PPP Loan Forgiveness: Using PPP reporting from the Payroll Companies

August 10, 2020
Written by Jessica M. Dorsett, CPA

Most businesses use a third-party payroll company to process payroll (which we recommend… payroll taxes can get tricky). I have become familiar with the PPP loan forgiveness reports being generated by ADP and Paychex and have compared them with our templates. Please note, we have not reviewed any other payroll company’s reports.

Here are my observations.

  1. Generally speaking, they are very well put together
  2. Entirely dependent on complete and accurate input of all necessary data. If you don’t enter certain information that is necessary for these reports, you’ll end up with errors.
  3. It is critical that the reports be closely reviewed for accuracy and reasonableness. Do not assume they are correct.
    1. FTE calculations
      1. If no hours are input, such as salaried employees, then they assume a full-time employee.
      2. If a full-time employee (defined as 40hrs per week) is short just 1 hour, you will get a less than 1.0 FTE result. If using the simplified method, then this could be a significant difference.
      3. The reports we reviewed counted the owner employees – which are NOT included in the FTE analysis for the forgiveness application. Thus, you must make the necessary adjustments.
      4. Double check employees (In one case, I noticed a 2019 terminated employee was counted in 2020).
    2.  Date ranges
      1. Depending on the system, make sure you are getting the correct wages for the date range selected. Recent SBA guidance tells us that wages incurred before the covered period, but paid during the covered period, can be included. You may have to “play” with it, to get the expected results.
    3.  Recalculate the potential compensation reduction (if any) – If using a period between 8 – 24 weeks, the report will do the calculation assuming a 24-week period has been accounted for in the covered period compensation, potentially resulting in a reduction (which is not accurate).
  4.  Does it pass the sniff test?
    1. Are full time employees calculating at a less than 1.0 FTE?
    2. Are the reports calculating compensation reductions when there were no pay cuts?

    If it doesn’t make sense, look into it. It might be right for good reason, or it could be incorrect because of an error in the data or the date range.

  5.  Perform a quality control review before using – select a few employees to “test” the details and make sure it’s accurate.
  6. You (business owner) are still responsible for the data and accuracy of the loan forgiveness application. The payroll company will not take any responsibility for errors in the reports (see #2 above).

While I do think ADP and Paychex reports are useful, proceed with caution and don’t assume they are 100% accurate. If you look at the footnotes on their reports, you will see they are essentially warning their clients. Adjustments may be necessary.

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