PPP loan forgiveness: Strategies for dealerships to consider as the clock winds down

The mysteries surrounding Payroll Protection Program (PPP) loan forgiveness have been substantially solved during the last couple of weeks. On May 15, the SBA released a forgiveness application form, and on May 22, it released the interim rule on loan forgiveness. 

There are still some moving parts, including the bill that the House passed on May 28 to extend the end date and to reduce the required portion of payroll costs of the total forgiveness from 75% to 60%. That bill has gone to the Senate, so we will have to wait to see if any of those changes get implemented.  

In the meantime, as your dealership’s eight-week clock winds down, there are things that you should be looking at to maximize your PPP loan forgiveness.

Floor plan interest: Still waiting for clarification

We have not seen any clarification on floor plan interest. However, we are leaning more towards including it, or at a minimum, tracking it and waiting for more guidance before submitting your forgiveness request. The argument to include it is that it’s a mortgage of personal property. The underlying floor plan note would need to be dated before February 15, 2020. 

Strategies that require action before the eight-week period is up

Bonuses: If an employee is not at 75% of annual wages compared to the first quarter 2020 for the eight weeks, pay a bonus to bring them up to at least 75% for the eight weeks. The amount will be additional qualified forgivable costs (except for the employer FICA/Medicare on it), and to the extent that the gap is closed between the pay and the higher 75% of first quarter pay rate, that reduction will be eliminated at the same time.

• The payment to get up to the 75% has double the positive impact on forgiveness (offset at least somewhat by the extra FICA). Pay the bonus within the time period needed depending on whether you elect the alternative payroll period.
• Schedule out by employee their income for the eight-week period (week by week, and then fill in an estimate for the remaining period) to see who you might need to give an extra bonus to in order to take advantage of the consideration above.
• For hourly employees who have a reduction in pay because of reduced hours, that part of the reduction in pay because of the reduced hours does not count as reduction in pay for the 75% of first quarter wages requirement as outlined above.

Calculating FTEs: Determine your full-time employees (FTEs) for the covered period on a week-by-week basis during the eight-week covered period. Figure it both ways (rounded to nearest tenth or using the full- or half-time option) to see which is best. 

• Note that you need to do this based on the payroll covered period or the alternative payroll period, so calculate them both to see which is better.
• Before the eight weeks is up, if you are short on FTEs and are going to have a cut back on forgiveness as a result, determine if there are employees who you want to rehire, and for those identified, make a written offer to bring them back by June 30, 2020, at the latest. If they reject the offer, you do not get penalized for the impact of their reduction to your FTEs. Note that you cannot wait until June 30, 2020 to make this offer. It must be made within the covered period or alternative period.

Non-payroll covered costs: If you have back rent, interest or utilities that are overdue, make sure to pay them during the eight-week period, and they can be included in the non-payroll covered costs. Note that the current 75%/25% rule may limit the benefit.

Non-cash compensation payroll costs: Payroll costs such as health insurance, benefit plan contributions and state unemployment tax, incurred during the last week of the covered period or alternative period, must be paid by the next regular payroll date. For costs incurred during the period prior to the last week, it seems that these must be paid within the eight-week covered period or alternative period. Look at health insurance and 401(k) contributions to make sure they are paid within that eight-week period.

Required actions after the eight-week covered period is up, but by no later than June 30, 2020

Hire to prevent FTE cutback: If you’ve taken the above actions during the eight-week covered period (or alternative covered period), and you are still getting a cutback because of FTE level decrease, do what you can to hire additional people no later than June 30, 2020. This would apply if you did not offer enough rehire spots to former employees (even if they were rejected) during the eight weeks to eliminate the FTE cutback.

Pay payroll timely: Make sure that payroll and other costs that were accrued as of the last day of the eight-week period or eight-week alternative period are paid by the next payroll payment date or the next regular “billing date.” Since billing date is not defined, you might want to err on the side of caution and call to get the amounts and pay them before receiving an actual paper invoice.

Considerations when gathering the information for the forgiveness application

Before you begin filling out your forgiveness application form, there are several things to take into consideration:

• Determine which is more advantageous: the payroll covered period or the alternative period. See which one produces a higher potentially forgivable payroll cost number, and then also look at how much of that number is cut back in each case by the FTE cutback and the 75% of first quarter pay for <$100,000 annual comp employees.
• Use the Wipfli expense tracker to compile costs, including the non-payroll costs. If you are not using the expense tracker, contact us to learn more.
• Make sure that for utilities you include electricity, gas, water, transportation (including company vehicles and loaner vehicles, but probably not inventory unless they are demos), telephone and internet access.
• For the FTE calculations, make sure that you do not penalize yourself for employees terminated for cause, or for employees who have voluntarily resigned or voluntarily requested and received a reduction in hours.
• For the >25% wage reduction forgiveness reduction, don’t include any employee who received compensation at the annual rate of >$100,000 for ANY payroll period during 2019. A large weekly or monthly bonus could kick some employees out of this forgiveness kickout calculation (see page 9 of the PPP loan forgiveness application).

Need more help with COVID-19 issues?

If you have questions or need help implementing any of these strategies, our dealership team is ready to assist you.

We’re here to help you navigate the uncertainty of the COVID-19 pandemic and its impact on your people, finances and business. We have developed a library of resources in our COVID-19 resource center to help you stabilize today and prepare for tomorrow. We also have solutions that can help you manage your people strategy, operations, business finances and technology. We’re here to help. Contact us today.

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