Attorney offers Paycheck Protection Program guidance

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Following the swirl of new Paycheck Protection Program stipulations released by the Small Business Administration and U.S. Treasury two weeks ago, Burr Forman McNair partner George Morrison reiterates businesses can finance employee bonuses with the funding — as long as they leave a paper trail.

“I think a lot of us were a little nervous about paying bonuses because it might be counter-intuitive to say ‘I need this money and I’m going to go pay bonuses with it,’ ” Morrison, based in the law firm’s Charleston office, said. “Hopefully, it means something more than it says when they say that bonuses are forgivable costs. Hopefully, what they also really mean, at least implicitly, is that they are not going to take the payment bonuses too heavily into account when evaluating whether a borrower truly needed a PPP loan.”

A week after the SBA released its PPP Forgiveness Application (.pdf) on May 15, the U.S. Treasury and SBA clarified that employee bonuses and hazard pay was forgivable, funding could be used to pay furloughed employees and any PPP loan could be audited by the SBA, according to a recent Fisher Phillips release.

With these clarifications, employers can use the funding to pay for projects completed before the covered period so long as they are paid during the covered period, according to the release. Similarly, non-payroll costs from before the coverage period can be paid with PPP so long as these costs were incurred during that period.

“Borrowers have eight weeks to spend their money and have it be forgiven, and this gives them, dependent on their circumstances, two different eight-week periods to choose from, calculating their payroll costs,” Morrison said.

Also, as some employers grapple with bringing their employees back to the workplace because of COVID-19 concerns and high unemployment benefits, the recorded headcount will not be docked due to employees who were fired, requested shortened hours or resigned, according to the release. Still, employees who turned down an offered position must be reported to the South Carolina unemployment office within 30 days to avoid PPP penalty.

“The sort of paramount piece of advice we’re giving everybody is to keep … all of your books and records,” Morrison said, adding that some guidance suggests keeping documents on file for at least six years.

Aside from $2 million enterprises that will be audited by default, Morrison doesn’t foresee a mass auditing of small businesses which expected a greater need for the funding on the front end, but he does expect spot auditing.

“It remains to be seen,” he said. He imagines that an expected economic boom in the third quarter could be hampered by audits but said many businesses would have found it challenging to forecast the effects of COVID-19. A number of businesses had prepared for the worst.

“There’s this notion that you have to be Janus-faced — you have to be able to see both in the past and in the future from the need-certification standpoint — which is where I think a lot of the audit concerns come from as the economy rises and falls,” Morrison said, adding that no one could predict how the pandemic would pan out financially as business owners began applying for the program.

In the meantime, Morrison is keeping his eyes on the H.R. 7010 Paycheck Protection Program Flexibility Act of 2020 that was passed by an almost unanimous house vote on May 28. The house bill would allow employers to use up to 40% of PPP funding for non-payroll costs, he said.

The bill also calls for a five-year minimum loan maturity, extends the covered period from June 30 to Dec. 31 and creates a penalty exemption if businesses are able to show that they couldn’t rehire qualified employees for open positions before Dec. 31.

“I don’t know whether that proposal stands a ghost of a chance of pulling through congressional passage, but I think that there’s an understanding that the program may need some additional tweaks,” Morrison said.