Good afternoon, everyone, and welcome to this afternoon's webinar on Is Patience Truly a Virtue? The Long-Awaited PPP Forgiveness Rules, at least for now, and we do say for now because as you'll see, we expect further guidance likely to come out of the administration as well as possible congressional action. Our speakers today are Mark Johnson, Clinton Baker, and Beth Swanson from Keiko Isom. Everyone on the Zoom should be very familiar with these individuals. I think this is our fifth or sixth Paycheck Protection Program and CARES Act-related webinar, so thank you again for joining us, Mark, Clint, and Beth. Before we turn it over to Mark, I'd like to let those of you who are live with us know that you may submit questions during the webinar via the Q&A tab at the bottom of the screen. As I'm sure you've noticed, we're using a different webinar program, we're now using Zoom as opposed to what we were using before, so you can go to the Q&A tab at the bottom of the screen. The slide deck from today's presentation is available as a PDF in the course tab on the webinar registration page. The webinar will also be recorded so that you may watch or re-watch on demand at your convenience. With that, I'll turn it over to Mark, Beth, and Clint. Mark? Thanks, Daniel. You'd think that we'd be used to doing all these webinars, but just the little bit of change on the technology has got me looking for my notes here, so I might have to wing a few of these. We'll see. Yeah, in fact, the title that the government gave this long-awaited final guidance has an interesting term in and of itself. They're actually called the interim final guidance, and the first part of me was thinking interim and final, that doesn't feel like it goes very right together, but apparently when the government gives something that is final but don't give people a chance to comment on them, they have to throw the word interim in there, so that's why it's interim final. But as far as we're concerned, I think the SBA is probably the final version of this. So with that, here's our standard disclaimer. The information that we're going to share today is through yesterday, 525. It is somewhat hot off the press. We tried to do this webinar a couple of weeks ago on a Friday afternoon, and we thought the final guidance was going to come out the day before, and it didn't. It got pushed to the next Monday, I think the 18th or something like that, and so we didn't have it, and we talked about some things anyway. And then sure enough, five hours after we got done with that webinar, the SBA released the application. They didn't give it any of the standards guidance that we've got now. Instead, they waited until the cloak of the Memorial Day weekend and issued that interim final guidance on May 22nd, and so we've had the weekend to look at that, but it was a holiday weekend, so that's why I'm saying this is hot off the press as we've literally been looking at this last night and this morning and that kind of thing, put it together. The good news is it didn't give us any huge revelations, but regardless, it did clear up a few things, and so we'll go through those today. With that said, here's our takeaways for today. We're going to talk about the guidance that they actually gave on the loan forgiveness, a little bit of insight that you can glean off of the application itself that they submitted. They've also talked about what their review process will look like. Notice they didn't call it audit process this time. A bunch of accountants must have yelled at them and told them, hey, there's a difference between an audit and a review, so they did call it a review process. Then finally, this says this is the final, so is this it? Will we have any more webinars? What will we talk about for the rest of our lives? So, I thought I'd start with, real quick, the last time we gave this webinar, we said, hey, if you're an equipment dealership, there's five or six things that you really need to know. So, I thought I'd take a quick look back and see if those got answered or not. So, I'm not going to deal with the answers right now, because then that would steal some thunder from the slides later, but you can see the five or six on here, but all you really see in the bold reds are, at best, we have some almost-answered questions, one's got a between the lines, if you read it just right, they might have answered, and then we've got some flat nos, and then the last one would be, no, but they did give us a safe harbor. So, I'll turn it over to Clinton to talk a little bit about what that safe, oh, well, I got one more here. Self-reporting, this is the one that I thought was the funniest of the application. There's a self-reporting red flag, it's the question we get all the time over the last three or four weeks, particularly when they started talking about paying the loans back and people want to know, is there going to be a red flag if I have over $2 million? And the answer is yes, and not only is it yes, but you get to check that box yourself on your loan application and say, hey, by the way, my loan was over $2 million, so for whatever extra review process or red flags you got, bring them on. Clinton, what's a safe harbor mean for us? Yeah, Mark and I were laughing about the check the box thing there, it's kind of like in the tax world, there are things called reportable transactions. I've always kind of felt like if you do one of those, it pretty much means, yeah, hey, come audit me, come look at me. That's about the way that check the box feels like, but it is applicable and it is something that each dealership will have to do. The safe harbor, we got a little bit more information about this, but honestly, not a whole lot, and so I'll cover this slide pretty fast here. The safe harbor is that for any borrower, any dealership or company of any kind for that matter that borrowed less than $2 million, they will be deemed to have taken out this loan in good faith in terms of the necessity certification. The SBA has said, we're not going to come audit this, we're not going to subject this to the review process we've outlined before. They've given that indication before, and so this is really a confirmation of what they had already said. What is interesting about that, the clarification that came out, is that we have to look at affiliates though. It's not just $2 million in terms of did your company do it, but then we have to look back into those affiliation rules and say, well, if your company has enough common ownership or common control or common use of capital, there's a bunch of things to look at, but if you and related companies have over $2 million, then you won't meet the safe harbor rule. For a lot of the dealerships that we've talked with, they're over the $2 million, and so it's really, okay, that safe harbor doesn't apply to me, where do I go now? The SBA had given guidance that said, if you feel like you would not have met the criteria of needing the loan and acting in good faith, then you have until May 7th to return the money, and eventually they moved that to May 14th, and then I think they moved it to May 18th. Those dates have all passed, and so really at this point, if a dealership hadn't returned the funds, then they're going to go through this process of looking at the necessity of this loan and what are the criteria of that. So a lot of the conversations we've been in with dealerships there is, we would encourage you to document your financial circumstances, our belief, whether you're a construction dealer or an ag dealer, and my guess on the call today, most are construction equipment dealers, there's a lot of evidence out there in terms of the economy, I'll say temporarily slowing down, because I do believe it is temporary, there's a lot of construction projects that are being put on hold, certainly in the private sector, we've seen that as well on the public spending, and the good news is a lot of those don't seem to be canceled, they seem to be delayed. And so we've helped a number of our dealers build a case that says, when you look outside my company for a second, and you look at the industry of my customers, here's what's happening. And that created uncertainty in our