Overview of PPP Loan Forgiveness Provisions

Asking for Forgiveness: An Overview of the Loan Forgiveness Provisions of the PPP

The Paycheck Protection Program (PPP) under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided essential monetary relief to many small businesses throughout South Carolina, including in the hospitality industry. As the loan period for many of the loans is expiring or will soon expire, companies need to be aware of the requirements for seeking and obtaining loan forgiveness. If businesses fail to follow the requirements of the CARES Act, they may be on the hook to pay back a loan that matures in two years with a one percent interest rate. Employers need to keep in mind the three primary components of loan forgiveness: 1. What can the loan be used for? 2. How many employees must be retained or rehired? 3. What documentation must be kept and submitted?

Acceptable Uses of the Loan

To qualify for loan forgiveness, employers are required to use the loan proceeds solely for: • payroll costs • payment of interests on debts (principal payments do not count) • rent payments • utility bills

Importantly, of the four identified categories, 75-percent of the loan proceeds must be used only for payroll costs. Payroll costs include gross wages, cash tips, commissions, payment for leave, payment for employee benefits, allowance for separation of dismissal, and state and local taxes assessed on compensation. For example, if a restaurant received a $100,000 loan, $75,000 must be used solely for payroll costs of its employees. Accordingly, the remaining $25,000 may be used toward the other three noted categories.

How many employees must be retained and paid at the same rate?

Further, and what may be particularly difficult for hospitality employers, the loan proceeds must be used within eight weeks of receiving the loan. The PPP has identified this eight-week period as the “Covered Period.” During the Covered Period, the employer must abide by two conditions to receive full forgiveness: • no reduction in workforce • no reduction in pay greater than 25-percent

First Condition

The first condition is that the employer must maintain the same number of full-time equivalent (FTE) employees as it had during the time period between January 1, 2020 and February 29, 2020 or a 12-week period between February 15, 2019 and June 30, 2019. The employer has the option to choose which date more closely correlates to its business.

In determining what counts as an FTE employee, the Treasury Department provided the following calculation: the employer should average the number of hours per employee paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. The employer can use an alternative and simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours.

If the employer is a seasonal business, the employer can elect to use one of the time periods referenced above or a 12-week period between May 1, 2019 and September 15, 2019. Importantly, the employer, whether seasonal or not, should choose the option that correctly correlates with how it determined its loan amount eligibility. If the employer is a

Calculation to Determine Loan Forgiveness - Nonseasonal

loan amount x average # of FTEs per month during covered period average # of FTEs between Jan. 1 and Feb. 29, 2020

Calculation to Determine Loan Forgiveness - Seasonal

loan amount x average # of FTEs per month during covered period

average # of FTEs from 12-week period between Feb. 1 and June 30, 2019 or May 1 and Sept. 15, 2019

Employee 1

average weekly hours = 40 40 hours / 40 = 1 Employee 2 average weekly hours = 37 37 hours / 40 = 0.9 Employee 3 average weekly hours = 27 27 hours / 40 = 0.7

Average # of FTE Employees = 2.6

Subject to the safe harbor discussed below, if an employer reduces the number of full-time equivalent employees compared with the number of employees during one of the previously noted time periods, the CARES Act will reduce the amount of loan forgiveness.

By way of example, if the employer received a $100,000 loan and reduced its workforce on March 31, 2020 from 50 to 35 full-time equivalent employees, the employer will only receive loan forgiveness up to $70,000 ($100,000 * 35 / 50). The remaining $30,000 will not be forgiven and will be due upon maturity.

Second Condition

The employer cannot reduce an employee’s pay by more than 25-percent between February 15, 2020 and April 26, 2020. Importantly, however, the 25% reduction does not apply to employees earning over $100,000.

By way of example, if the employer maintains the same number of employees but reduces every employee’s wages by 40%, then the employer’s loan forgiveness will be reduced by 15% percent (40% - 25%). By way of example, if an employer reduces wages for 5 employees from $40,000 to $25,000, the loan forgiveness is reduced by $5,000 ($15,000 – ($40,000 * 25%)) for each employee totaling a $25,000 reduction in forgiveness (5 employees * $5,000).

