While the CARES Act is about to be voted on by the House today, Employers should note a few key provisions relating to the payroll continuation forgivable loan program, at least as the bill now stands:
- The “covered period” is March 1 through June 30, 2020. That’s the time over which the payroll continuation is supposed to occur, even if the loans are funded late in that period or after.
- Loan forgiveness is reduced by the reduction in FTE head count in the covered period vs. March 1 – June 30, 2019.
- So, if average monthly FTE in March 1 – June 30 2019 was 100 and average monthly FTE in the covered period ends up being 35, you only get 35% loan forgiveness.
- The CARES Act also reduces loan forgiveness dollar for dollar with any reduction in compensation of more than 25% for each employee making less than $100,000 in 2019 (or ~1/3 of that in March 1 – June 30, 2019).
- So, if an Employee made $18,000 in March 1 – June 30, 2019, and makes $10,000 in the covered period, $3,500 is not forgivable.
- Forgiveness does not apply to paid leave for which the payroll tax credit is available under the FFCRA (EFMLA and Paid Sick Leave).
- They are going to check the receipts, as the kids say.
- Loans can be used for other expenses or pre-existing debts, but are only forgivable for payroll continuation.
Takeaway – if you want to take full advantage of the loan forgiveness piece of this puzzle, it helps if you have the cash to keep your payroll up until you can get the loan.