dealership, and therefore it helps document that. I would say also, one of the things that Mark and I've shared with a number of dealers is this idea of journaling. So even as you go through these next several weeks, of just documenting, I don't want to call them anecdotes, but that's really what they are, documenting stories, or maybe you have somebody that was set up to come in and take several large units on a lease for an extended period of time, and all of a sudden they've canceled that. Just going ahead and capturing that documentation now, and so that during this review process, if you get questioned of, well, what were some of the things that happened? You're not scrambling to recreate these events, and all of a sudden losing credibility, you're actually able to pull out a, I doubt it would be handwritten, but you're able to pull up a Word document and say, let me forward some of these stories to you. Because there's no clear guidance, it's not like the financial need requirement has to be accompanied by a decrease in revenue, or a certain number of canceled orders, or a certain number of employees not able to show up. We still don't have anything like that, it's just on a case-by-case basis. And so the other thing I would say that we would encourage everybody to do is, I would suggest that you take that documentation and that gets rolled into your, I don't know about board minutes, but certainly your management meeting discussions. Anything you document there where you're documenting with agendas, or maybe, again, up to the board level, and putting that in the minutes of, here's the economic uncertainty we're facing. It just becomes good, kind of papering the file, because you know it's going to be questioned at some point in time. One of the other, a couple of the other things that the SBA has said in this process is, they're going to look at this on a case-by-case basis, they are going to do that back through the lenders. That was a point of clarity along the way, there was some question of, are these borrowers going to need to go out and get CPA firms, or some other outside type of person to come in uncertified. Really, the SBA has said, we're going to go back through the lenders on this, that they will then follow up with the lenders for additional questions. They've set out some timelines, and those timelines, they're not incredibly short, but they're also not incredibly long, and I don't have them in my notes, I'm sorry, but if I remember right, the lender will have like a 60-day period to provide information to the SBA, and the SBA will have a 90-day period to come back to the lender and ask for clarity, that sort of thing. It's going to be something that has some urgency to it, but at the same time, it's not going to be the type of thing that needs a two or three-day turnaround, so that's good. A couple of the other things here that I'm sure you've already read on this slide here, if the SBA determines that the borrower didn't meet the good faith certification in terms of the financial need for this, then what they've said is that forgiveness won't be granted on the loan, but also as long as the loan is paid back, there'll be no further enforcement or legal action. The thing that we're still lacking there is when does it have to be paid back? Will the SBA step in and say, hey, we don't believe that you should have taken this loan, therefore it's not going to be forgiven and you have to pay it back within 14 days, or will it just convert to the standard loan terms of the agreement? These are loans that have terms and conditions and documentation, that sort of thing. Does it just become a two-year loan and that you're able to pay back over the two years? I haven't seen anything that indicates the timing of that, but they have said they're not going to do any further legal action. We've also confirmed for the lenders that even if the SBA determines the loan wasn't in good faith with the necessity requirement, that's not going to affect their guarantee to the bank. The banks will still have their guarantee from the SBA. With that, I want to turn it over to Beth. I know, Beth, I'm sure you had an exciting weekend digging through a lot of the loan forgiveness guidance, but a lot of this information here is probably new. If you could kind of take us through some of the details. Thanks, Clinton. Yeah, so one of the things that Mark had mentioned as one of our biggest outstanding questions was an ease-of-use alternative for the eight-week covered period when we're calculating your eight-week PPP period, so calculating your qualified costs. If you have a biweekly or more frequent pay schedule, you get to calculate your payroll costs and only your payroll-related costs using an eight-week period that begins on the first day of the first full pay period following your PPP disbursement date. If you elect to use that period, you have to use it for all payroll-related calculations and documentation, including calculating FTEs and salary and wage reductions, but the goal of that is to make administration and calculation of your payroll costs easier by having all of those costs or by having your eight-week period coincide with your pay periods. So if, for example, you had your PPP disbursed on April 20th and your next pay period begins on April 26th, your alternative period is April 26th through June 20th. So you get to just push everything payroll-related back a few days to capture everything within your pay schedule. Other guidance that we got includes calculation, some definitions around payroll costs. So the SBA clarified that the payroll costs are calculated based on when those costs are paid and also when they're incurred. So costs that are paid during the covered period means that checks are distributed or your electronic transfer has been originated, but it also includes costs that are incurred, which means on the day that the employee earns the pay, so the day that they work, and costs that are incurred but not paid during your covered period are eligible for forgiveness if they're paid on or before the next regular payroll date. So if, for example, your loan period ends on June 15th in the middle of a two-week pay period that ends on June 19th, you've incurred 60% of that pay period's payroll costs. So as long as you pay those costs on or before your next regular payroll date, those are included, that 60% is included in your forgivable expenses. This is really good news because it takes the guesswork out of trying to schedule and accelerate any sort of payroll dates to maximize your forgiveness. Instead of moving pay dates around, we get to just say, cut off as those amounts are accrued. Beth, I don't know if this question will come up today or not, but I know that one that I've gotten a lot early on was what if our eight weeks goes past June 30th, because the original legislation all said that the PPP stuff was all going to be basically wrapped up by June 30th, but then this second round of the PPP loans is still not fully subscribed now. So actually people are still out there applying for the PPP loan. So I did see in the SBA's guidance, through some of the examples that were released this weekend, dates that went past June 30th. So clearly they did make up for that. So if you still got your loan right now, your eight weeks would be after June 30th. So this won't be wrapped up by June 30th, but that's okay, they'll let you go into your eight weeks and into July. Right. That's right. The next thing we have is some additional information on compensation reporting. Our key takeaways here, and this is a lot of additional information. Our key takeaways are that there's a lot of additional record keeping and documentation that we weren't expecting that borrowers would have to give. So the SBA wants employee by employee data based on three different categories. Employees who earn under $100,000, employees who earn over $100,000, and employee owners, self-employed individuals, or general partners. The SBA requires that you submit this information on tables or equivalent statements from your payroll processor disclosing information about each employee. Another item of clarification that we got is that not only is owner's