Paycheck Protection Program Update

Paycheck Protection Program Update

The U.S. government has extended The Paycheck Protection Program (PPP). Here’s a brief overview of what you need to know.

 

Paycheck Program Basics

 

Authorized by the CARES Act and administered by the Small Business Administration, the PPP helps employers cover the cost of their payroll so more people can remain employed during the COVID-19 pandemic. The new deadline to apply is August 8, 2020, with applications reopened on July 6.

Eligible companies have fewer than 500 employees, or meet a revenue-based size standard for their industry, or have a tangible net worth of $15 million or less AND the average net income (excluding carry-forward losses) for the preceding two years was $5 million or less. 

Independent contractors and sole proprietors are eligible. Seasonal businesses are as well, as long as they were either operating on 2/15/20 or in 8 weeks from 2/15/19 to 6/30/19. And therefore would be presumed to have done the same in 2020, absent the coronavirus.

PPP comes in the form of a loan, which may be forgiven as long as the employer meets specific criteria. Loans are offered through existing SBA lenders and additional participating institutions such as banks, credit unions, and Farm Credit Systems. 

Loans of up to $10 million are available, and businesses must spend the funds by the end of this calendar year.

If you’re interested in applying, click here for the SBA page on PPP.

Paycheck Protection Program Eligibility

 

For lenders to forgive the loan, businesses must spend at least 60% of it on payroll. Other costs that you can use the money to cover include mortgage interest, rent, and utilities. It’s available for the first 24 weeks of these costs.
The new loans will have a 5-year maturity. Those issued before 6/5/20 have a 2-year maturity. The interest rate is 1%, and you can defer payments for six months.
You don’t need collateral or guarantors for the loan. Neither the government nor the banks charge additional fees for small businesses.

 

Details on Paycheck Protection Program Forgiveness

You’ll need to submit an application to the lender to request loan forgiveness. In addition, you must meet the following criteria.

  • The 24-week timeframe

Fortunately, since not all payroll cycles sync up with the first day of loan disbursement, the SBA has an alternative payroll covered period. It begins on the first day of the pay period after the loan has been disbursed.

 

However, payments outside this timeframe are not eligible for loan forgiveness.

 

  • Payment of payroll (not just payroll incurred)

The business needs to pay their employees from the loan to be eligible for forgiveness, not just incur the payroll costs. Payments incurred during the last two weeks of the 24-week timeframe must be paid no later than the next pay period to qualify for forgiveness.

 

As a reminder, 60% of the loan proceeds must be used for payroll expenses in order for the loan to be forgiven. Sick leave and family leave costs are included in payroll. Payments to independent contractors and sole proprietors are excluded from payroll, as they can apply for PPP themselves.

 

  • Payment of non-payroll costs

Similarly, these types of expenses must be incurred and paid during the 24-week timeframe in order to be eligible for forgiveness. If they are incurred inside the timeframe but not paid until later, they must be paid no later than the next billing date to qualify.

 

The SBA has made clear that it will not forgive advance payments of mortgage interest, but as of yet has made no statement regarding such payments for rent or utilities. Double tax breaks are not allowed.

 

  • Continuation of the same number of full time equivalent (FTE) employees

Since the CARES Act did not define what a FTE is, the SBA ruled that it’s an employee who works an average of at least 40 hours per week. The loan forgiveness will be reduced, but not necessarily eliminated, if the employer doesn’t follow the rule of having the same number of FTEs during the 24-week period as it had at the beginning.

 

For part-time employees, the employer can choose one of two methods of calculating their FTE.  They must apply this method to all employees.

 

One is to calculate their average number of hours worked during the 24 weeks and divide by 40. The other is to assume that all part-timers who worked less than 40 hours on average is 0.5 FTE.

 

  • Allowable exceptions to the FTE rule

There are several exceptions to the maintenance of FTEs that will not reduce the loan forgiveness.

 

If an employee voluntarily resigns or asks to reduce hours, or if they’re fired for cause, the FTE reduction rule does not apply.

 

If the employer reduced FTE between February 15 and April 26 of this year, but restores the FTE before the end of the year, that temporary reduction doesn’t count against them.

 

Another exemption is based on employee availability and must be documented by the employer to avoid a reduction in forgiveness on the PPP loan. One factor is if the employer is unable to rehire former employees who are qualified or hire qualified ones for unfilled positions by 12/31/20.

 

The other is if the business can’t return to its activity level as measured on 2/15/20 due to guidance from OSHA, CDC, or HHS during the period from 3/1/20 to 12/31/20.

 

  • Maintaining same rate of pay for salaries and wages

A reduction in salaries and wages of 25% or more results in a loan forgiveness reduction.

 

However, if that reduction occurred between February 15 and April 26 of this year and pay was restored to its previous levels by the end of the year, there is no forgiveness reduction.

