PPP Loans and Payroll Software: What You Need To Know

The COVID-19 pandemic has forced many small and mid-sized companies to completely change the way they operate. Some companies have had to let staff members go, while others have had to enforce a full shutdown.

Either way, companies are hurting right now. Customers aren’t shopping the way they used to and businesses aren’t making the amount of money necessary to maintain daily operation. If that’s not enough, this all has a negative effect on the economy we all rely on.

The government has taken notice and is providing a variety of funding options for small and mid-sized businesses. One of those options, the Paycheck Protection Program (PPP), is included in the CARES Act and is designed to keep employees on payroll throughout these difficult times.

For companies with 500 employees or fewer, the PPP allows you access to the Small Business Association (SBA) loans. Not only does this give you the funds needed to keep employees on the payroll, but it allows you to bring back those you were forced to let go.

The great thing about this program is the potential loan forgiveness or repayment deferral if certain requirements are met. When used to its full advantage, it could be the program that saves your business from going under.

A Brief Look at the PPP Loan

Since the PPP loan is still new to most business owners, there’s a lot of confusion about what it is exactly, who’s eligible, how to apply, and what the benefits are. Don’t worry, we’re going to break it all down for you below so there’s no guesswork involved.

First off, let’s talk about eligibility.

We mentioned how it’s available to businesses with 500 or less employees, but those businesses must be classified as one of the following: Accommodation or Food Services, Tribal businesses, independently-owned franchise, self-employed workers, independent contractors, gig workers, and sole proprietors.

In addition to that, you need to be able to prove that your business has been significantly impacted by the COVID-19 pandemic.

Now, let’s talk about loan forgiveness.

In order for the PPP loan forgiveness to work, it’s imperative your business keeps all full-time equivalent employees on payroll for 24 weeks following the loan acceptance -- or the end of the year, whichever comes first.

In addition to that, businesses must use at least 60% of the loan for payroll expenses and no more than 40% for other expenses (rent, utilities, etc.). Your business can only count 24 weeks of coverage, with December 31, 2020, being the final date for eligible expenses.

If you meet the requirements, some or all of the loan will be forgiven -- which means this can do a lot for your business when done properly.

How Can the Best Payroll Software Help?

Having an HR payroll software that’s integrated with your business’ operations is essential to owning a business. It keeps everything in one place and allows you to worry less about errors -- which are more important now than ever.

In addition to that, the best payroll software helps you fill out your PPP loan application and allows you to keep track of expenses when calculating loan forgiveness. It’s an extremely valuable tool when managing the PPP loan process throughout the rest of the year.

There are two main numbers you’ll need to get from your HR payroll software when filling out the loan application -- the average cost of your payroll each month and the number of employees you have.

The average cost will give the government an idea of how much funds you need, while the employee count will tell them how many employees you need to keep when maintaining loan forgiveness.

Calculating PPP Loan Application vs. Loan Forgiveness

One of the most confusing things with the Paycheck Protection Program is the difference between calculating your PPP loan for the application vs. calculating the amount of loan forgiveness you receive.

There are four main terms that come into play for both sides -- the calculation period, payroll costs, non-payroll costs, and headcount.

When calculating the loan application, the calculator period is for 2019 or the rolling year. You’ll take the average monthly payroll costs and the actual non-payroll costs -- as well as the actual headcount of employees.

On the other hand, calculating loan forgiveness works a little differently. The calculation period is for either 8 weeks or 24 weeks -- or December 31, 2020, whichever comes first. The payroll costs forgiven are the actual costs, as well as the non-payroll costs. When it comes to the headcount, only full-time equivalent employees are eligible for forgiveness.

What Constitutes as Payroll and Non-Payroll Costs?

When calculating loan forgiveness, it’s imperative you know what costs are covered and which are not. Failing to understand this can lead to miscalculations, which can leave you in a hole when you aren’t forgiven as much as you were expecting.

In terms of payroll costs, the following are included: salary, wages, commission, tip, vacation time, parental leave, medical leave, family leave, sick leave, allowance for separation, group health care benefit provisions, insurance premiums, retirement benefits, and taxes assessed on employee compensation.

Non-payroll costs include rent, utilities, and the interest paid on your mortgage.

Are You Eligible for Loan Forgiveness?

Knowing if you’re eligible for loan forgiveness is probably the most important thing you need to know when managing the Paycheck Protection Program. There are certain requirements you must meet before being eligible.

First off, you can’t have any reduction in the headcount of your employees. If you had 176 employees, that’s the minimum you can have when you apply for loan forgiveness. Anything less will result in less forgiveness.

Not only that, but forgiveness will be reduced if any employees receive a 25% or more reduction in salary or wages. This is true for anyone who makes less than $100,000 per year.

Outside of that, you’ll need to use at least 60% of the funds for payroll costs and no more than 40% for non-payroll costs. This will need to be proven when you apply for loan forgiveness. Keep in mind, you must apply for forgiveness, as it won’t be automatically applied to your loan.

To make sure you’re properly prepared for the application process, it’s important to keep detailed records of how you spend the funds you receive, make sure they’re being used for the right things, and make sure you keep a proper headcount of employees throughout the duration of the loan.

How Can Consultants In-A-Box Help?

Of course, having the best payroll software available to you helps make this process much easier. You can manage payroll costs, HR operations, and even expenses -- all in one integrated system.

If you need help managing your Paycheck Protection Program loan and the loan forgiveness that comes with it, Consultants In-A-Box can help.

We provide practical, logical, and simple solutions for businesses of any size. We ensure these systems support everything you need for the PPP loan forgiveness. We will be by your side the entire way in case you have questions or concerns.

Contact us today to learn more about how we can help you and your business find success during these difficult times.

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