compensation limited to that $15,385 per individual during the covered period, but it's also limited to 2019 compensation. So you can't give yourself a raise over 2019 compensation and include that in forgivable costs for your PPP. The documentation that's going to be required includes proving that your payroll costs have been expended, bank or payroll provider statements, payroll tax returns, state wage reports, and suitor reports. So all of those different items are items of documentation that you are going to be required to submit to your lender. Hey, Beth? Yeah. Hey, I might just interrupt for a second. I've got a couple questions here, or Daniel, I don't know if you want to ask the questions or if you're okay if I do? Yeah, you can go ahead. I guess you're taking my job away from me. Thank you. I didn't want to do that. I'm sorry. Go ahead, Clint. All right. There are a couple questions here on the alternative method you were talking about a second ago. If someone isn't, if their normal payroll cycle is not more frequent than semi-annual, or I'm sorry, semi-annual, that'd be horrible, semi-monthly, then the alternative method, is it not available for them? That's a good question. I actually don't know. I haven't seen any guidance about how to handle if you've got two different pay schedules. Let me take a look at the guidance and get an email back to Daniel with that. Although I would probably guess, like some of our other answers on here, when it's not on their final guidance, and this probably is their final guidance, that's probably all we're going to get out of them. I read through that bullet point several times thinking bi-weekly or more frequent. It took me forever to figure out that that meant, okay, you got to pay at least, for the people that are paying once a month or once, twice a month, that doesn't work. But yeah, I don't know if you're going to get any more than that. We'll find out. Right. Yeah, and I think this other question is somewhat related to it also in terms of the timing of the payment. So if it's paid or accrued, then really the beginning of the process starts on a cash basis. If my eight-week starts on the 12th, then if I happen to run a payroll on the 13th, naturally, anyway, I'm going to get to pick up all of that, even though it was for two weeks that ended last Friday. But on the backside of it is where the accrued part happens, where even if my eight weeks ends on the 10th and my pay period ends on the 15th, well, the 11th, 12th, 13th, 14th, 15th, I don't get to include. But these days before the 10th, I do as long as I pay them on my next pay period. That's exactly right. Probably unless you're an owner. Is that right, Beth? Because then the one bullet point about the owner did specifically say it's limited to eight weeks per 56 days. So there you run into a little bit of a gap, and that's probably why they're asking for the over a hundred, under a hundred, and the different versions of owners. Right. Right. So the owner employee or partner calculation is still limited to that $15,385 over eight weeks. Right. Okay. Just back up here. And the $15,000, we have another question in here, Beth, regarding that $15,000 max, which is that's calculated by taking $100,000 for the year and then taking eight 50 seconds of that, I think is the way that math works. But like the 401k match, the employer provided a side of the retirement contribution is not included in that $15,000 limit, right? The $15,000 limit is just wages, salaries, and wages. That's right. So the 15,000 max is cash compensation, including salary or your hourly wages, bonuses, commissions, that sort of thing. 401k retirement contributions are a separate category and you're not limited to that $15,000 cap when you're taking all of the benefits that you're paying to employees in. Right. So similarly, costs that you have for employees health insurance would not count toward that $15,000 max. Okay. Got it. And we do just have one more question about the, about the alternative pay period calculation. To clarify, it's, it's true that it's only available for biweekly or more frequent employers. So if you have a semi-monthly or a monthly pay schedule, the alternative covered period is not available. I kind of like this Q and A feature, Daniel, in terms of, we're able to see it, see it as we go. There might be a few where we have to just say we have to keep moving on. I like it too. We're not doing anything really. So there's one more question, so I don't want to, we go to that one, then we'll kind of move on. Clint. I'll let you go. Yep. Will, will a cash basis payroll disbursement be included without issue? For example, if we pay the next monthly payroll a week or so earlier than normally scheduled, are we good with including as payroll costs within the PPP window? I think while you think about that, Beth, I think what I'm hearing there is if, if we normally pay every, if we pay monthly, I think it's what they say here. Yeah. So if they're paying for the month of June, let's say, and they don't normally make that payment until July 15th, but maybe their eight week period ends on July 10th. Could they pay that instead of waiting to the 15th where they would normally pay? Can they go ahead and pay it on July 9th? So it's inside their eight week period. So you could, you could pay it early because those amounts were incurred during the month of June. However, if you pay them on July 15th, your normal payroll date, they're also still fully included because those amounts were earned by the employees during the month of June, which was within your covered period. So you could accelerate the pay period, but based on the guidance that the SBA has issued over the last week, you wouldn't need to in order to count those toward your forgivable expenses. Yeah. Okay. I am. I am. I am still correct though. Right. Beth, in other words, you can't prepay. Right. So if your, if your covered period expires in my example, June, July 10th, um, well, you're going to get to prorate some of July, but you can't pay the rest of July early, not for business reasons, but, but you can't, you can't prepay compensation. Right. Right. You would be able to include the first 10 days of July and your example, but you wouldn't be able to include the full month of July if you paid it early. Right. Okay. Well, we'll, we'll, we'll keep going and, um, I know, I think we're good on time, but as questions come in, we'll try to pick those up as we go. Sounds good. So, um, the SBA has some additional really good guidance for employers, um, related to the other payroll provisions. Um, there wasn't a ton of question as far as we were concerned, but the SBA did clarify that wages that are paid to furloughed employees are considered qualified payroll costs. Additionally, bonuses and hazard pay are qualified payroll costs. Um, and with both of those, remember that it's still cash compensation that's still limited to a hundred thousand dollars per year prorated. Um, we have not gotten any clarity around workers' compensation and whether those are cons, whether, uh, workers' comp insurance premiums or workers' comp tax is included in the definition of payroll costs. We've seen a lot of questions and it's really consistent, but unfortunately the SBA has not put it on its priority list to clarify how we're supposed to treat workers' comp. Um, finally on self-employed individuals and general partners, the forgivable compensation equivalent is limited to 15,385 in total across all businesses. So if you have three different businesses that you report on a Schedule C or you get three different K-1s, your 15,385 is your total individual limit. So you wouldn't be able to have, you know, a hundred thousand dollars of compensation equivalent across three different businesses for a total of $300,000 in compensation equivalent income. Instead, you're just limited to that 15,385. Elizabeth, there is a question here. Who is considered an owner? Do attribution rules apply if spouses and or children are on the payroll? So we're looking for SBA purposes, uh, direct owners. Um, we haven't seen the SBA get specific about any sort of attribution rules yet. So we think that it's an individual-by-individual basis. All