Safe Harbor Provisions

The Treasury Department recently issued guidance stating that an employer may be exempt from the reduction in loan forgiveness based on FTE employee count if: 1. the employer reduced employee levels in the period between February 15, 2020 and April 26, 2020, and

In addition, if the employer restores its employees’ wages to an amount equal to or greater than the wage level that existed during the chosen reference period by June 30, 2020, then the employer will also meet the Salary/Hourly Wage Reduction Safe Harbor provision and is thereby exempt from a reduction in loan forgiveness. Importantly, this calculation is only necessary if the employer reduced its employees’ wages by more than 25%.

What documents do I need to submit to qualify for forgiveness?

Once the Covered Period has ended, an employer is required to apply and submit documentation to its lender verifying the number of full-time equivalent employees with their corresponding pay rates including payroll tax filings to the IRS and state income, payroll, and unemployment insurance filings. In addition, documentation of cancelled checks, payment receipts, or any other documents verifying payments on debt obligations, rent payments, and/or utility bills will be required. Lastly, the employer is required to submit a certification that the documentation is true and correct and that the amount of the loan seeking forgiveness was used specifically for the four noted categories above. The Treasury Department has provided a loan forgiveness application that borrowers much complete as part of the forgiveness process and that provides additional details as to what must be submitted. Borrowers should discuss these requirements in detail with their lenders before applying for forgiveness to ensure that the documentation is in order.

If you have questions about the loan forgiveness provisions of the PPP, please contact employment law attorneys Chase Samples (chase.samples@ jacksonlewis.com) or John Connell (john.connell@ jacksonlewis.com) at Jackson Lewis, P.C.

Reduction in Wages Example

loan amount - # of employees x (reduction - (wages x 0.25))

$100,000 - 5 employees x ($15,000 - ($40,000 x 0.25)) Amount forgiven = $75,000 | Amount to be repaid = $25,000

Rehire # of FTE Employee Example

$100,000 x

35 FTE employees during covered period

50 FTE employees between May 1, 2019 and June 30, 2019 (or chosen 12-week period)

$100,000 x

50 FTE rehired by June 30 ,2020

50 FTE employees between May 1, 2019 and June 30, 2019 ( or chosen 12-week period)

Employer rehires an additional 15 FTE employees by June 30, 2020, then the employer's loan forgiveness is not reduced.

Amount forgiven = $100,000

The word unprecedented has been used consistently to describe the current environment and while that is certainly truefor those in the foodservice industry you can also add heartbreaking, tumultuous and life changing. You’ve had to change the way you run your business and make exceedingly difficult decision in order to weather this storm. All while doing your best to keep yourself, your families, your communities and your employees safe and healthy. We, too, have had to make modifications to how we do business. Modifications that ensure our associates are safe and that we’re able to deliver the food and support our customers and communities need most. Now more than ever, we stand behind our promise to help you “Make It.” Helping the industry-and each of you-return to full strength is a high priority. We will get through this, and we are here to help.

Whether you intend to immediately reopen your business as it was before, expand carryout and delivery or add retail items to your offerings – we’ve created a simple, thorough planning process. We recommend starting your plan early prior to re-opening or expansion to dine in. Together, we’ll consider your product and service offerings, menu modifications, communication plan and US Foods delivery options. We’ll also continue to support you and your business as it evolves and grows.

We look forward to helping you make it as we embark on this journey together!

RELAUNCH CHECKLIST

Your US Foods Sales Team will work with you on a detailed relaunch process for your specific opening or expansion needs, including:

MO RE WAYS WE HELP YOU MAKE IT!

Aligning your initial order to the current available assortment of products on hand (realize the assortment options will improve weekly as the Supply Chain begins to stabilize).

Connecting with you on variability in our delivery schedule as the marketplace expands. We will work with you and communicate any potential changes through re-opening phases.

Prioritizing safety by identifying contactless opportunities including key drops for deliveries, online and mobile ordering, and online bill pay.

