The Payment Protection Program is here to give business owners and employees peace of mind. Businesses are faced with the unprecedented challenge of remaining profitable enough to pay for employees to have livable conditions during the COVID-19 pandemic. Many business owners always have the stress of making payroll on their minds. As a business owner, you should understand the power of bookkeeping to stay organized and keep your employees paid. The Paycheck Protection Program is essentially an SBA loan that helps businesses keep their workforce employed during the coronavirus (COVID-19) crisis.
Revenue – your organization’s income from regular business activities
Income – payment for goods and services
Expenses – costs and charges associated with running your business
The federal government understands that a multitude of small businesses are struggling as a result of quarantine. When business owners have to furlough employees or shutter their doors, the economy cannot recover. While some states are in the first stages of reopening, many states will not open for a few more months.
The Paycheck Protection Program was designed to loan struggling businesses money to stay afloat during these uncertain times. Understanding that many business owners cannot repay every cent of their loans, the government has added an element of forgiveness to keep the country running.
Certain criteria must be met for business owners to have 100 percent of their loan forgiven. The U.S. Treasury has set your business up for full loan forgiveness. Let’s go through everything you need to know to have a fresh start.
Paycheck Protection Program terms
The government calculates every aspect of your loan. Hopefully, your bookkeeping has been impeccable for 2019 and 2020. Your Paycheck Protection Program loan is based on 2019’s average monthly payroll cost. The loan is designed to cover eight weeks of payroll. You may receive up to 2.5 times the calculated amount. Relief funds are considered part of your business payroll.
What does payroll include?
Payroll includes salary, wages, vacation, parental, family, medical and sick leave, and health benefits.
Will my mortgage, rent and utilities be covered?
Maybe. As long as mortgages have been issued by February 16, 2019, the interest can be paid with this loan. Rent can also be paid if you signed the lease before February 16, 2019.
Utilities can be covered if they were instated before February 16, 2019. Before you get too excited, know that there are numerous conditions that apply.
What are the conditions that apply to the rent, mortgage and utilities aspect of the Payment Protection Program?
At this point, you should know that bookkeeping is essential to running a business. You should have a running tab of all eligible expenses that cover the last eight weeks. The Payment Protection Program only covers eight weeks of expenses – nothing more.
The start date of the eight weeks is not necessarily the day you signed your loan agreement. Adjustments may have to be made to your payroll schedule.
Ideally, you should fit in as many cycles of payroll as possible. If your loan is deposited on the May 15, your funds should cover all expenses moving forward from that date.
What does the 75/25 rule mean for me?
According to the terms of the PPP, 75 percent of payroll must be paid. Must means there will be severe federal consequences if you do not follow the rule. The Payment Protection Program is meant to help your business survive these uncertain times. It is also designed to ensure your employees can have a reasonable standard of living.
How is an employee defined?
An employee is defined as someone who you have hired to work a specific number of hours for you. It does not matter if they are full- or part-time employees, they count. Those who do not count toward your payroll – no matter how long they have been considered an unofficial part of the team – are independent contractors.
You cannot calculate a freelancer into your payroll. These independent contractors have their own program to help them through the COVID-19 pandemic.
Can I fire some employees?
No. You cannot fire employees at this time. Even if you were planning to fire them before the pandemic, you can be penalized for doing so.
Do I meet the staffing requirements?
You will meet the requirements if you don’t fire anyone. You have to maintain employee numbers indicated on the payroll.
To calculate that number, determine the average number of full-time employees that have been working at your company for the eight-week period following initial disbursement of the loan (A), ones who have been employed from February 25, 2019 to June 30, 2019 (B) and from January 1, 2020 to February 29, 2020 (C).
This is where calculations must be precise. Take A and divide it by B. Then take A and divide by C. Once done, take the largest number. If you are a seasonal employer, divide by B.
If your number is equal to or larger than one, you meet the requirement for maintaining headcount. If your number is smaller than one, you do not meet the requirement for headcount maintenance, resulting in a proportional reduction of your loan forgiveness amount.
What if I want to rehire an employee?
The exemption to payroll variances is rehiring an employee. If you have furloughed some employees, some may not want to return. This is fine.
Please take the time to verify that you
- made a written offer to rehire in good faith.
- offered to rehire for the same salary/wage and number of hours as before they were laid off
- documented the employee’s rejection of the offer
You must have sent the offer through certified mail to prove that the offer was rejected for the former employee to be excluded from loan forgiveness.
To receive FREE phone service, you first must be approved through the National Verifier. You can bring your own phone and keep your number to experience our 5G network coverage. We will ship you a FREE SIM Card Kit so you can get UNLIMITED talk & text if you already participate in government programs such as SNAP and Medicaid. Once approved, you can begin the phone activation process to receive FREE phone service online.