right, on to the last bit of reporting information that we received on the non-cash compensation benefits. Um, so healthcare and retirement costs for owner employees are eligible for forgiveness. When we received the forgiveness application last week, um, there was some question based on the way that the application was written, um, whether we would be able to include healthcare and retirement costs for owner employees. The regulations do clarify that, um, healthcare and retirement costs are, for owner employees are included in the forgivable costs. Um, healthcare and retirement costs for self-employed owners, however, are not eligible for forgiveness. So if you're a general partner or, um, self-employed reporting your business on a Schedule C, your healthcare and retirement costs do not get included in your forgiveness amount. Um, for reporting, um, and documenting the, the health insurance and retirement costs, um, to your lender, you'll need to provide account statements that prove that you made those contributions for health insurance and for retirement plans. So, uh, the... Sorry. Yeah. Sorry. I was, I was still muted. I started talking. So on this, on this next slide here, looking at the, the non-payroll costs, you know, these are these, the other three buckets, um, that of expenses that qualify for loan forgiveness outside of, of compensation, of course, you know, uh, rent, utilities and interest were three big ones. Transportation, I think was also in there. I would say we didn't, we didn't get a whole lot of, of guidance in the interest area that we wanted to. I'm going to come to that one in a second. But, but in terms of these other areas, you can see on the slide here, what the SBA has said is they understand the timing of, we have a set eight week period to spend these funds in, but we understand that bills come in for inside the period that were periods before. And we understand you have ongoing utilities during this time that you're not going to collect a bill for until later. Kind of, kind of, how do we do with that? So, um, so these, these expenses, uh, we get to include things that were paid during the period. Um, we get to include them if they were incurred, but paid on the next regular billing date. Um, and then finally for utilities specifically, they broke out, um, things you could prorate eight weeks worth of, of utilities. And again, utilities has been, been defined very broadly, um, or described very broadly, I should say. Um, one of, one of the areas here that Mark and I got, got quite the, the, uh, confusion slash laughter, I would say over had to do with the way they define interest. So in the law itself, it says that both mortgage interest and other business interest is a qualified expense. And yet the SBA, every time they have given any guidance, they refer to it as mortgage interest and they leave off the other business interest. And so it's been, it's been a question that's been asked by a number of groups, um, for clarification and the SBA, I don't know if they didn't want to admit that they messed up before or if they don't know the difference or whatever, um, in this latest guidance. So they did say it's mortgage interest on real estate or personal property, um, again, incurred and paid during the period that that's incurred and paid is not the confusing part. It's this mortgage interest on real estate or personal property. And Mark and I are kind of our laughter and confusion was, well, when I hear mortgage, of course I only think real estate, I don't call other types of loans that are on personal property mortgages. You just, you just call them loans, right? Might be a line of credit, might be a term loan. Um, and so I guess my Google worked faster than his did that day. Uh, whenever we looked up the definition of a mortgage, there is something out there that's known as a chattel mortgage. And today we will certainly not get into the definition of that. Um, but it's basically what it says is that that's a legal term that's used to describe indebtedness or borrowings loans on personal property. And so I don't really think anybody thought about whether that was the right term to use or whether that was the intent of the law versus the guidance from the SBA. But it is nice to finally have something from the SBA that says you get to take both your mortgage interest. You get to take your mortgage interest. I'm going to ignore the word mortgage for a second, but you get to take your interest on real estate or personal property. And so, um, it, my, our advice to dealerships and other companies across our firm has been, um, as you're collecting the information of these different expenses that qualify for in the calculation of loan forgiveness, you're going to have ones that start to fall into certain buckets of, you know, Hey, these expenses, it's really clear. Payroll is our greatest example of that one. And then you're going to start to have some expenses that say, yeah, we, these are other, these are other groups and we're, you know, yeah, we're, we're sure these qualify as well. Mortgage interest. Yep. It's defined. And then you're going to have some others that start to get into, um, I think this qualifies, but maybe I'm going to, uh, hang on to this one and see if I need it in my calculation. And so this personal property interest, and I realize floor plan interest is a huge expense for a lot of dealers. I understand that, but that's, that's one that to me, that wouldn't be the one I list on the top of the, uh, uh, loan application for forgiveness, I would start off with payroll and rent and utilities. Um, and then I would get down into the things like maybe some of the other utilities that people don't commonly think of are utilities or some of the transportation costs, or again, some of this other interest on personal property. And it might be that to get the math to work, you, you do need those expenses. Um, but I wouldn't, I wouldn't lead with those. I wish we had better advice about that or better clarity on that. Uh, but I do think it's a good indication that the SBA finally included the term personal property in that discussion. Well, Clinton, that Daniel, Daniel titled this presentation is patients of virtue. And I think that's probably as, as you think about things like this one, um, you know, if the interest is a big enough deal on your particular situation, then patients will win the day. Um, and you'll be the first one to file your forgiveness document, you know, wait until some more, you know, there's, we're going to talk at the end, there's some other legislation still out there. Um, or, you know, there'll be certainly more, um, guidance as people apply for forgiveness and start getting some pushback and, and we'll, we'll be glad to share those. And I'm sure AD will be pushing down everything we hear, um, when those kinds of situations come up, because again, our hope is that floor plan interest will count. And that, you know, surely the SBA understands this whole, you know, if Clinton could Google it, then I'm sure the SBA, um, and so hopefully that is just actually the right answer, but the patients will tell us that. Yeah, that's right. And, and that's also consistent with, you know, something we were talking about in our last presentation. I don't want to go back and rehash it, but we were talking about dealers, you know, taking advantage of the, uh, employer side of the payroll, uh, tax liability deferral opportunity that's out there for them and, and doing that as a way to take advantage of that, which would delay asking for forgiveness. We still think that that makes sense, but I think that patients will be, uh, valuable for a couple of reasons in this process. I do see, I do see one of the questions here about would telecommunications expenses be considered a utility cost? Um, again, they didn't get real specific, but I would say I would include that. I mean, when we're talking about utilities, I think we all think pretty easily of electricity and natural gas and, and, and water. Um, I think it also includes, um, telecommunications, whether that's cellular or, or, or landlines and your high speed internet, um, or some other type of telecommunication expense you