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[Q&A] Paycheck Protection Program, Washington Hospitality Association, 4.23.20

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Updated June 3, 2020

Q: When a PPP loan is approved, does a business have to bring employees back at that time or can a business choose when it wants to bring employees back? How long do I have to execute on the loan? By June 30 or 8 weeks from loan funding?

A: The business cannot choose when it wants to bring employees back onto payroll. The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. To encourage employers to rehire employees who have already been laid off due to the coronavirus  crisis, borrowers will not be penalized for having a reduced payroll at the beginning of the period so long as the employer eliminates the reduction in the number of employees and/or salary levels by June 30, 2020.

Follow Up: This is a glaring problem in which the PPP is written, and the Washington Hospitality Association is working with federal partners to highlight and fix this issue in future legislation.

Q: When do I have to bring my people back on payroll? If I don’t bring back the same people, do I have to bring back the same number of FTEs for the loan to be 100% forgivable?

A: The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. For the loan to be fully forgiven similar staffing levels must be maintained. You are not required to keep the same employees, so long as you maintain the FTE number.

Q: Is the U.S. Small Business Administration extending the 8-week time period since the Governor hasn’t lifted the closure of restaurants?  

A: This is an issue that has been identified and the Washington Hospitality Association is  working with federal partners to extend the current 8-week time period.

Q: If I only spend 60% of my PPP loan on payroll, how much of my loan is forgivable? $100,000 loan, $60,000 in payroll. Am I paying 1% on $40,000?  Or 1% on $15,000?  (I was supposed to spend $75,000 on payroll for 100% forgiveness. How are lenders computing forgivability?)

A: To assist in helping you better understand how Payback Forgiveness works, please refer to the following:

For more information, please review the Outline of the Forgiveness Calculation provided by Washington Trust Bank.

Q: How are part-time employees factored into the PPP loan? Are FTEs calculated based on 30 hours or 40 hours per week?

A: To calculate FTEs (according to Paychex), borrowers must divide the average number of hours paid for each employee per week by 40, capping this quotient at 1.0. For employees who were paid for less than 40 hours per week, borrowers may choose to calculate the full-time equivalency in one of two ways.

  1. First, the borrower may calculate the average number of hours a part-time employee was paid per week during the covered period. For example, if an employee was paid for 30 hours per week on average during the covered period, the employee could be considered to be an FTE employee of 0.75. Similarly, if an employee was paid for ten hours per week on average during the covered period, the employee could be considered to be an FTE employee of 0.25.
  2. Second, for administrative convenience, borrowers may elect to use a full-time equivalency of 0.5 for each part-time employee.

Borrowers may select only one of these two methods and must apply that method consistently to all of their part-time employees for the covered period or the alternative payroll covered period and the selected reference period.

Q: If restaurants must reopen with new guidelines in place (such as fewer tables farther apart) I won’t be able to have as many employees, so it wouldn’t be fair to penalize me on the forgivable rules of the loan. Is anything being done about this? Will the rules be modified?

A: There are discrepancies with the PPP and how recovery may look. The association is working with federal partners to include solutions in future legislation. 

Q: With the minimum wage increase in January 2020, comparing payroll during the 8-week period to the same time period last year isn’t fair. Is this being accounted for?

A: The PPP gives lenders flexibility to account for how payroll costs are calculated. You will need to get specifics from your lender. In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between Feb. 15, 2019, or March 1, 2019, and June 30, 2019. An applicant who was not in business from Feb. 15, 2019, to June 30, 2019, may use the average monthly payroll costs for the period Jan. 1, 2020, through Feb. 29, 2020. Borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use the U.S. Small Business Administration’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).

Q: If I must use my loan funds right when I receive them but am still closed, I’ll have to put my laid off employees back on payroll even though I have no work for them. They could get a job elsewhere in the meantime and choose not to come back to me when I reopen. The employee would have benefited greatly while I was taken advantage of and my loan forgivability would be harmed. What can be done about this?

A: The association is currently seeking guidance for this circumstance.

Q: Once members apply for the PPP loan, how can they get employees back to work when they earn more through unemployment staying at home? 

A: Once employees are offered work, they must take it, or they will no longer be eligible for unemployment benefits.

Q: Because there are no more funds for PPP, what is your advice?

A: The association is working with federal partners to increase the appropriations for the PPP.