More Questions Answered Around Economic Injury Disaster Loans & Paycheck Protection Program
A lot of questions have come up regarding the new Government CARES Act and how it applies to gyms, boxes, yoga, barre and cycling studios. Today we’re answering 18 of your questions about the government bailout Paycheck Protection Program (PPP) and Economic Impact Disaster Loans (EIDL).
You can see our prior Q&A checks here:
If you’d rather listen, we’ve recorded the 20 minute Q&A on our YouTube Channel:
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You can skip ahead to specific questions here:
· Q: We applied for EIDL but haven’t received our funds yet, do you know what is going on?
· Q: What employer paid payroll taxes can be included the “payroll costs”?
· Q: Can the funds be used for payroll costs that we have now?
· Q: How do you determine full time equivalency for part-time workers for these programs?
· Q: If I had to shut down, can I still apply for PPP when I reopen?
· Q: Can I apply for PPP directly on the SBA Website if you don’t have a lender?
· Q: As an employer, is my salary covered in PPP?
· Q: How will the banks know if I use the funds for things other than payroll?
· Q: What qualifies as utilities?
· Q: Can you include 1099 independent contractors in the payroll calculation?
· Q: What if we reduced our staff before COVID19?
Let’s get started.
Q: We have our app in for PPP but haven’t received the funds yet. Should I also apply for the EIDL or employer tax credit thing?
A: Yes, we are recommending that fitness business owners apply for the EIDL loan if they are projecting a cash flow deficit. And really, who isn’t? We aren’t sure when businesses will reopen so it’s better to apply and not need the money than to need it and not have it on hand. The employer retention tax credit (often abbreviated ERTC or ERC) doesn’t pair well with the PPP program. Talk to your accountant or CPA about the specifics, but we’re advising most of our clients who are obtaining PPP monies to forgo the Employee Retention Tax Credit.
Q: We applied for EIDL but haven’t received our funds yet, do you know what is going on?
A: Not one client from 80+ CPA firms that I speak with has received EIDL funds yet. We believe the SBA is backed up due to excessive demand and is figuring out how to disburse these funds. We’re hopeful that the grant portion of the EIDL funds will arrive this coming week or by the end of April. Please recall, as we mentioned before, that the disaster loan itself takes weeks or months for approval.
Q: What’s the proper way to temporary lay employees off and and let them collect unemployment until we reopen again?
A: Consult with your labor attorney or HR profession for the best method. However we recommend that the employee notice should be personal (so not a text or email, a phone call is probably best given social distancing), but it is also followed up with a formal written notice via email. Be sure to update your internal status reports.
Q: We are on mandated shutdown until April 30. So when we reopen, I am to use the funds as described. When I get the funds, what happens if we have to stay closed longer and it goes past the 8 weeks or we can’t use it in time to meet the deadline. Also do we run this through payroll like normal? We only received gross payroll money and not payroll tax money so even though we get this, we still pay taxes on it??
A: Currently the requirement is to use 75% of the funds within 8 weeks of receipt for approved payroll purposes. If you aren’t able to pay out all of these wages in the time period due to being closed or reduced staffing, the worst case is that you will owe the funds back as a 1% loan paid back over two years. We are awaiting guidance on what strategies will work around this but we’re thinking of a few options for our clients:
- · Once approved, ask the bank if they can hold off disbursing funds to you for one, two or even more weeks
- · Pay owner salaries
- · Pay management and staff
- · Prepay management and staff
- · Retention bonus for management and staff
- · Hire your contractors and pay them as employees
- · Hire family on the payroll (currently not prohibited but awaiting guidance)
Yes, run the payroll like normal.
And correct, you will still be paying the employer portion of social security & medicare taxes (7.65%). State and local employer taxes like unemployment should have been included in your PPP calculations.
Q: Should I apply for EIDL?
Yes, if you have projected you need help paying additional operating costs.
Q: What employer paid payroll taxes can be included the “payroll costs”?
Unemployment paid by employer, local employer paid taxes, any additional employer paid taxes, SDI in California, EMAT in Mass.
Q: Can I do PPP if we have already laid off some employees or cut some of their hours and they are partially laid off?
Yes, you have until June 30th to bring them back. This is meant to bring employees back to work. Stay tuned for future guidance on the exact calculations.
Q: Can the funds be used for payroll costs that we have now?
No, the forgivable amount is calculated 8 weeks starting after the date the loan is funded. If you have payroll upcoming you may discuss with your team if they are able to push back and wait on pay day as we are expecting PPP funds to be dispersed as early as this coming week (April 13-17) and the week after depending upon when you submitted your application.
Q: How do you determine full time equivalency for part-time workers for these programs?
We don’t have full guidance yet, but we understand they are going to using the Affordable Care Act definition of an average 30 hours per week.
