This is super important to read and understand how changing the bank account normally used for payroll to a new bank account that was opened to solely hold your PPP funds is going to produce unwanted results.
We have found that a large number of companies, over the past few weeks, have requested to change the bank account in which their payroll is drawn. Upon questioning, it is discovered that the change is the result of the business owner receiving their Paycheck Protection Program (PPP) loan proceeds into a brand new separate bank account and wanting their payroll to be drawn from those funds. I suppose it makes sense on the surface. The intent is to only have approved costs deducted from those funds, and you may think that anything the payroll service deals with is a payroll cost. Wrong! This practice is NOT suggested, and is going to produce unwanted results and overspending of the loan proceeds on ineligible costs. It will surely lead to less than 100% forgiveness on the loan.
If you have recently asked your payroll service to change the account your payroll is drawn from to your PPP loan proceeds account, contact them TODAY to change it back. The reason being is what I will refer to as the proverbial apples and oranges, plus we can throw in some lemons.
First off, allowed and forgivable ‘payroll costs’, per the SBA, are based on GROSS wages. What comes out of your bank account is NET pay. Hence, the apples and oranges. To keep this article brief, I will not go into a lesson on Gross to Net, but if you pay Johnny $1000 gross, he is likely to get a net check that is much lower, say $800, and you are allowed the full $1000 as ‘payroll costs’ per the PPP. Plus, if you pay reimbursements, FFCRA wages or wages to highly compensated employees (to name a few items), those amounts are, in essence, being debited from your account, and you have additional unallowed expenses coming from your PPP funds.
Second is what I referred to as the lemons. When a payroll service processes your payroll, there are typically a few debits from your bank account. You have your net pay, which we already covered and being a much smaller amount than allowed towards allowed ‘payroll costs,’ but then there is also the debit for the total tax liability. This debit is not an allowed ‘payroll cost.’ The tax debit includes employee taxes withheld, in addition to all of the employer taxes such as Employer FICA, federal unemployment and state unemployment tax. There is a very small piece of that debit from the payroll service that is an allowed ‘payroll cost,’ which is the employer tax paid to a state or local government agency, namely the state unemployment tax. At this time of the year, taking into consideration that states have wage limits on unemployment taxes, we find that many companies have close to zero for unemployment taxes.
What I suggest is if you want to maintain a separate bank account to track your PPP funds, that you leave the bank account with your payroll service as the account you have always used. When you run a payroll, determine the amount of allowed ‘payroll costs,’ such as the allowed amount of your gross pay plus the state unemployment tax, then transfer that amount from your PPP fund account to your payroll account. Your payroll register will serve as your backup to that spending. This way you can ensure that only forgivable expenses come out of your PPP funds account.
