions In Loan Forgiveness For Large (Greater-Than-25%) Cuts In Compensation To Non-Highly Compensated Employees

If not for an additional restriction, shrewd business owners may have looked to avoid drops in headcount by simply cutting employees’ compensation but keeping them employed. However, while certain cuts in compensation are allowed, the CARES Act does limit such actions.

More specifically, to the extent that an employee with annualized salary/wages of less than $100,000 during 2019 has their compensation slashed by more than 25%, the excess (beyond 25%) will result in a dollar-for-dollar drop in the amount of the business’ PPP loan that is forgivable (unlike the reduction due to employee headcount, which is calculated on a percentage basis). This dollar-for-dollar reduction in the PPP forgivable amount due to a reduction in employee compensation is made by comparing the drop in wages/salary during the Covered Period to the average salary/wages paid to the employee from January 1, 2020 – March 31, 2020.

However, cuts in compensation of less than 25% to the same employees have no impact on forgiveness. Similarly, cuts to compensation of those earning $100,000 or more in 2019 have no impact.

Two final points are worth mentioning here. First, similar to the ‘exception’ that allows an employer to rehire a terminated individual by December 31, 2020, to avoid a reduction in forgiveness due to a drop in headcount, so too can an employer avoid a reduction in loan forgiveness for cutting a non-highly-compensated employee’s compensation in excess of 25% if the salary is restored by the same December 31, 2020 deadline.

However, per the instructions for forgiveness published by the SBA and Treasury, this exception only appears to be available if the decision to slash wages/salary was made between February 15, 2020, and April 26, 2020. (Whereas subsequent reductions in compensation or headcount that were implemented after April 26 ^th can’t be ignored, even if the employees are subsequently re-hired or restored to their prior compensation level.)

Second, a business that both reduced its FTEs and cut non-highly compensated employees’ wages by more than 25% will have two reductions in the amount of its PPP loan that would otherwise be forgivable.

There is, however, an “order of operations” that must be followed. More specifically, the dollar-for-dollar reduction for salary cuts (to non-highly-compensated employees) is applied first, followed by applying the percentage reduction in forgiveness due to a drop in FTEs to the already reduced amount.

Strategies To Help Maximize Paycheck Protection Program (PPP) Loan Forgiveness

As is plainly evident, the rules for determining the amount of a business’ PPP loan that can be forgiven by the SBA are complicated (one might even say “obnoxiously” complicated!). That complexity will inevitably lead to some business owners failing to get the maximum possible amount of their PPP loan forgiven or lead to other planning complications.

Advisors can, and should, help clients avoid this fate by taking steps that include the following:

• Choose the Covered Period Wisely – As noted earlier, PPP borrowers who received their loans prior to June 5, 2020, have the flexibility of choosing either an 8-week or a 24-week Covered Period. This covers the majority of borrowers and provides for ample planning opportunities.

Where the borrower maintains their employee headcount and wages through the ‘regular’ 8-week Covered Period (or qualifies for an exception to forgiveness reductions) and expends enough on payroll (and, if necessary, on other expenses) to have the full PPP loan forgiven (which is pretty likely, if full employment was maintained), the 8-week Covered Period is the logical option.

If this isn’t enough to get full forgiveness, but the business is otherwise relatively close to the required expenditures to obtain full PPP forgiveness, the next step is to see if the Alternative Payroll Covered Period is enough to do the trick.

If the Alternative Covered Period allows the business to spend enough on eligible expenses to get maximum forgiveness, then using it is a ‘simple’ solution.

If it doesn’t, it’s necessary to explore the 24-week Covered Period option instead. If the borrower maintains headcount and wages through the ‘extended’ 24-week Covered Period (or qualifies for an exception to forgiveness reductions), then this becomes the logical option.

However, if FTEs are not maintained and/or there are significant (<25%) cuts to the wages of employees with annualized compensation of less than $100,000, further analysis is warranted.

At the heart of the matter lie two questions…

1. Does the added time of a 24-week Covered Period allow the business to spend enough on qualifying expenses, such that including these expenses would more than offset any additional reductions in forgiveness due to a drop in FTEs or cuts to non-highly compensated workers’ wages that might have also occurred during the 24-week period?; 그리고
2. Would the added reductions to forgiveness due to declines in FTEs or cuts to non-highly compensated workers’ wages more than offset any gains from the inclusion of additional expenses?

If the answer to question 1 is “yes” and the answer to question 2 is “no”, then extending to the 24-week Covered Period likely makes the most sense. Otherwise, keeping the ‘original’ 8-week Covered Period will probably be more beneficial for the borrower.

Unfortunately, there is no easy way to figure this out. Someone must ‘run the numbers’ using each method and see what the best result is!

• Make Smart Decisions If Reductions In FTEs And/Or Employee Compensation Are Required – There are a lot of ways to try and mitigate the impact of reductions in headcount or payroll for business owners who truly understand the PPP forgiveness rules. Options for business owners who received PPP loans of greater than $50,000 (and thus, subject to the reduction rules) include the following:
  • Keep wage cuts to no more than 25% for those employees with annual wages of less than $100,000;
  • Where more significant cuts to wages are required, cut the wages of employees with annual wages in excess of $100,000;
  • If additional hours are required above 40 hours per week for a particular role, try to hire additional employees (even on a part-time basis) to do the work because their hours will count towards the FTE requirement (while having the original employee work in excess of 40 hours per week won’t add to the FTE count);
  • Run FTE calculations using both the ‘regular’ calculation and the safe harbor method; 그리고
  • When the safe harbor FTE calculation is used, minimize the number of employees working between 20 and 39 hours per week (no additional credit is received).

• Prepare Clients Receiving Substantial Forgiveness For A Bigger Tax Bill! – In the event that a business owner is able to successfully navigate the PPP forgiveness rules to have all or a large portion of their PPP loan forgiven, it’s a substantial win for the business owner. But it’s not a total win… at least not yet.

More specifically, while Section 1106(i) of the CARES Act stipulates that “any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income,” the IRS has effectively negated this position by disallowing any expenses paid with forgiven funds from being deductible by a business on its return.

Without such deductions, the profit of some businesses may be ‘artificially’ inflated, leading to higher-than-normal tax bills for business owners.

The last thing anyone wants is an unexpectedly large tax bill. But given the pandemic and the struggles many business owners are already dealing with, that may never be truer than today. Advisors, therefore, must help such clients plan ahead and avoid surprises.

The CARES Act provided a massive stimulus to the American economy in response to the worst pandemic in more than 100 years that gripped the nation. Included in the stimulus was the creation of the much-hyped Paycheck Protection Program, which ultimately provided more than half a trillion dollars in loans to business owners in an effort to help them maintain their employee headcount and payroll.

But while the PPP loans, themselves, have been valuable for business owners, the real cherry on top has been the ability to have some, if not all, of the loan forgiven by the SBA. To benefit from this, though, business owners need to navigate a complex web of rules, from understanding various Covered Periods to knowing what expenses count towards forgiveness – a particularly cumbersome issue for business owners themselves – to dealing with reductions that can apply when employee headcount and/or wages are not maintained throughout the Covered Period.

The good news for advisors is that this complexity provides ample opportunity to educate clients and to provide invaluable guidance in a time of great need. Doing so not only helps business owners to maximize the amount of PPP forgiveness they receive, but can also create the kind of goodwill that can lead to clients for life!