Some payroll companies have developed reports that will help with many of the documentation requirements. If yours does not, or you do your own payroll, here are some of the items you’ll need:
- Verification of the full-time equivalents, hours worked, rates of pay for the eight-week period and base period mentioned below. These need to be detailed to the employee level, so if the payroll company report provides an aggregate church report, you’ll need to provide more detailed information by employee;
- Invoices, cancelled checks, payment receipts for rental or mortgage interest payments and utilities;
- Certification by the vestry (or the diocese for missions) that the loan proceeds were used to retain employees, make payments for mortgage interest, rent, and utilities or a combination of these;
- Anything else the SBA administrator deems necessary.
A helpful way to approach this is to set up a spreadsheet and make sure that you have documentation that supports each number.
Sample Worksheet for PPP loan forgiveness
List payroll costs per person incurred during the covered period (eight weeks following the first disbursement or funding of the loan). This period may not coincide with your pay periods, so you’ll need to calculate which part of the pay period falls within the eight-week period.
The payroll costs
include the following. See the link above for payroll items specifically excluded from the calculation:
- Salaries, wages, vacation/sick pay/parental/family/medical leave, and severance pay (see NOTES 1 and 2 below);
- Group health insurance (the amount paid by the employer);
- Retirement benefit costs (also, only the employer-paid portion);
- State and local taxes on employee compensation (FICA and SECA are federal taxes, and as such, are not included).
: There has been discussion about whether to include clergy housing allowances or not. The legal advice we received is if the allowance is paid out in cash to the clergy person, it should be included. It is compensation; it is designated a housing allowance for tax purposes only. If, however, the clergy person lives in church-provided housing, the value assigned to that benefit would not be included.
: Eligible employee pay is capped at $100,000. If a person makes over that, you’ll need to reduce the amount you submit for conversion to a loan. For example, the employee makes $120,000, or $5,000 per pay period (assuming 24 pay periods in a year). The maximum allowed is $4,167 ($100,000 / 24 pay periods), so use $4,167 for that person, not $5,000.
The non-payroll costs
included in the eight-week period are as follows. Mortgage and rent payments include only obligations that were in existence on or before February 15, 2020:
- Utilities (electricity, gas, water, telephone and internet);
- Interest on covered mortgages (note, do not include the principal amount).
These non-payroll costs are capped, however. Determine 25% of the total loan amount you received. That will be the maximum amount of the non-payroll costs that you can claim as a grant.
The following area provides required adjustments to the provisional loan forgiveness number shown above. They have to do with the number of employees measured in full-time equivalents (FTE’s) and compensation reduction. The amount to be converted will be adjusted downward if you have decreased either the number of employees or the amounts you paid your employees as measured to a base period.
Number of Employees Adjustment
Determine the monthly average FTE for the covered period (eight weeks following loan origination). To determine FTE, divide the number of hours worked by the total hours in a work week. A person working 15 hours a week is 0.38 FTE (15 / 40 = .38). Add all those up to get the total FTE for the church or school (
see NOTE 3
Calculate the monthly average FTE for one of the following two periods (calculate both periods and use the lower amount):
February 15-June 30, 2019
January 1 to February 29, 2020
Determine the percent reduction in FTEs by dividing the FTE number in item #1 above by the lesser number in item #2 above. For example, if item #1 is 5.5 and item #2 is 6.25, then the reduction is 12% (1 – (5.5/6.25)). More specific guidance is provided in the link provided above, about halfway through the document.
Apply this percentage to the total of the payroll and non-payroll costs above. For example, if the payroll costs were $39,300 and non-payroll $5,500 for the eight-week period, the total amount proposed to be converted is $44,800. However, there was reduction in the number of FTE’s from last year to this covered period, and that reduction as calculated above was 12%. The $44,800 needs to be reduced by 12% ($5,376), so the adjusted total to be converted is $39,424.
: A reduction in FTE’s between February 15 and April 27, 2020, may be disregarded if the reduction is eliminated by June 30, 2020. For example, if the FTE calculation is 5.5 under item #1 above, but you were able to rehire an additional person on June 29, 2020, thereby bringing the total up to 6.5, which is where you were for the period February 15-June 30, 2019, then there’s no reduction calculation.
What happens if you try to rehire an employee at the same rate and number of hours as before and they do not wish to return to work? The SBA has proposed an interim final rule (as of this writing), that if the employer has made a good faith, written offer to rehire, and it was rejected, the former employee can be excluded from the calculation. Important to note, employees can very well jeopardize their unemployment checks if they are offered a reasonable job and reject it. Make sure this rule has been finalized before applying it.
Salary and Wage Reduction Adjustment
Determine which employees had a reduction of compensation in the eight-week period when compared to the most recent full quarter of employment prior to the loan origination (for most of us, that will be Jan-Mar 2020). Exclude any employee who made $100,000 or more (annualized).
Compute the amount by which the salary reduction exceeds 25% for each employee. This amount needs to be subtracted from the amount that you seek to have converted to a grant.
The table below can help with the decision process. It comes from the link at the beginning of this article, about two-thirds of the way down. Employee 1 makes over $100,000, and is thus excluded from the calculation. Employee 2 had pay reduced, but in the fifth numerical column, the calculation was less than 25%, so it is also excluded from the calculation.