No. Independent contractors like locums services “have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.”
source: https://www.federalregister.gov/documents/2020/04/15/2020-07672/business-loan-program-temporary-changes-paycheck-protection-program
Dang it. We were just about to relabel it boo-yah.
Thanks for the help. You’re the best!
BUT. We can look at salary from the preceding quarter instead of the prior year for comparison, correct?
PPP loan is paying your employees whether they are working or not . It is anticipated that many business will get the loan without the ability to open due to local shelter in place or closing orders. You can make your employees work from home or come to clinic reschedule missed well visit or other administrative work. You get to retain your employees by doing that.
If you were a small business who had 10 full time employees prior to the pandemic, and now, after receiving your PPP loan funds you only have 6 employees, then your loan forgiveness request will be reduced to 60% of the total amount of eligible expenses. The pre-pandemic time period used to determine the number of full-time equivalent employees is either January 1, 2020 to February 29, 2020, or February 15, 2019 to June 30, 2019. The business owner can choose either time period and a smart one will choose the period when they had a lower number of full-time equivalent employees.
Salary Reductions. Forgiveness is reduced by the amount of any reduction in total salary or wages of any employee (except employees who made more than $100,000 in 2019) during the Covered Period that is in excess of 25% of the total salary or wages of the employee during the most recent quarter that the employee was employed before the Covered Period. Unlike the total number of employees, which is based on FTEEs, this reduction looks at individual employees for whom the borrower has reduced pay. This section of the CARES Act makes it possible for businesses to reduce wages without having to report a salary reduction, but reducing salary wages would make it harder for businesses to meet the 75/25 Rule required for loan forgiveness.
If you do not use the loan for paying your employees some or most of loan may not be forgiven.
You have to Re-pay the remaining balance to the bank where they received the PPP loan. This amount is subject to 1% interest and must be repaid within two years from the date you obtained the loan.
Forgiveness is reduced by the amount of any reduction in total salary or wages of any employee (except employees who made more than $100,000 in 2019) during the Covered Period that is in excess of 25% of the total salary or wages of the employee during the most recent quarter that the employee was employed before the Covered Period.
I’ve seen this in official sources, and I believe that it has official provenance. But I’ve never understood how this explanation makes sense.
The Covered Period is 8 weeks, and for those of us in wave 1 or 2 of the PPP loan, it’ll be in the middle of Q2 of 2020.
That means that “the most recent quarter that the employee was employed before the Covered Period.” is going to be Jan 1 - Mar 31 2020.
A calendar quarter is 12-13 weeks. The PPP Covered period is 8 weeks. We’d expect you to get 2/3 (i.e. 8/12 or 8/13) of your salary during the PPP period, all other things being equal. 2/3 of salary is a 33% reduction, which is more than the 25% allowed.
So a very strict reading of this language means that, unless you boost wages (NOT just hold them constant) during the PPP period, you will have reduced loan forgiveness.
Or, to look at Wanda:
- Wanda makes $500 a week. She worked 12 weeks during Q1 of 2020 and made $6000.
- Wanda continued to make $500 per week during the Covered Period of 8 weeks Her “total salary or wages during the Covered Period” was $4000.
- Wanda got paid $4000 in the Covered Period compared to $6000 in the previous quarter. This is more than 25% less, so the $4000 spent against her wages in the PPP loan isn’t going to be entirely forgiven.
- For Wanda’s loan to be entirely forgiven, you’d have to have paid her $4500 in the 8 week period (0.75 * $6000), which is $562.50 per week, i.e. more than a 10% raise.
I have seem some CPAs articulate that this can’t possibly be the case – that what you pay in the 8 weeks’ Covered Period will be adjusti-fied into a quarter (i.e. multiplied by 1.5) and then THAT product compared to the previous/baseline quarter, to determine forgiveness.
Further guidance is needed 
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8 week period will be compared to 8 weeks in the past quarter , meaning it is annualized.
