Paycheck Protection Program Payroll Protection Program The CARES

Paycheck Protection Program

Payroll Protection Program The CARES Act allows for covered loan forgiveness under certain conditions. Eligibility Business w/ fewer than 500 employees Non-profit 501 c(3) entities with fewer than 500 employees Sole proprietors, individual contractors

Applications started April 3, 2020. You must apply with a bank. PAYROLL PROTECTION PROGRAM Loans are on a first come, first served basis Interest rates on loans are fixed at 1% Borrowings have a maturity of 2 years Interest payments are deferred for 6 months, but interest will continue to accrue during the deferment period

Forgiveness Timeline 60 days to submit application and docs • Loan Originates/Funds • Bank reviews to bank Deposited application 8 -week period; track • 6/30/20 • Last day to apply use of funds Determines Forgiveness

Payroll Protection Program Payroll costs -salary, wages commissions, cash tips, PTO, severance, health insurance premiums, retirement benefits Interest only on commercial debt payments incurred before 2/15/20 Rent payments on leases dated prior to 2/15/20 Utility payments on service agreements dated before 2/15/20

To Qualify for Forgiveness: Costs incurred & payments made during the covered period At least 75% of proceeds used to payroll costs No more than 25% can be spent for rent, utilities, interest EIDL $10, 000 grant reduces loan forgiveness

What documentation? Each borrower will be required to submit a request for loan forgiveness to their lender. Lender has 60 days to determine loan forgiveness Verify number of fulltime employees and payrates -Timecards, paystubs, payroll checks Cleared checks (front & back), payment receipts, transcripts of accounts, bank statements, monthly invoices Recommended to use a separate checking account for the proceeds

Reduction based on number of Full-Time Equivalent Employees FTEE = 40 labor hours per week Loan Forgiveness shall be reduced, not increased, by multiplying the amount of forgiveness by the ratio of average # of FTEEs per month employed during the covered period. Divide by either: Time Period Used to Calculate Average number of FTEEs – Base Calculate Avg # of FTEEs for each pay period within a month • Period beginning Feb 15 -June 30, 2019 • Period beginning Jan 1 -Feb 29, 2020 • Or if seasonal employer: Use Feb 15 or March 1 -Jun 30, 2019 • Each full-time employee working 40 hours or more = 1 FTEE • Add up all less than full time staff hours, divide by 40 = # of FTEEs for part time staff • Add full-time and part-time for total FTEEs

Example: Employee Calculation Employees: • A averages 50 hours per week • B averages 40 Hours per week • C & D average 20 hours per week • E averages 30 hours per week 8 Week covered Period FTE = 3. 75 • A =1 • B = 1 • C + D =1 • E =. 75

Loan Forgiveness Formula in simplest terms: Qualifying Costs Incurred and Paid During the 8 Week Covered Period Multiplied by FTEs in the Covered Period Divided by FTEs in the Prior Period Example: You borrow $500 k Your FTEs in the cover period were 60% of the FTEs in the prior period None of the 40% reduction in FTEs was caused by the reduction that happened between 2/15/20 – 4/26/20 In above example, you must repay 40% of the loan = $200 k.

Case Study Example A Forgiven Amount Loan Proceeds $1, 000 Allowable Costs $900, 000 $100, 000 Eligible Forgiveness $900, 000 $810, 000 Forgiven 8 -week period 90% employee retention $90, 000 Total 1, 000 $190, 000 Loan 24 months @ 1% $8, 000/ month loan

Case Study Example B Forgiven Amount Loan Proceeds $1, 000 Allowable Costs $1, 400, 000 Eligible Forgiveness $1, 000, 000 8 -week period 100% employee retention $1, 000 Forgiven Total 1, 000 No Loan All Forgiven

Case Study Example C Assume 12 employees, all earning over $100, 000 and the average salary is $150, 000 $1, 800, 000 Total payroll $1, 200, 000 PPP eligible $100, 000 Monthly average $50, 000 PPP extra, not forgivable UNLESS… $200, 000 Eligible payroll paid in 8 weeks $250, 000 PPP Amount