The CARES Act, which was signed into law on March 27th, 2020, provides for Small Business Loans called the Paycheck Protection Program. These loans, later supplemented by the Paycheck Protection Program and Healthcare Enhancement Act, provide for up to $10M in forgivable loans to small businesses.
Paycheck Protection Loans (PPL):
In order to apply for loan forgiveness of the PPL, at least 75% of the PPL proceeds must be used for payroll costs. Payroll costs consist of: employee compensation, paid leave, severance payments, payment of group health benefits, retirement benefits, paid sick leave, paid vacation leave and state and local taxes. The additional 25% must be used for other business related obligations, such as: rent, mortgage, and utilities. The forgiveness amount maximum (capped at principal amount of loan plus any accrued interest) is the sum of the following incurred and paid within 8 weeks of your loan origination:
- Payroll costs;
- Interest on mortgage obligations incurred before February 15, 2020;
- Rent obligations in place since before February 15, 2020; and
- Utility payments for services that began before February 15, 2020.
Any dollars spent on the above after 8 weeks from loan origination will not be included in the forgiveness amount.
Every lending institution will have their own documentation requirements. Borrowers should check with their bank to ensure that they are gathering the appropriate data. Typically, however, borrowers will want to see:
- Verification of full-time equivalent employees on payroll and their pay rates;
- Covered costs/payments (i.e. canceled checks, receipts, or other documents verifying mortgage, rent and utility payments); and
- Certification from an authorized business representative that documentation is true and correct.
The CARES Act, nor any additional guidance released, does not address how a self-funded employer would calculate healthcare premiums during the 8 week loan forgiveness period. Fully-insured groups would use their monthly premium rates. Diversified Group’s Response: Best practice would be to use the most recent COBRA rates for the self-funded plan multiplied by the enrolled census for the 8 week loan forgiveness period, however, employers should check with their lending institution.
Using Self-Funded COBRA Premium:
- Employers should use the current COBRA premium (less the 2% administrative fee) in force during the 8 week loan forgiveness time period. If the plan renews during this time period, the newly renewed COBRA rates can be applied for the applicable time period;
- Excluding employee contributions: Since there has been no direct guidance on this issue, there is conflicting information on whether an employer should deduct employee contributions during this 8 week time period when the contributions are taken on a pre-tax basis. Diversified Group’s Response: Each lending institution will have a different level of proof/documentation. We suggest that when applying for loan forgiveness, check with your lending institution for clearer guidance. If none is available, employers should be prepared to submit healthcare costs both with and without employee contributions. Employers will want to put their payroll vendor on notice that you will need a report of employee contributions during your specific 8 week loan forgiveness period in case your loan institution requires healthcare costs to be submitted without the employee’s portion;
- Obtaining COBRA premium rates: – Diversified Group’s Response: If Diversified Group handles your group COBRA, we can provide you with the full COBRA rate less the 2% administrative fee for each self-funded plan: Medical, Dental, Vision, HRA; Although guidance is not available, there is some belief that any contribution an employer makes to an HSA on behalf of its employees would count toward overall healthcare costs. Again, check with your specific lending institution;
- Certifying COBRA premium amounts: – Diversified Group’s Response: Although there is no guidance that requires a TPA to certify whether the COBRA rates are the actuarial value of the health plan, each lender may have their own process for substantiating information like this. If your lending institution requires certification of COBRA rates from your TPA, Diversified will supply you with a certification notice, if we administer COBRA and set your rates on your behalf.
Please feel free to reach out to Diversified Group’s Compliance team with any questions:
Dave Follansbee, VP of Operations and Compliance
firstname.lastname@example.org or (860) 295-6531
Laura Williams, Business Development and Compliance Consultant
email@example.com or (860) 612-8644