Q&A payroll calculation for ppp loan

Q&A: Payroll Calculation Used in Applying-Paycheck Protection Program (PPP) First Draw

These questions and answers are a compilation of the participant Q&A from YPTC and Network for Good’s webinar on Feb. 15, 2021.

The lender is requesting 2019 payroll BUT I would rather use 2020 since its more favorable, 2020 payroll is allowed, correct?

Yes!

What is the time period for wages to calculate average payroll costs? Are there any exceptions?

You can use calendar year 2019 or 2020 or the immediate year prior to your loan.   There are some differences for seasonal employers.

Do we include employer taxes in our average payroll cost?

You can include gross wages, and the employer portion of any state and local taxes.

Our one staff person is hired through an agency, so we pay the agency and not directly to the staff person.  Can we use the amount paid to the agency as P/R for PPP?

No, amounts paid for contractors are not eligible payroll costs.

Is loan amount based on just payroll or can rent and utilities be included in total loan amount. For forgiveness I understand rent and utilities may be included

Loan amount is based on payroll (salary, benefits, etc.) only.

Minimum wage went up in our state on Jan 1. When figuring the 2.5 x month P/R can we just use one month in Jan?

It is calendar year 2019, 2020, or the year before you receive your loan.  It may be more hassle than it is worth to try and squeeze in Jan but it is possible.

An entity started operating in Dec 2019. Did not hire an employee until Oct 2020. They have not applied for PPP. Can they do so now?

I don’t think so as the average payroll is based on a yearly period and you don’t have 12 months of payroll yet.  Additionally, at a minimum, you would need to have had employees in January and February 2020.

We are on a fiscal year from July to June.  Can we use our fiscal year or do we need to use the calendar year?

It has to be calendar year.

We are an 18-year-old 501c3 that has been self- funded. However, we need to hire several employees to grow. We did not have employees in Feb 2020. Do we qualify?

It’s our understanding that only sole proprietors, independent contractors, or self-employed individuals can apply as entities without employees.  Otherwise, you need to have employees in order to calculate the maximum loan amounts, which are based on payroll costs.

Is there an eligible date for how many employees you must have to qualify? We only had volunteers in our charity before but hired paid employees from May 2020.

At a minimum, your business would need to have had employees in January and February 2020.

Are health insurance costs included when calculating the 2.5x payroll for the application? Or only included as a forgiveness expense?

Yes, employer benefits costs consisting of group health care or group life, disability, vision, or dental insurance are included when calculating the maximum loan amount.  Also included are employer retirement contributions, and payment of state and local taxes on employee compensation (generally state unemployment tax).

We are a very small nonprofit 501c3 church and only pay our pastor who is exempt from withholding taxes.  Therefore, we do not have to file 941. Many banks have been asking for this documentation.  What can we do if we don’t have that documentation? We do have payroll records, cancelled checks and W-2 for 2020.

Perhaps provide the pastor’s letter requesting exemption, or (if applicable) a copy of your organization’s IRS Form 8274 Certification by Churches and Qualified Church Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes, or perhaps share a copy of IRS Pub 517 Social Security and Other Information for Members of the Clergy and Religious Workers?

We have a security guard company, that we were not able to get off the ground due to the C19 pandemic. We were in business on Feb 15, 2020 but could not hire guards due to the pandemic. We had no payroll in 2020. Can we still be eligible?

It’s our understanding that only sole proprietors, independent contractors, or self-employed individuals can apply as entities without employees.  Otherwise, you need to have employees in order to calculate the maximum loan amounts, which are based on payroll costs.

Are wages capped at $100K for each employee when calculating average monthly payroll?

Yes, assuming you are using calendar year 2019 or 2020, wages are capped at $100K per employee; when calculating your payroll costs subtract any amounts paid to individual employees in excess of $100K.

General Q&A: Paycheck Protection Program (PPP) First Draw

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