Wanda got paid $4000 in the Covered Period compared to $6000 in the previous Whole quarter. There was no reduction. In salary .
There was no reduction in Salary.
If you pay 12 dollar per hour to some one and still pay 12 dollar per hour there is no reduction in salary unless you reduce hours .
You can reduce your employees salary to 9 dollars per hour and give them same hours like last quarter and you will still be fine . If you reduce hours you have to make sure that their average salary does not drop more than 25 percent annualized compared to previous quarter.
Remember you have to use 75 percent of loans towards payroll!
Do you have a source for “8 week period will be compared to 8 weeks in the past quarter” ? If that’s the case, it must be very new.
The American Institute of CPAs said last week that this was not the case in the rules thus written, and urged this common-sense change, as well as several others.
We are seeing an uptick in regular checkups (mainly due to a blast we sent thru PCC) but this is causing a problem for staffing as we have five people (MAs) out due to Families Friendly Coronavirus Act. Can I now declare my office exempt from this act as I have fewer than 50 employees and I am a healthcare office and I need them for the adequate staffing of my office. I know several have options for care of their children but choose to take the 2/3 pay and stay home. They have told my staff this.
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How much advance notice should we provide employees who have been furloughed?
Starting to have the same issues with lack of child care and people being unable to work. But do not want to get in trouble if we let some people go for that reason and try to hire someone else. Getting harder to get the work done now that we are ramping up our well checks.
Dr Bermann
I have been asking the same question for weeks now. What is the basis in any law or SBA guidance for using Jan 1 2020 to Feb 29 2020 as the base period for salary or FTE calculation? I see this everywhere on the internet. I think its only applicable if the business was not in operation in 2019 and its for loan amount calculation not forgiveness. See extract from latest SBA guidance below.
14. Question: What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts? As of May 6, 2020 Answer: 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 February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period January 1, 2020 through February 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 SBA’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).
Advance notice for what?
Found the answer to my question from the Cares Act Section 1106. Thank you Prasad.
(2) REDUCTION BASED ON REDUCTION IN NUMBER OF EMPLOYEES.—
(A) IN GENERAL.—The amount of loan forgiveness under this section shall be reduced, but not increased, by multiplying the amount described in subsection (b) by the quotient obtained by dividing—
(i) the average number of full-time equivalent employees per month employed by the eligible recipient during the covered period; by
(ii) (I) at the election of the borrower—
(aa) the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on February 15, 2019 and ending on June 30, 2019; or
(bb) the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on January 1, 2020 and ending on February 29, 2020; or
did anyone reply to this Chip/Paulie? I can’t find the response. Thanks
It looks like @SKB gave some good, detailed replies. Is there a piece left that you’d still like us to tackle? I’m sending these questions over to the H/R attorney expert now!
@jallen and I had specific questions about FFCRA
Mine has been resolved since my employee will be returning to work but was wondering how bound we are to give them 12 weeks off if we employ under 50. How hard will they push us to prove the employee’s absence was “jeopardizing the viability of “our business? It really kind of is/ was since she was front desk needing to help with all the well checks we are scheduling.
As a health care practice, you can claim an exemption to expanded FMLA leave on that alone.
see the question from Mstherron that I had replied to, about being able to pay the lost wages from the previous 6 wks during the 8wks we are using PPP money. THanks!
Our paydays are actually 2 weeks behind the pay period. We received our PPP on May 1. Our next pay day is May 18 but this is for pay period and hours worked the last 2 weeks of April. So to use the PPP Loan money, would we count this pay day since it is within the 8 weeks or should we not count this pay day since it is for hours worked prior to receiving the PPP. In other words, do we go by pay days during the 8 week period or by hours worked during the 8 week period?? If it is hours worked during the 8 week period, then we would have another payday AFTER the end of our 8 weeks that would still be covered??? Hope that makes sense!!
Would also like to see how this would be answered??