might have, um, with regard to GPS or that sort of thing, then I would say those would all be, would all be included. Um, I think we've even gotten some, we've gotten some questions in terms of fuel costs. And do you think fuel is a utility? I mean, if we're talking diesel or gasoline, I don't normally think of those as utilities because they're not subject to the same type of utility regulation necessarily that many of those others are. But I think those types of things, if that's a significant expense, again, I don't think it will be for most dealerships. That question came to our firm from another industry. But for dealerships, I'd throw that one in that bottom bucket, that bottom layer again of, okay, if I need more expenses, this is where I'm gonna go and filter through which ones I think make the most sense. And all the transportation expenses, Glenn, because that is one thing that they did not clarify at all. That was our biggest one that we were hoping they would, just because if transportation goes as far as freight and shipping for the people on this phone call, that winds up being a big deal, but they didn't say anything about transportation. So we're still just back to the one line item that said and transportation expense, so. That's right. I would add one thing that the application, the forgiveness application does not include when it lists out utilities as trash. And so interesting to see whether the SBA will clarify that of course trash is a utility or trash and recycling. But to that question, the SBA does say specifically both internet and telephone are included. And I would assume that in 2020, that would also include any sort of business cellular service that you have. Right. But again, that's still a best guess rather than any sort of real clarity that we've received. Right. I think we've got several or a couple of other questions here that have to do with payroll. What I might say is just in the interest of time, let us go ahead and keep moving through because this FTE limitation and some of the additional legislation that might be coming down the road might take a little bit of time to get through. So we won't lose the questions. If you've submitted one, we'll keep it there. And, but we'll go ahead and keep moving. And if we have time, we'll come back and hit those specifically. So Beth, I think FTEs are our next thing, right? Sounds good. The SBA clarified that full-time equivalent employee is based on a 40 hour work week. When we had originally been advising our customers, we said, let's assume conservatively that we're gonna use the Affordable Care Act definition of full-time. Let's calculate based on a 30 hour work week as being full-time. The SBA said, well, based on economic realities of what full-time work is, it's a 40 hour work week. So when you're calculating full-time equivalents for your part-time employees, you're looking at taking the hours that they work and dividing by 40 to get the fraction of a full-time employee that each of your part-time employees works. There are a couple of interesting safe harbors. For calculating FTE reductions. First, if you don't have a reduction in full-time equivalents or your employees' average paid hours comparing January 1st, 2020 to the end of your covered period, you're deemed to have no FTE reduction unless the FTEs for your pay period that includes February 15th is less than your average employees between February 15th and April 26th, then you're not eligible for that safe harbor, which means we just need to go to the next layer of calculations to make sure that you fit within not having a reduction in FTEs. If your FTEs were reduced during your covered period compared to the beginning of 2020, you're exempt from the forgiveness reduction if your FTEs as of June 30th are greater than the FTEs for the pay period that includes February 15th. So if you're rehiring your employees or restoring your furloughed employees to their regular hours schedule, then you are considered to have had no reduction in FTEs during that period. And Beth, on that one, I suppose, probably for the government's reporting purposes, they really do mean the 630. Even if the end of your forgiveness period might be the middle of July because you just got your loan, I bet that the 630 will hold anyway because they want to record that all as well. At 630, would you assume the same thing? Yes, yeah. The June 30th date for that FTE calculation is set by the CARES Act. So that date won't change unless Congress changes it. The next thing is that there are three different calculation periods for average FTEs. So when you look at comparing your FTEs during your covered period to your base period, you get to choose the most beneficial of the first two. And if you're a seasonal employer, you get the benefit of that third calculation period. So you get to choose between February 15th of 2019 through June 30th of 19, or January 1st of 20 through February 29th of 20. Or again, only if you're a seasonal employer, any consecutive 12 weeks between May 1st, 2019 and September 15th of 2019. So you get at least two different cracks at avoiding a forgiveness reduction based on changes in your FTEs. And Beth, I think in our last webinar, if there's anybody on who didn't, who wants a little deeper discussion about a seasonal employer and what that means potentially for a dealership, I would encourage you to go back and listen to the last recorded webinar we did for AED. I think Daniel has probably about 10 days ago. I don't remember the exact day, but we spent a little bit of time talking about that opportunity for dealerships. All the days are blending together right now, so I don't know. They are. The next piece of grace that the SBA has given us is that your FTEs are not considered reduced if you make a good faith written offer to rehire an employee or restore the employee's hours of a furloughed employee, which the employee rejected, and not considered reduced for any employees that are fired for cause, voluntarily resign, or voluntarily request and receive a reduction in hours. So really, the SBA is only looking at whether you're laying off or furloughing employees in the face of, contrary to the intent of the PPP, which is to keep your employees on your payroll. So a couple of really good things coming out of the regulations and the forgiveness application here that will protect employers from actions that really aren't under their control. The forgiveness is also decreased for a reduction in salary and wages that's more than 25% for employees that are earning less than $100,000 per year. There's a three-step process that's outlined on this slide. Essentially, your first step is to figure out your employee's pay based on their pay at the beginning of the year was reduced by 25% or more. And the second step is to determine if your safe harbor test is met. And again, this is going back to a set by statute June 30th date. So if your employee's pay is restored by June 30th, they're considered to have not had their pay reduced. And then step three, if you have a reduction of pay of more than 25% and their pay isn't restored by June 30th, then you calculate the forgiveness reduction based on that employee's wage reduction. It's computed based on average pay for hourly employees. So based on their average pay that they received at the beginning of the year before COVID hit and based on annualized salary for salaried employees. Another benefit from the regulations here is that if a salary reduction is attributable to a reduction in hours, the reduction affects the FTE count only. So you don't have a double penalty for a single event. Another thing to keep in mind here on the salary and wage reduction is that only the amount of the employee's wages that are reduced beyond 25% reduce your forgiveness. So for example, if you have an employee who's making $1,000 a week and you reduce their wages to $700 per week, their reduction is only that $50 a week that's in excess of 25% of their regular pay. So the 25% reduction doesn't hit quite as hard as we were thinking that it might. I think the point that we were the most concerned about and had the most questions about that 25% reduction in payback had been in