Part of rebuilding businesses in this post pandemic world, for a few, revolves around navigating the financial waters brought on by the federal government’s Paycheck Protection Program, or PPP.
The PPP has already provided millions of dollars of business relief in these difficult times. Yet, it remains a source of controversy, concern and confusion for many. Despite the program’s relief for some, there are still others who are left not knowing how they can use the funds – or if they can use them at all. Here’s how security firm owners can navigate financial strains once their deadline hits.
Know When the Deadline Impacts Your Financial Payback Status
As a 100% forgivable loan, recipients of the PPP do not have to pay the funds back – ever. However, in order to meet the forgiveness requirements, business owners must make sure that the rules are being followed. This means knowing when your 24 week deadline is up as it’s different for every business owner and is dependent on the date in which funding was released.
A Few Reminders:
- – 100% of the loan amount must be used in the 8 weeks following funding
- – 75% must be spent on payroll expenses
How to Correctly Determine Which Payroll Expenses Are Covered Under the PPP
Not everything is covered as a payroll expense for the PPP. 75% needs to be spend on “payroll expenses” – and many are unsure of exactly what that means. Here’s the official requirement:
“Payroll costs consist of compensation to employees including salary, wages, commissions or similar compensation; cash tips or the equivalent; payment for leave; allowance for separation or dismissal; payment for employee benefits including group health care coverage and insurance premiums; retirement contributions, payment of state and local taxes assessed on the compensation of employees.”
Essentially, most (but not all) payroll expenses are covered in the PPP. Not all payroll expenses are created equal, which is something we will discuss later. In addition, owners have to exclude certain employees, as they are fully or partially not eligible. These include:
- – The compensation of an employee whose principal place of residence is outside of the U.S.
- – The compensation of an individual employee in excess of an annual salary of $100,000
- – If the borrower took credits under the Families First Coronavirus Response Act (FFCRA) for sick and family leave wages, those costs are also excluded.
It’s important that these employees are separated or business owners may risk noncompliance. The other 25% of the loan proceeds can be spent on rent, utilities, and mortgage interest – which is a huge benefit for businesses.
Instead of Opening a Separate Account, Use the PPP Account to Fund your existing Payroll Account
The problem with switching payroll accounts is evident. A recommended method – one that business owners can take to maintain compliance – is to create a separate account with PPP funds not used for payroll. It should be used to transfer the correct expense amounts to the main payroll account.
- Run payroll and fund it out of an existing account. Just as one would normally do if under normal operating conditions, running payroll and funding it out of an existing account allows for a faster – and less risky – way of determining expenses. This avoids having business owners determine correctly their eligible employees, eligible expenses, and other requirements that will hit after the 8 week time period ends.
- Use payroll reports to determine allowable payroll costs. A payroll provider may have the ability to run “forgiveness reports” which will use all the criteria on eligible employees, expenses, and deductions. Plus, a payroll provider may be able to find the required information documented on normal payroll reports. This will give the clearest picture on forgivable expenses.
- Transfer an amount equal to the allowable costs from the PPP account to the payroll account. This way, business owners can take the exact, allowable amount from the loan to fund payroll in the most compliant way.
Rather than switching to a new payroll account for only 8 weeks and risk not knowing what is allowable and what is not, business owners can use the PPP as a funding account for their existing payroll. Using this method will enable owners to stay on top of the requirements, stay compliant, and keep employees paid.
About the Author
Tim Lozier is the VP of Marketing for Valiant Solutions. He has an extensive background in software technology, and has been involved in the development of leading-edge technologies and strategies for workforce management solutions. Lozier is responsible for fostering the direction of and providing strategic leadership for Trackforce Valiant’s comprehensive platform for security workforce management, with uniquely tailored solutions for the front-line security workforce management and the back-office Time and Labor Management, Payroll Management and Human Resource Management.
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