 

  • Eligibility of bonus and hazard pay

The CARES Act includes salary, wages, commissions and similar compensation in its definition of “payroll costs”. Therefore, hazard payments and bonuses (as supplements to wages) are eligible for loan forgiveness as long as the employee’s total compensation is equal to or less than $100,000 annually.

 

The $100,000 limit on employee compensation is limited to “cash” compensation and does not include benefits such as employer retirement contributions.

 

  • Retain loan documents for six years

After the loan is either paid in full or forgiven, the SBA retains the right to examine the loan documents for the following six years.

 

If you’d like to discuss your business finances, give us a call at 619.255.9554 or send us an email. We’d love to hear from you.

 

4 Ways to Simplify Your Business and Finances

4 Ways to Simplify Your Business and Finances

It seems like so many of us tend to over complicate things, whether in finances or life or business. As we move through life, we accumulate more, and we get entrenched in routines that no longer serve us. However, keeping things simple is essential at any stage of life.

 

Having less to keep track of is freeing! In honor of National Simplify Your Life Week, which is celebrated the first week in August, let’s take some steps to simplify our business and finances.

Simplify your business: Do the big rocks first

At this point, you probably automatically prioritize your workday routine. Taking care of the top three priorities that move the needle every day is an effective way to make sure you get the essential things done. 

One way to think of it is the “Big Rocks” theory from Stephen Covey. Suppose you have a certain amount of sand and a certain amount of big rocks to put in a bucket. When you fill the bucket first with sand, none of the big rocks will fit in the bucket. 

But if you start with the big rocks first, the sand fills in around them. With limited time in the day, it’s important to fill the hours first with the big rocks, which are your top priorities, and allow the smaller tasks to fill in around it.

Simplify your business: The Eisenhower decision matrix

 

Too bad it’s not possible to know how any company will perform in the future, especially a start-up! All founders and employees of newly launched companies assume that the stock will be more valuable in the future, otherwise they wouldn’t be working there. Your financial planner can talk you through this election, so you can make an informed decision.

Another way that those in business determine their most important tasks is to consider a 2x2 matrix with one axis being urgent and the other important. You might also know it as the Eisenhower decision matrix after President Dwight D. Eisenhower. 

You can sort all your daily tasks into one of the four boxes. Urgent tasks are what you need to do right now, and people typically react to them. Important tasks are the ones that lead to success, and people are responsive to them. 

The main problem is that people often tend to confuse urgent for important.

  • Not important and not urgent

These tasks should be removed immediately from an executive’s list. Delegate these is you want them done or deleted them completely.

 

  • Not important and urgent

They may demand attention, but ultimately these tasks don’t help achieve any goals and should be delegated or eliminated. 

Phone calls and texts often fall into this category. They may be relevant to others, but not to you, and so you should limit your time in this quadrant.

 

  • Urgent and important

Crises and problems fall in here. Perhaps counter intuitively, you should also try not to spend too much time here! Develop solutions that prevent the crisis from happening. Planning and organizing are good ways to reduce the tasks that fall into this quadrant.

 

  • Not urgent and important

Here’s where you want to spend your time. Not reacting to crises, so these tasks are not urgent. However, they help you achieve your goals and mission. 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>

Simplify Your Finances

Needlessly complicating your financial life usually involves paying more in fees as well. You have even more motivation to streamline here. When index funds solve your need for diversification, there’s no reason to add in other types of investments, for example

Simplify Your Finances: Consolidate

 

It’s also helpful to consolidate your accounts with one financial advisor where possible. The exception possibly is your 401(k), which typically needs to stay with the management company until you leave the firm.

Your financial planner should be able to view all your accounts so they can properly diversify it. When you split your funds among different advisors, none of them have an overall picture, so you’re not getting the diversification you need.

It also helps to consolidate your traditional (as in, non-Roth) retirement accounts into one. Many investors who have worked at several firms maintain one traditional IRA account. They roll all their 401(k)s into it with no tax consequences when they leave each firm. All their pretax retirement money is in the same pool, making life much easier when it comes time to take required minimum distributions (RMDs) at the age of 72.

The IRS considers all your pretax accounts when calculating RMDs. If you have several traditional retirement accounts and you lose track, you could accidentally underpay your RMD.
Underpayment will result in a 50% penalty on the amount that you should have taken out but didn’t. It is much easier to have everything in one place and receive one notice from the custodian of the amount you need to take out.

Similarly, you can consolidate your checking and savings accounts. Pick the highest interest rate savings account net-of-fees to put all your money in, and the cheapest or no-fee checking account.

You don’t need more than one credit card for your personal life, and probably only one for your business. When there’s no reason to maintain multiple cards and accounts, consolidate down to one.

Simplify Your Finances: Revisit retirement goals

If you haven’t revisited your financial goals in a while, now might be a great time to do it. You may want to adjust your retirement goal and drill down to the goals that need focus. The fewer major goals that you have to focus on, the easier it will be to achieve them.

 

If you want to talk to us about simplifying your financial life, please give us a call at 619.255.9554 or send us an email. We’d love to hear from you.

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

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