relation to the high performing salespeople that earn high commissions. The grace there though is that we'd be comparing the commissions they earned in January and February to the commissions they'd be earning now. So even if they are a high performer that's not performing as highly because the economy's a little tense, hopefully you're comparing two periods of time where their commissions would have gone up during that amount of time anyway. But certainly that commission would be part of that calculation. If it goes down, that could be one that hurts you a little bit. Right. I don't know if anybody's paying attention here, but if you can tell what's going on, Beth takes the really technical hard slides for Clinton and I, and then we come in with the ones that are easier for us to deliver because Beth, I'll give her a little public recognition because she's an attorney in our firm. So she doesn't get all the recognition she should get because she's an attorney in a CPA firm, but she's done an outstanding job over the last several months in keeping all of us informed on this stuff. So I appreciate her and wanted to let her know that. But so now we're back to one that's easier, so I'll give it. And that's on this SBA review process. Again, they didn't use the word audit, but they did throw out a couple more words that might be just as concerning on this with a couple that make us happy. So the first off, it says they may review any PPP loan, however they deem appropriate at any time. And they can look at that for not just whether it was, if you were eligible, but also whether you accurately asked for the right amount, whether you used the money right, or whether there was forgiveness. That qualified use is one, it's one that we probably haven't talked about as much since the very early days of the PPP when there was a difference between qualified uses and forgiveness. And so, a lot of people, I guess the notion is that if your forgiven expenses are big enough by the time you get to the end, then you'll be okay. If your forgiven expenses aren't high enough and you've used that for other purposes during the time, then that could wind up being something that catches us a little bit. But that's something that the SBA may review. Now, the audit process, again, now that we're calling this a review process, I think this is actually a good bullet point here, may be conducted by using the lenders as the intermediary. So the lenders could actually wind up being the review process, which is what we thought it would be from the beginning, is that the lenders would actually provide, by the time they give something to the SBA, they're saying, yes, we've looked at it, and yes, this person was qualified to get the expense. So that's a good thing, is that the banks will be partly that review process, unless the SBA wants to jump in and directly do it. It is important, though, I don't know if the rest of you, I've been getting phone calls from the Census Bureau that I've been ignoring, because I'm not sure if they're legitimate or not. I found out today, I Googled the number, it was legitimate, so I guess I'm gonna have to respond to that. But if the SBA reaches out to you and asks a question, failure to respond to them is a bad thing, because they can not only determine that you are ineligible for the loan, but they can also then just determine that the fact that you're not responsive might be that that's gonna affect the amount that's forgiven. If the SBA determined the borrower was not eligible for the loan, Clinton talked about this earlier under the safe harbor step, the SBA may pursue to recover the funds. And Beth, you might, I'm sorry to put you on the spot for this one, but on that one, is that all that, I'm pretty sure that's all it said in that section when the forgiveness came out, was that they can pursue to get the funds. It didn't say to go after him for other legal purposes, to put him in jail and stuff like that this time, did it? You know, the guidance does say that there is a possibility of referring for further action, but you're right, they didn't say, if the borrower does return the funds, then they won't pursue further action. And return in this case is after, not the amount that you returned last week under that, it'd be if they call and say, hey, you weren't eligible to give us the money back, and you do. Right. Also at Clinton's point here on the bottom bullet point is that there will be an appeals process and some other things, that's coming out in subsequent regulations. We don't know the answers to those yet, but there will be some version of an appeal process. The lenders, you know, they're encouraged to do a good faith review before they turn it on. The second bullet point here is also a good one. The lenders can scale their review based on the information itself. So if the information for venture payroll, for instance, is coming by way of a known third party payroll provider that they know does good work and doesn't do anything wrong and they reply the book, then they can pull back and not audit that as deeply as they would have otherwise, because they can say, well, we relied on that third party provider. Similarly, if you're using a qualified CPA for part of your expenses and put those together, you know, all of that, the lender can use as a reason to not review as much as they would have otherwise. The lenders are encouraged to actually work through a forgiveness application package. And that's something that I would encourage. It's always better to submit more than less. And so, you know, when you read through all that stuff that Beth was talking about earlier on all the documentation that's asked for, the utility bills and the payroll check registers and things like that, you know, my first reaction is the bank is never gonna look at all those and the SBA is gonna look at those even less. But the fact is you should put together a package, whether you're putting that together, whether your CPA is helping you put that together, that way you control the information. You know, you submit that, here's where everything is at, and this is why we deserve what the forgivers were asking for. And then finally, the lenders do need to notify the SBA of their forgiveness determination within 60 days of you submitting your application. And again, to Clinton's point, the longer you put that off, patience might be good. You can earn the employer side of payroll tax as a free loan for each month during that process. And you can also glean from everyone else's experience in the interim before that happens. So interim final guidance, is that it? Well, we put in here just to hold on for just a half a second. The SBA, as far as the SBA is concerned, I think yes. I don't think unless there's more legislation, they're gonna come out. Oh, I think that Mark froze on us there, Daniel. I think we lost his Wi-Fi. I'll go ahead and cover this slide then. You know, what Mark was sharing there was, there was a bill that was proposed there a couple of weeks ago that I think we talked about and Daniel talked about as well, of not having that bill itself, not having a lot of legs under it. But there have been some provisions that have been proposed and that have gained some bipartisan support. And so one of these is to extend the time period. We've been talking about this eight week covered period, but it's to extend that time period up to 24 weeks. And that's been, oh, we lost the presentation. Well, I'll just go ahead. No, Mark was the presenter. I'll just go ahead and talk about a couple of these bullet points and then maybe we can get to a couple of questions. So one of those is to extend the eight week period up to 24 weeks to use the Paycheck Protection Funds or until December 31st of this year, whichever is later, which is, it sounds like for a lot of people, it would still be before then. But that has some bipartisan support. Some other, another provision that has a lot of bipartisan support is to instead of extend the period of the loan, instead of this being a two year loan, it would become a five year loan. That's something that has a lot of support behind it. Just kind of reading through some of these other notes. One of the other