If you’ve received a Paycheck Protection Program loan from the Small Business Administration, it is very important to proactively approach your use of the funds so that you can maximize your loan forgiveness. The purpose of the loan is to be able to retain or rehire your employees during the economic challenges of the coronavirus pandemic. To do so, follow these steps:
- Set up your bookkeeping to track the qualified payroll, rent, interest, and/or utility expenses during the eight-week period that begins on the day you receive the funding. Instructions for setting it up in QuickBooks are in the prior post.
- Project your anticipated payroll and other costs through the end of the eight weeks, noting whether your pay dates need to be adjusted (for example if only 3 of your 4 semi-monthly paydates fall within the eight weeks).
- Calculate FTEs (full-time equivalent employee) along with wages paid to determine how much of your loan can be forgiven. If your headcount (FTEs) is less than it was during one of two prior periods, or if wages for any continuing employee are reduced more than 25%, your loan forgiveness will be reduced.
- Note that if any employee is unable to work or telework due to one of six COVID-related medical or government orders, you are required to compensate them (and be reimbursed via IRS Form 941 or 7200) according to the requirements of the Families First Coronavirus Response Act.
To assist with this recordkeeping and analysis, we’ve updated our spreadsheet (now v5) to incorporate the FFCRA and PPP loan forgiveness. Note that the final SBA guidance on loan forgiveness has not been released, and nearly every employer has unique situations, so you will need to adjust the spreadsheet formulas accordingly, but it’s a start! The instructions are on the first tab.