In 2021, Paycheck Protection Program loan recipients were hit with two pieces of important news:
On paper, PPP loan forgiveness seems simple enough:
“Other eligible expenses” in the Paycheck Protection Program include electricity, water, gas, transportation, and telephone or internet—costs directly necessary to operate the business.
For many businesses, PPP was a valuable lifetime. Lots of small and mid-sized companies spent 100% of their PPP proceeds on payroll, maintaining their team in an uncertain time.
It may seem proving the use of PPP funds for compensation should be an open and shut case. But some leaders find their PPP spending has been misclassified—potentially requiring them to repay 100%.
If you have not applied for PPP loan forgiveness yet, there may still be time to undo the PPP loan mistakes causing chaos on many balance sheets. There are two issues to watch out for:
In practical terms, that means two things:
Once a company adopts a 401(k) plan, retirement plan contributions are mandatory, regardless of how salaries are funded. Auditors often find definition of compensation issues as the root cause.
This concern is not limited to PPP. Any time a new pay code is entered into your system, it is crucial to make sure it is set up with appropriate withholding levels.
That’s easy to overlook when there are two paychecks in a cycle or an employee receives a manual bonus. Luckily, these problems are easily corrected. A pervasive pattern of withholding failures with PPP loans may not be.
If you received $2 million or more in PPP proceeds, it is especially vital that you verify how every penny of your funding was used—don’t wait for the Small Business Administration to do it for you!
But even smaller PPP recipients should double-check their figures.
Misclassification of compensation can often be resolved by amending filings and performing required withholding. The sooner oversights are addressed, the faster and less expensive they are to fix.
Contact Cassell Plan Audits at 630.886.7669 to learn more or schedule your virtual appointment.