big notes that we had on the screen there was to remove the 25% limit on non-payroll expenses. And so remember, this is what we were talking about earlier that 75% of the expenses you use for loan forgiveness purposes have to be payroll related, at least 75% under today's guidance. But there's a lot of bipartisan support to remove that and to say, you could go less than 75%. There's also some support in here that would allow companies that have gotten a PPP loan to go ahead and participate in the payroll tax deferral program, even after they've gotten forgiveness. So remember, this is something that we mentioned in our last webinar as a planning opportunity for dealers was why not take advantage of deferring the employer side of payroll taxes by doing that, you get to go ahead and take your payroll taxes, the employer side of that from March 26th, I believe it was of 2020 through the end of 2020 and defer paying those until 50% of that would be due December 31st of 2021. And the other 50% would be due December 31st of 2022. And our take on that is that's an interest-free loan. And in fact, by doing that, it actually helps support and make the case that the dealership did have financial uncertainty or economic uncertainty and financial need to get the PPP loan, because it might be hard to argue you needed the PPP loan if you decided not to take an interest-free loan for two years as well. So those were a few of the bullet points there that were on that slide. What I'd like to do now, Beth, is we do have a few other questions. I wanted to go back and see if we had some time to tackle. One of them has to do with someone who lowered compensation. They lowered compensation for employees by eliminating overtime for their hourly employees. So let's say an employee makes more than 25% less than, let's put some numbers on this. Let's say an employee typically makes $1,000 a week, including, that might be a lot, but make my math easy here, including overtime. And by eliminating overtime, they're gonna drop to, let's say, $650 a week. So we've got a 35% decrease. Their pay structure is still the same. I mean, if they worked overtime, they would still be paid more. It's just the employer has said you cannot do that. How does that affect the calculation of loan forgiveness? You know, I haven't seen the SBA directly address a reduction in overtime. So based on what we know now, that reduction in overtime hours is going to not reduce your FTE count, but because your employee is making 35% less, I think that the difference, that $100 per week difference is going to reduce your forgiveness by that amount over your eight weeks. So, you know, for a single employee who's reduced to 35, reduced by 35%, that would be $800 of forgiveness that is reduced. Okay. Got it. And then there's another question in here. When is the forgiveness application due? So after the eight-week covered period ends, then it starts a two-year loan. First six months are payment deferred. And then when would be the last possible moment, I guess is what this question is asking, that a company could go ask for forgiveness? You know, we don't know. The SBA's forgiveness applications is that it expires on October 31st, and lenders have up to 60 days to submit that paperwork to the SBA. So we're thinking that probably you'll want to submit your application by the end of August so that your lender has within the form expiration date to get back to the SBA, but we really, that is just a guess at this point. The SBA hasn't given us any sort of guideline about when borrowers need to be submitting forgiveness applications. Okay. There's a question in here about health insurance. It says, our employees contribute 30% of their premium under the rules of Section 125 payroll deduction. Is the full premium eligible for forgiveness or the net after the employee contribution? So the 30% that your employees are contributing is counted in their gross wages, which means that that 30% is already counted. So your reduction for health insurance for the employer contribution will be the remaining 70%. That's the remainder part, the employer part. Right. Otherwise you'd be counting that 30% contribution twice. Right. I like this question here, not because it's going to be an easy one for you, Beth, but because we are seeing a number of banks that take different positions on, we saw a number of banks take different positions on the actual application for PPP, but also in these discussions about loan forgiveness. So it's kind of a long question. I'll read it in its entirety here, but does the 75% threshold on payroll costs apply to the loan amount or to the loan forgiveness amount? Some banks are insistent that borrowers must use 75% of the loan on payroll costs in order to qualify for loan forgiveness. Our payroll situation changed drastically throughout the pandemic because of significantly lower commissions paid. So I think the question here is kind of a twofold. I think what the question is really aimed at is can banks, can banks make the determination that if you don't spend at least 75% of this money on payroll, you're not eligible for forgiveness is maybe one question in here. And then secondly, you might talk a little bit just about what some of the banks have, what's been their take? Why do we think that they have the authority to make some of these decisions? Based on the forgiveness application and the way that the forgiveness application limits and calculates on that form itself, the 75% of forgiveness calculation, I don't think that banks really have a leg to stand on at this point. The SBA has set out really clearly that what they mean by 75% has to be spent on payroll costs is that 75% of your forgiveness amount has to be payroll costs. And then the remaining 25% can be your other non-payroll costs. Because what they do is they take your total forgivable payroll costs and they have you divide by 0.75 to get your total maximum potential forgiveness amount. So rather than having to spend 75% of your loan proceeds, it's 75% of what you're asking for forgiveness on. Okay, got it, thank you, thank you. So Daniel, we have a few more questions. Would you like for us to keep going? I know we're at the end of our time and I always wanna be sensitive to that. We'll be glad to keep asking questions. Why don't we just get through the couple of questions that from earlier that we passed over? And I can go ahead and ask them if you want or. I'd say go for it. Okay, our last normal payroll falling within our eight week reporting period window has already been processed today. If you would like to run a special off-cycle payroll to pay bonuses before the expiration of our reporting period in order to maximize forgiveness, would they be allowed subject to the 100,000 annualized max? Yes, so I would say yes and yes. If the last payroll has already run through now, if a company wants to go ahead and issue bonuses, they can. Each individual person will be subject to that 15,000, I forget the exact dollar amount, I'm gonna call it 15,382 or something like that dollar limitation. So if a bonus takes them over that dollar amount during that period, just know, they're gonna be limited to that dollar amount. I would say the other thing that was a little surprising to me early on when no guidance had been issued, this loan forgiveness process seemed like it was gonna be very simple of just what did you spend in these four categories during these eight weeks? And when the application came out and this interim guidance has come out, there's a lot of detailed information in there. I mean, potentially, the way we've set it up with clients across many industries that we're helping with across our firm is you have to report employee by employee, you know, and that gets pretty tricky. I mean, a lot of people have good, a lot of dealers, fortunately, have very good payroll systems or outsource that. So it's a little easier for dealerships, but for a lot of businesses, that's gonna be a challenge. All right, 401k paid normally at year end, is there a way to escrow the partial year amount to qualify for funds used for PPP? Yeah, I feel like, and I'll let Beth correct me if I'm wrong. I feel like for the 401k amount, it