Creating a Clear, Obvious, Audit Trail

New I-9 Forms for 2020
March 2, 2020
Payroll Protection Program, Have You Applied Yet
April 15, 2020
New I-9 Forms for 2020
March 2, 2020
Payroll Protection Program, Have You Applied Yet
April 15, 2020
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Creating a Clear, Obvious, Audit Trail

Payroll Protection Program (PPP) & Families First Coronavirus Response Act

Creating A Clear, Obvious, Audit Trail

If your company will be using funds rolled out in the CARES Act, either the Families First Coronavirus Response Act (FFCRA) or the Payroll Protection Program (PPP) we have suggestions on how to create a clear, obvious audit trail.

Managing Payroll Protection Program Funds

  1. Set up a separate bank account for PPP Loan Funds
    1. Transfer funds from this account to pay payroll for the 8-week period immediately after receiving the loan proceeds. Pay the exact amount of cash needed to fund the payroll run, with one caveat: be conservative.  Remember that annual compensation over $100k to an individual employee, as well as the employer portion of Social Security and Medicare taxes were not allowed in the loan calculation.
  2. Transfer funds to your general operating account to pay health insurance premiums covered by company, mortgage/rent and utilities until funds are depleted. Transfer the exact amount needed to pay those specific expenses.
  3. Set up a Forgiveness File to document that funds were spent appropriately. Examples are:
    1. Copy of payroll journal that was funded by the PPP Loan transfer.
    2. Invoice for health insurance premium portion paid by the company during the eligible period. This should also be documented on the payroll journal as paid for the benefit of the employee.
  • Invoice for rent and utilities paid from these funds during the eligible period. Note:  Not more than 25% of the forgiven amount may be for non-payroll costs.

How to Record in Your Company Books & Records

  1. To record the initial funding in your books, make this General Journal Entry:
    1. Debit PPP Cash Account for 100% of the PPP Funds given to you.
    2. Credit PPP Loan Payable, New.
  1. Some people may want to track the amount of the loan that isn’t yet eligible for forgiveness. If so, every time you make a transfer to pay payroll, health insurance, mortgage/rent or utilities, make this General Journal Entry (but keep in mind that only 25% of forgiveness can be for non-payroll costs):
    1. Debit PPP Loan Payable for the amount of the transfer.
    2. Credit Expense that was paid (i.e. payroll, health insurance, rent, etc. during the applicable

Important Note If You Want Loan Forgiven

You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. It is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. You will also owe money if you do not maintain your staff and payroll.  Keep the following guidelines in mind as you anticipate forgiveness of the loan:

  • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Families First Coronavirus Response Act Documentation

This law was designed to help companies keep workers employed, even when they are sick or needing to care for a child due to school closures by granting 80 hours of sick leave and expanded FMLA leave.  Attached is information sent out to our clients on April 1 summarizing this law.  Documentation we recommend includes:

  1. Establish the following four (4) time keeping codes that match with your payroll companies (if applicable). The examples below are ones that MCC will be using.
    1. Sick EE – Employee is sick with COVID-19
    2. Sick Fam – Employee is caring for family member sick with COVID-19
    3. Emerg Childcare (2/3 rate) – Time paid at 2/3 rate when caring for child under 18 whose school or childcare facility has closed due to COVID-19
    4. Payroll Protection – to record hours used to maintain employee’s hours per normal payroll. (This relates to PPP documentation noted above).
  1. Have employee provide either
    1. Sick Leave – FMLA Medical Certification Form
    2. Childcare – Notice provided by the school or day care or published in the newspaper.

Using PPP Funds and FFCRA Credits

At this point, there is little guidance on how companies should utilize both the Payroll Protection Program Funds and the Sick Leave Credits.  We do know that you may not double dip and use both for the same employee payroll.  Our recommendation is that you keep it very clean and document which funds are used to pay which payroll expense.

If you find a need to use both, contact us prior to running payroll and we’ll do our best to find the latest guidance to keep