We will be discussing the latest PPP guidance released June 16th and it's implications for your business.
- Jennifer Rohen, CLA Principal, WOTC Practice Leader
- Jack Rybicki, CLA Managing Principal of Industry, Real Estate
- Rick Krueger, CLA Principal
- Brendan Kurvers, CLA Manager, M&D
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Jen Rohen: Hello CLA family, friends, colleagues, and community partners. Welcome back to our livestream. We sincerely hope that you are continuing to stay safe and healthy at this time. On June 16 and 17, SBA released new loan forgiveness applications and a new interim final rule (IFR).
Today, we have Jack Rybicki and Rick Krueger to help understand key takeaways from these new documents. In addition, we have Brendan Kurvers, from our Manufacturing and Distribution team, to walk us through a specific example as it relates to food and beverage and how your consumer experience will be impacted as a result of Paycheck Protection Program (PPP) changes. Welcome, guys!
Rick, I’d like to start with you talking about the new Form EZ. What are the criteria that an organization needs to meet in order to utilize this form?
Rick Krueger: Thanks, Jen. You need to meet one of three criteria in order to complete Form EZ.
Self-employed individuals, independent contractors, or sole proprietors that had no employees at the time of application and did not include any employee salaries in the average monthly payroll of the borrower application form.
Borrowers who did not reduce annual salary or hourly wages of any employee by more than 25% during the covered period (or alternative payroll covered period) compared to Q1 2020 AND did not reduce the number of employees or average paid hours of employees between January 1, 2020 and the end of the covered period. Note that for this certification, borrowers should ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also, borrowers should ignore reductions in an employee’s hours that the borrower offered to restore and the employee refused.
Borrowers who did not reduce annual salary or hourly wages of any employee by more than 25% during the covered period (or alternative payroll covered period) compared to Q1 2020 AND the Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 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, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
Rohen: Jack, why might this not be as “EZ” as it seems?
Jack Rybicki: Note that while the EZ form is significantly shorter, the documentation instructions still require the borrower to submit information to support each assertion made. So unfortunately, this doesn’t necessarily decrease the effort required by a borrower to comply with the requirements.
For borrowers with employees, this would include payroll records that separately list each employee and show the amounts paid to each employee during the period between January 1, 2020 and March 31, 2020, and the amounts paid to each employee during the Covered Period or Alternative Payroll Covered Period. It would also include payroll records that separately list each employee and show the amounts paid to each employee between January 1, 2020 and the end of the Covered Period.
Additionally, borrowers may need to include information regarding any employee job offers and refusals, refusals to accept restoration of reductions in hours, firings for cause, voluntary resignations, written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
If applicable, borrowers may also need to include documentation supporting the certification that it was unable to operate between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 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, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.
Rohen: Thanks, Jack. Rick, another really important thing that happened with the application and the new IFR is that we have some clarity on limits for both the 8- and 24-week covered periods. Can we please talk about that for a little while?
Krueger: Sure, Jen. Borrowers had many questions about how limits in effect for the eight-week covered period would apply to the 24-week covered period. The new applications and IFR include that detail and answered some outstanding questions we had for both periods (e.g. health insurance for owner-employees of an S-corporation).
- $100,000 cash compensation limits updated for 24-week covered period
- Employees are capped at $15,385 for 8 weeks or $46,154 for 24 weeks
- Owner compensation is capped at $15,385 for eight weeks or the lower of $20,833 or 2.5-month equivalent of their applicable compensation in 2019 for the 24-week period.
- Employee benefits for employees who are not owners include
- Employer contributions for employee health insurance, including employer contributions to a self-insured, and employer-sponsored group health plan, but excluding any pre-tax or after-tax contributions by employees.
- Employer contributions to employee retirement plans, excluding any pre-tax or after-tax contributions by employees.
- Employer, state, and local taxes paid by the borrower and assessed on employee compensation (e.g., state unemployment insurance tax), excluding any taxes withheld from employee earnings.