has to be both incurred and paid. And the paid part, they've allowed to go into the next pay period, normal payroll that's run after the eight-week covered period but they don't say anything about just prorating and accruing and letting that sit on your balance sheet as a liability until you fund it. So what our advice to people has been is if you wanna go ahead and get that as a qualified expense, you would certainly be allowed to if you make the actual contribution during the period. I'd also encourage, I know a lot of people who delay making their prior year employer contribution until the extended due date of their tax return. So for most businesses, that's either, it's gonna be September 15th or October 15th, depending if you're a partnership C-corp or S-corp. So we have a number of them who maybe normally wouldn't make the employer side of that contribution until August or September of 2020. And what we've told them is you can go ahead and make that contribution now, even though that was for 2019, it still meets the definition of paid in the eight-week period. And so that's a really good, earlier when I was talking about these layers of expenses and seeing what would fall where, that would be a really good one that would fall towards the top that is kind of still outside the norm of your normal payroll. I would add that when you consider paying or making your 401k contributions early, that to an extent, if you're accruing and escrowing, 850 seconds of your 401k contribution, whether you can do that is going to be up to your 401k administrator. There's a possibility that they're gonna say, no, we don't have any ability to put any of those funds in escrow. So it may result, it may fall ultimately on your benefits administrator, whether you're able to actually take advantage of that. And I would say that in terms of, toward the top of that list of eligible expenses, sure, but maybe a little bit below some other easy ways to increase your forgivable expenses. Right. So interest incurred and paid, what if the timing doesn't work on the backend as far as paid might only get one months of interest included? I would rely on that one default kind of under the same thing as the utilities, the rent and that sort of thing. And that is if it's under your normal, kind of your normal business cycle, I mean, eight weeks normally, I would say, well, that's two months. So you ought to get two months in there. But if it just happens to be, I realized two months is eight and a half or nine weeks, or even somewhere around there. If it happens to fall outside of that, and it's kind of in your normal cycle, I would rely on the SBA's guidance for those types of expenses and say, it was incurred and paid in the normal course of business then. Okay. We have a self-insured medical captive. Our main payment to start this year was months ago and current expenses are low, non-elective stuff canceled. Can we fund an amount during the period and what might we be limited to? Right. You know, I would say there, yes, you could go ahead and fund an additional contribution to your captive for medical purposes. What I would say is your limit is probably, I would certainly talk with your captive administrator about that and make sure you're not getting overfunded. It's very rare to see some type of self-insured plan or some type of medical captive overfunded, but they do occur. And what a lot of businesses don't realize is that when that happens, you could be subject to ERISA penalties, which are generally, you know, they don't sound like a whole lot when you think about, oh, it's a hundred dollars until you read that it's a hundred dollars per day per infraction, each employee's an infraction. All of a sudden those numbers can get pretty large pretty quickly. So I would say, yes, you can. I would definitely talk with the medical or with the captive administrator though on what that limit would look like. All right. Let's go with one more here. We're up against over an hour now. So we lowered compensation only by eliminating overtime for hourly employees. If they make 25% less only for this reason, do we fail the test for the employee's reduction by more than 25%? Okay. That one I may have answered and forgot to mark that I'd answered. Oh, okay. Sorry. That's my bad. I guess I should have paid attention more, but once you took my turn for me, I didn't think it was. You think you're in the back. So then why don't we go with this last one then. If the first cash pay period is inside the PPP window, but was accrued before the window, can you still include the last pay period accrued, but paid outside the eight week window, essentially receiving more than eight weeks of accrual? Right. So yes, you can. This is similar. It's worded a little differently, but it's similar to a question that we did have earlier in terms of on the front end of the eight week period, we look at it from a cash basis. So if it was paid or incurred and subsequently paid. So it's the paid portion. So if your eight weeks started the day you got the money, and that was May 26th, which is today, and your normal payroll is run on Friday. So that will be May 29th, but it was for last week before you got the money. Yeah, you still actually do go ahead and get to keep and count that as a qualified expense, even though you're still going to go ahead and run payrolls through these eight weeks. And then on the back end of the eight week period, you're going to wind up with a payroll that doesn't get paid until after the end of the eight week period. And it still qualifies also, because it was paid on the next one in your normal course of business. So it's actually something I feel like the SBA, I feel like they put on a very kind of common sense, reasonable hat to that and said, we understand that these loan dates and eight week periods are never going to match everyone's pay cycles. And we want it to be fair and we want it to be, we don't want it to hurt an employer just because we have some weird timing. So yes, we understand it's going to wind up and cover more than eight weeks, but not significantly more. They weren't that generous. You know, Daniel, unless that bipartisan support for the 24 week covered period passes, in which case I think everybody gets 100% forgiveness. I mean, who couldn't make that work, right? So I would say stay tuned to AAD. The house is meeting this week to vote on a PPP reform bill with some of the reforms mentioned before and the Senate could actually take it up and pass it by unanimous consent this week as well. So we could have some action, some very, some guide, some more, know some more in the very near future. And the other thing I don't know if Clinton, you mentioned that Congress is considering is actually letting you use your PPP money to pay for PPE at your facility as well. And so that's something that does have bipartisan support. So once we get that more information there, we will of course push it out and maybe even have another webinar with our favorite people, Clint, Beth and Mark. I guess now's a good time to talk about Mark. But no, I do want to thank- A better internet connection. Exactly. But I do want to thank Keiko Isom, again, Beth, Clint and Mark. I've been in touch with them all weekend. They were working this Memorial Day weekend to prepare for this webinar. And I know I really appreciate it. And I know the rest of AD staff and AD members greatly appreciate the partnership we have with- Thank you. Keiko Isom and your willingness to turn around a webinar very, very quickly here. So with that, we will go ahead and close it out. I know Clint and Beth and Mark are always willing to answer questions. If you have any other follow-up questions, feel free to reach out to them or reach out to your AD regional manager who can pass on the questions to those three as well. So with that, we will conclude this webinar. Thank you everyone for joining. And once again, thank you to Keiko Isom for presenting. Thank you, Daniel. Thank you.

Paycheck Protection Program

PPP loan forgiveness application

fuel costs

transportation expenses

full-time equivalent employees

safe harbors

salary reductions

wage reductions

SBA review

proposed bipartisan changes