Answering the Most-Frequently Asked Questions about the Payroll Protection Program

To kick off the most recent in a series of “Staying Strong” webinars presented by SALON TODAY in partnership with the International Salon and Spa Business Network (ISBN) and sponsored by Viviscal PRO and XFusion, April McDaniel of Kopsa Otte CPAs & Advisors gave an update and overview of the recently enacted CARES (Coronavirus, Aid, Recovery and Economic Security) Act.

Engaged viewers posted hundreds of real-time questions during the interactive forum. Attendees sought ideas from peers and input from industry leaders, including representatives from SALON TODAY 200 salons and ISBN board members.

Most of the nearly 200 questions posted from the more than 800 attendees during the live broadcast were seeking clarity about best options for them and their employees. Here’s a cross-section of real-time questions related to McDaniel’s segment and her follow-up responses, which she prefaces with this important disclaimer from Kopsa Otte:

 “Because every situation is different, it is important that individuals seeking specific advice contact a professional advisor. The information provided does not constitute legal, tax accounting or financial advice, and is offered as an information service only. No liability whatsoever is assumed in connection with the use of this information.”

Q. "Other than the Paycheck Protection Program (PPP) and the Small Business Association Economic Injury Disaster Loan (EIDL), what other options for financial relief are available today to stylists and salon owners?”

McDaniel:  “In most states unemployment benefit qualifications have been relaxed greatly. Business operators may also consider the employee retention credit, payroll credits for family/sick leave and payroll tax deferral program. It’s important that you talk to your tax professional about these programs as it’s not a one size fits all and you can’t do them all.  You do have to pick and choose.”

Q. "True or false? In order for my PPP loan to be forgiven, I have to pay all my employees throughout the entire time we are shut down,  and they cannot collect unemployment.”

McDaniel: “If you are paying your people then it would make sense that they can’t collect unemployment – right?  That seems fair. The PPP loan requires that in the 8 weeks following the date on the loan you spend 75% of the funds on payroll, in order for the loan to be forgiven. Please talk to your banker about this loan, as guidance and clarification continues to come almost daily.”

Q. Are the EIDL loans forgivable?

McDaniel: “No.  The $10,000 grant piece is designed to be forgiven, but there are some stipulations if you get the PPP loan.  Please talk to your tax accountant and banker.”

Q. “If a salon owner takes the PPP loan, do all the staff have to accept it, or can some choose unemployment if it seems like a longer, safer bet to them?

McDaniel:  “As the owner, you  have to decide which is right for your business. Whether an employee returns or not after you have offered them their position back could impact the forgiveness of the loan.  Check with your State Unemployment office on what rights you have as an employer. Also, this is a time where we need to be mindful of each employees’ specific situation.  Communication is very key. Please seek guidance from a labor law attorney.

Q. "Under PPP, what is the owner’s responsibility to salaried, hourly or part-time employees (i.e. assistants, front desk, managers)?"

McDaniel: “This is a complicated question and answer. It’s really important that you talk to your accountant and banker to help you with this. It appears there is a look-back period whereby the wages paid to employees during the eight weeks following the loan date are compared. There is a threshold that you must hit for wages and number of FTE’s employed.”

Q. "If employees are stylists on commission, how do you estimate what you are required to pay them during the shutdown under PPP to ensure it is forgiven?"

McDaniel: “I haven’t seen a calculation for this, however we at Kopsa Otte are working through similar situations for many clients. We think we might have nailed it down, but it’s tricky. Your accountant/banker is likely trying to do the same, so I suggest you ask them. It’s a great question.”

Q. There is a lot of talk about how the PPP loan can help salon owners, but how does PPP help stylists if it’s only an 8-week solution and unemployment benefits are 10 weeks or more? If the salon takes the loan, do stylists have to go back to work, or can they stay on unemployment?

McDaniel: To qualify for forgiveness of the loan there are requirements.  Ask your banker, my understanding is you will have to pass a test that shows you have the same number of full-time employees (FTEs) and that their wages are not cut or reduced by 25% or more in order to have it forgiven. You have to weigh what is best for your business and your people as to whether to choose the PPP or to have them continue on unemployment.

Q.  “Is it a good idea to go for the PPP, and are FICA and FWH (federal withholding) forgiven? Would EIDL be a better option?"

McDaniel: "Both FICA and FWH are part of gross wages which are included in the calculation – therefore they are forgiven based on what the SBA documents are currently saying. Both are good options – but if you qualify for the PPP loan, it’s free money if  you fulfill the requirements. The EIDL is a great option if you have a lot of expenses outside of payroll to cover.”

Q. "I understand the $10,000 advance portion of EIDL is a grant that doesn’t need to be repaid, but will we owe taxes on the EIDL in 2021?"

McDaniel: “Confirm with your banker and tax accountant, but it would seem that the $10,000 grant would not be taxable income, but you also can’t deduct the expense that you pay with the money.”

Q. "Is it true that existing SBA loans will have payment deferrals?"

McDaniel:  “Per the SBA, the SBA will pay 6 months of principal, interest and fees on a Section 7(a) loan OTHER THAN a Paycheck Protection Loan.”

Q. "Should payements that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower's payroll costs?"

McDaniel: "No Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business's payroll costs. However, an independent contractor or sole proprieter will itself be eligble for a loan under the PPP, if it satifies the applicable requirements."

Q. The amount of forgiveness of a PPP loan depends on the borrower's payroll costs over an eight-week period, but when does that eight-week period begin?

McDaniel: "The eight-week period begins on the cate the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval."

More on the Salon Today/ISBN Webinar Series:  Complete recordings and visual presentations from webinars presented by Salon Today and ISBN are archived at salontoday.com/webinars. To access more examples, templates and checklists that are updated and added to on a continuing basis, visit Salon Today’s “Salon Share” online portal of downloadable “Documents to Help You Through COVID-19” at salontoday.com, and the ISBN’s “Resources for the COVID-19 Financial Crisis” at salonspanetwork.org.

• The first webinar aired March 18, right as the rolling shutdowns were happening, and featured Laura Ortmann of Ginger Bay salons, Emily Brown of V’s Barbershop, Scott Missad of Gene Juarez Salons and Spas, Rhoda Olsen of Great Clips, Debra Penzone of PENZONE Salons + Spas and Tamara Shealey of Politics Beauty and Barber. Click here to listen to this webinar.
• The April 6 broadcast focused on business survival and what to do while waiting for salons to reopen: strategies for managing cash flow, accessing CARES Act relief, and thinking ahead to what the salon industry can do know to secure much-needed tip tax relief that could soon provide immediate (and retroactive) game-changing financial benefits. Panelists were Jordan Becker of Interlocks, CPA April McDaniel of Kopsa Otte, Edward Logan of Sport Clips and Frank Zona of Zona Professional. Click here to listen to this webinar.   

Important disclaimer: While navigating response to COVID-19 and related business decisions, is critically important that every small business owner or leader consult with their company’s own personal financial, legal, HR and business advisors, consultants or coaches to assess the best options and actions for their individual, particular situation. All thoughts shared here are general dialogue on the overall professional beauty industry and cannot be considered legal, business or financial advice, but as a resource to help shape your own discussions with your advisors.