On March 27, 2020, Congress passed the Paycheck Protection Program Act (PPP). Initial reports indicated that about 700,000 businesses were approved by July 6, 2020. Many businesses are able to get the loan they receive forgiven as long as they meet certain spending requirements. Let’s look at the facts surrounding where your employee’s benefits fit into that equation.
If you’re a business owner it’s not too late to apply. Congress recently passed a Second Draw PPP.
The Goal of the Paycheck Protection Program (PPP)
The initial PPP set aside a maximum of $349 billion for forgivable loans. The goal was to help small businesses pay employees in the wake of the COVID-19 pandemic.
How Can Businesses Use PPP Loans?
Business owners with up to 500 employees are eligible to apply for this loan. They may use the initial PPP or First Draw PPP loans for the following:
- Payroll costs
- Employee benefits including health and retirement compensation
- Mortgage interest
- Worker protection costs associated with COVID-19
- Certain supplier costs
- Certain expenses for operations
- Damage due to looting or vandalism during 2020 that was not insured
The PPP capped the payroll expenses at $100,000 on an annualized bases per employee. Maximum loan amounts can’t exceed the average payroll cost for two months plus 25 percent. The total loan cap is $10 million.
PPP Forgiveness Rules
The First Draw PPP has several rules governing who meets eligibility requirements. The following describes these PPP loan forgiveness rules:
- Self-employed, sole proprietors, independent contractors
- Small business meeting the SBA size standards
- NAICS businesses with a code beginning with 72 and more than one location and less than 500 workers per site
- 501(c)(3) non-profits, 502(c)(19) veteran companies, or tribal business concerns
They must have 500 employees or if over 500 workers, they must meet SBA industry size rules.
You may meet Second Draw PPP loan eligibility if you received a First Draw PPP. The first loan must be fully spent on authorized expenses.
Specific employee benefits play a part in the calculation of PPP loan forgiveness. The PPP Loan Forgiveness application has three lines addressing worker compensation.
Employers enter the total amount paid for employee health insurance. This includes the contribution to employer-sponsored group health and self-insured plans. Don’t include pre-tax or after-tax payments made by employees.
This line documents the total employer contribution for employee retirement plans. Pre-tax or after-tax payments by employees are excluded.
Retirement benefits include match, cash balance plan, and profit-sharing contributions. Remember that the PPP Forgiveness’ requires employers to use 75 percent of the loan for payroll. Compensation for retirement isn’t included in this 75 percent.
Enter the total paid for employer state and local taxes. This includes charges for employee compensation such as state unemployment insurance tax. You don’t need to include taxes withheld from the worker’s earnings.
PPP Loan Forgiveness Deadline
Eligible businesses have until March 31, 2021, to apply for the First Draw PPP. The application window for the Second Draw PPP loan is between January 13 and March 31, 2021. These loans will have the same terms regardless of the lender or borrower.
What to Look for in 2021?
Job losses related to the COVID-19 pandemic are expected to continue into 2021. This directly impacts American’s health insurance plan access. Experts report that health insurance changes are coming.
Is Your Business Looking to Reduce Benefit Expenses?
If you’ve been affected by the COVID-19 pandemic, explore the PPP loans and PPP forgiveness. D2E Health plans have direct contracts with providers and medical management services.
This allows them to help you find the best care for the best price in your area. Get started today with direct contract pricing to reduce your healthcare costs.