For employees that work 30 or more hours, they equal one person.
For employees that work 30 or less hours, divide the total hours by 30 to get to the number of full-time equivalents (FTEs). Two 15-hour employees would count as one FTE, three 10-hour employees will count as one FTE.
Q: If I had to shut down, can I still apply for PPP when I reopen?
Yes, funds may not be available provided you were operational by February 15th. So it’s a gamble to wait on applying. One strategy that may or may not work is to apply, but ask the bank if they can wait on disbursing funds to you.
Q: Can I apply for PPP directly on the SBA Website if I don’t have a lender?
No, you must apply through an SBA bank. The SBA only does the EIDL loans. Some companies have had success going through Lendio as an agent to get directed to a lender. We have no affiliation with Lendio nor can we validate their program’s authenticity but have heard they are a real company that intends to connect borrowers to banks for the Paycheck Protection Program.
Q: What 12 month period do we report the average payroll for? All of 2019 or 12 months back from when we take the loan?
Depends on the lender – we’ve seen the 12 month period start from 1/1/2019 through to 4/1/2019. Use what your lender advises or absent advice, calculate each of the below periods and pick the highest loan amount:
· 1/1/2019-12/31/2019
· 2/1/2019-1/31/2020
· 3/1/2019-2/29/2020
· 4/1/2019-3/31/2020
Q: As an employer, is my salary covered in PPP?
Yes, up to 100k.
Q: How will the banks know if I use the funds for things other than payroll?
The banks will ask for proof in the form of payroll documents, utility bills, rent, etc. You must spend the funds on approved expenses in order for the loan to be forgiven.
Q: What qualifies as utilities?
We are waiting on more guidance but the official guidance says that utilities are a service established before February 15th, 2020 that distributes electricity, gas, water, transportation, telephone or internet access.
Follow up question: what qualifies as transportation? We are again waiting on guidance and hope it includes automobile expenses, gas and lease payments but it’s too early to say.
Q: Can I include 1099 independent contractors in the payroll calculation?
No. There was initial guidance that they could be included but subsequent guidance from the IRS FAQ’s made it very clear that 1099 contractors could not be included in the payroll calculation for the loan since the contractors could apply for PPP loans themselves. Many banks are asking for these amounts even still. Your mileage may vary (YMMV). This limitation clearly misses the understanding of the gig economy. While anything is possible and things could change, the guidance is currently saying that PPP money paid to contractors will not be part of the forgiveness calculations. So if your bank allows you to include contractors you will likely owe this money back at 1% interest and paid back over the next two years.
Q: What if we reduced our staff before COVID19?
We are awaiting further guidance, but it’s likely that part of your PPP money will be a loan and not forgiven. You could always borrow less to equate your current payroll costs but we’d advise to take the full amount and strategize to use it on payroll using one of these methods:
- · Pay owner salaries
- · Pay management and staff
- · Prepay management and staff
- · Retention bonus for management and staff
- · Hire your contractors and pay them as employees
- · Hire family on the payroll (currently not prohibited but awaiting guidance)
Q: I just went to the SBA website to apply for the $10K grant for my own business. I did not see where to apply for the EIDL loan. I just checked the box for the $10K advance and no place on the application did I see where you put in an amount for the loan.
A: Everyone else is in a similar situation and it’s frustrating to say the least. There is no response from the SBA on this, at the time of this writing. We are hopeful in the next week or two that we will have more information. Not one client from 80+ CPA firms that I have spoken with has received EIDL funds yet. We believe the SBA is backed up due to excessive demand and is figuring out how to disburse these funds. We’re hopeful that the grant portion of the EIDL funds will arrive this coming week or by the end of April. Please recall, as we mentioned before, that the disaster loan itself takes weeks or months for approval.
Ask a Direct Question
We hope this has helped to answer some of your questions. If you still have specific questions you’d like answered, we invite you to submit them anonymously here. We’ll round up all of the questions, and answer them fully in our next Q&A (If you aren’t on our mailing list, you can sign up here.)
In the meantime, check out our COVID-19 Resource Hub where we’ve compiled our latest blog posts & YouTube videos along with third party resources that we find valuable. There is some great stuff in there.
As always, we’re here to help. If none of the above helps you out – feel free to send us a message here. We’ll get back in touch in 24 hours.
Fitness is such a big part of who I am. Maintaining a healthy lifestyle, eating well (mostly paleo), hiking, backpacking, mountaineering, practicing yoga and Crossfit are all important cornerstones of life. But I love ice cream and cookies too much to say no!
I love helping owners make sense of their business and finding ways to grow it. It’s an honor to help you see situations, scenarios and opportunities from all sides so you can make informed decisions.
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