- Employee benefits for owners include further restrictions
- Borrowers must exclude employer health insurance contributions made on behalf of a self-employed individual, general partners, and owner-employees of an S-corporation. The SBA has stated these are excluded because such payments are already included in their compensation.
- Borrowers must exclude employer retirement contributions made on behalf of a self-employed individual or general partners. The SBA has stated these are excluded because such payments are already included in their compensation.
- Employer retirement contributions on behalf of owner-employees are capped at 2.5 months’ worth of the 2019 contribution amount
Rohen: Thanks, Rick. We do have one more key change that I’d like to have us talk through. Jack, can you please talk us through the application of the new December 31 safe harbor date?
Rybicki: Absolutely. Safe harbors for both salary/hourly wage reduction and FTE reductions include a new option:
- The CARES Act originally provided a safe harbor date of June 30.
- In the original loan forgiveness application, borrowers assessed that as of June 30.
- We knew that the PPP Flexibility Act updated the safe harbor date from June 30 to December 31. However, we were unsure if SBA would apply that change the same way as it did with the CARES Act.
- In the new application, the safe harbor is assessed as of the earlier of December 31 and the date the application is submitted.CLA Principal, WOTC Practice Leader
This should be beneficial for many borrowers because it provides them additional flexibility depending on the timing of their application.
Rohen: We would now like to welcome Brendan Kurvers, to the show to provide us a brief teaser on what you all can expect on next week’s livestream. Brendan comes to us from Minneapolis, Minnesota where he leads the Manufacturing and Distribution team. He serves a variety of manufacturing and distribution companies but has a deep passion and concentration of clients that are food and beverage manufacturers and distributors. Brendan, can you give the viewers a snap shot of what to expect on Tuesday’s livestream?
Brendan Kurvers: Good afternoon Jen, and thanks for the warm introduction. As Jen mentioned, my specialty focus area is around food and beverage manufacturing and distribution. With all these recent changes to the PPP and the overall market landscape we have been working up and down the food and beverage supply chain ranging from agribusiness, food/beverage production and distribution, and ultimately retailers – such as restaurants and grocery stores – to help our clients navigate these uncertain times.
On Tuesday, we will have Eric Beenken from our agribusiness team to enlighten us on what to expect from the livestock and meat production markets. I will also be joining the livestream to discuss how the middle of supply chain is handling the new normal, and ultimately we will conclude with discussing what you as a consumer can expect when you go to the grocery store to pick up your food for your July 4th festivities. We would welcome any major questions you may have prior to the show and we will plan to build them into the agenda.
To leave you with something to chew on over the weekend, here are some stats that the CLA Grocery and Restaurant teams have put together:
- In April, the price of groceries rose 2.6%, according to the Bureau of Labor Statistics, resulting in the biggest one-month increase in grocery prices since 1974.
- Even more alarming is the increase in egg prices, which shot up 16.1% on average.
- In some areas of the country, the increases were larger. For example, the price of ground beef in the Dallas-Fort Worth area increased by 14.5%, the price of chicken breast in Los Angeles skyrocketed by more than 26%, and the price of orange juice is up 14.6%, according to Nielsen data exclusively obtained by NBC News.
- After a near total shutdown of restaurants to slow the spread of COVID in late March and early April, nearly every state is open or partially open for business, as of today
- However, according to restaurant business, May 2020 sales were $25B short of 2019. However, this was an improvement from April 2020, where sales were $30B short of 2019
- Overall, the impacts you will see during your July 4th weekend could vary and you could see significant prices changes at restaurants that only may be a mere mile away from one anotherIn April, the price of groceries rose 2.6%, according to the Bureau of Labor Statistics, resulting in the biggest one-month increase in grocery prices since 1974.
Rohen: Unfortunately, that’s all we have time for today. Thank you to our guests today, to you for your questions, and to our moderators for all the support, great information, and answers.
- Webinar: PPP Update: Unpacking the Latest Guidance
For more information:
- Heather Kloster
- Marketing Senior