From order entry to product recommendations, easy invoice payment, inventory management and menu costing – our e-commerce platform is best-inclass. It’s a great way to conduct business together. Your US Foods Sales Team is available to answer any questions.

Reviewing current inventory levels you have on hand in your business and work with you to create a mock order early in the process. This extra time will help us meet your product needs throughout your reopening.

We’ve created several informative webinars covering a range of topics like calculating cash flow, reopening your business, staying connected through social media and more. Visit our resource page at usfoods.com to discover them all.

UnitedHealth Group is offering health and wellness resources to support the physical and mental well-being of hospitality employers and employees to successfully navigate COVID-19 and safely reopen.

In addition to UnitedHealthcare’s ongoing offering for employer sponsored health insurance with members-only discounts on medical and specialty benefits and a small business Association Health Plan, UnitedHealth Group provides the following resources for all employees. The following solutions are available to any and all employees regardless of number of hours worked: furloughed, parttime, full-time and seasonal. No health insurance or participation requirements.

Teladoc Telemedicine

Unlimited, $0 copay medical and mental health virtual visits to Association members for $7 per employee, per month and includes the entire family. Includes a Covid-19 self-assessment questionnaire that guides members through simple ‘yes/no’ questions about symptoms and provides recommendations consistent with CDC guidance.

Visit go.teladochealth.com/ implementation/forms/hospitality_ setup_form

LetsGetChecked At Home Lab Testing

At home COVID-19 and Antibody tests expected to be available in June for purchase by employers. For other lab testing LetsGetChecked at home testing removes barriers and keeps employees out of crowded offices and labs with a 25% member discount.

Visit restauranthealthcare.org/ products/labtests.aspx

Kaia Health Virtual Program for Back Pain

Individuals in the hospitality sector can obtain a free license to Kaia's back pain solution through July 1, 2020. Access personalized back pain therapy using your own phone.

*Limited to 1,000 free licenses

Visit forms.gle/pcqiZAStnMABdncw5 to reserve your spot.

OptumPerks Free Prescription Drug Savings Program

Help your employees stay healthy and save up to 80% on most prescription drugs at over 64,000 pharmacies nationwide with their free OptumPerks discount card. Searchable database finds the best discounts and most convenient pharmacies with no membership and no fees.

Visit perks.optum.com/hospitalityrx

Active Minds

PatientsLikeMe Sanvello

PsychHub

Active Minds – Resources to stay mentally healthy during this crisis time. Access a free resources hub for help during the COVID-19 pandemic including stress management, community building from a distance, tips for remote workers. Access general resources now. Hospitality specific resources will be available in July 2020.

Sanvello – #1 rated app for stress, anxiety and depression. Hospitality specific landing page & resources are available now. Visit sanvello.com/hospitality/ to access premium features for free during the COVID-19 crisis. Includes guided meditation, learning modules, community discussion and daily tips.

PatientsLikeMe – The world's largest personalized health network helps people find new treatments, connect with others and take action to improve their outcomes. Access a community for anyone concerned about symptoms and/or diagnosed with COVID-19, as well as anyone suffering from anxiety and depression, to come together and discuss coping mechanisms and support. The hospitality specific landing page and resources can be found at patientslikeme.com/join/hospitality.

PsychHub – The most comprehensive online learning platform on mental health, substance use, and suicide prevention topics in the world.

Optum Substance Use Disorder Helpline – In crisis? Call 1-855-780- 5955 or visit liveandworkwell.com/recovery for immediate help anytime from anywhere.

Optum Emotional Support Helpline – Need a little support? Call 1-866- 342-6892 for help anytime from anywhere.

Crisis Text Line – In crisis? Text HELLO to 741741 for immediate help anytime from anywhere.

Ben’s Friends – Hospitality-focused substance abuse support network. Join a safe environment with others who understand the unique challenges experienced by people on the front lines in restaurants, hotels, and other hospitality industries. Visit bensfriendshope.com to find a meeting near you or access telephonic meetings.