PPP Forgiveness and Tips - what is the theory behind this?

[BulldogTom]

At my day job, our employees receive tips.  When I put together a draft of our PPP Loan Forgiveness Application, I excluded the cash tips reported by the employees, under the theory that the company did not pay those tips to the employees.   I sent my work over to our outside CPA firm and they questioned my calculations.   They sent me some material from Spidell (who I have the greatest respect for) showing that cash tips should be included in the amount of payroll to include on the forgiveness application.   I am not questioning the CPA or Spidell, I am just trying to wrap my head around why an amount that was not paid by the employer, but by the customers, would be allowed in the calculation for forgiveness?   

Thanks for all responses.

Tom
Modesto, CA

[Gail in Virginia]

I understand your reasoning, Tom.  But the point of the PPP loan was to continue payments to employees so they did not wind up getting the enhanced unemployment benefit.  Therefore, the tips were part of what they were getting and counted towards their earnings, and towards the loan forgiveness for their employers.  At least, that would be how I would justify it.  Congress may have reasoned differently. 

 

[JohnH]

I agree with Gail.  If the PPP were simply a loan to the employer, there would be no basis for including employee tips.  But the overarching purpose of the PPP (combined with the anticipated loan forgiveness), was an attempt to make employees whole without being too financially burdensome on the employer. And of course to keep them off the unemployment rolls, which somewhat reduced the total unemployment numbers and tried to avoid "windfall" claims.  Although I'm not sure that last part was achieved. 

[Gail in Virginia]

One error in what I said - I should not have used Congress and reasoned in the same sentence.

[Lee B]

The only thing I can add is that tips one way or the other were not mentioned in the 3 or 4 online CPE classes that I took.

[BulldogTom]

Here is what the CPA sent me.   Second bullet under "Payroll Costs".   I hope this does not violate any copywrite laws by putting this on here.

Tom
Modesto, CA0463_001.pdf

[Lee B]

2 hours ago, cbslee said:

The only thing I can add is that tips one way or the other were not mentioned in the 3 or 4 online CPE classes that I took.

I quickly reviewed the course materials from my second online class and "Gross Tips" are allowable as wages!

[JohnH]

So an interesting question arises. Were the tips included in the wages figure used to calculate the original PPP loan request?

[BulldogTom]

On 11/13/2020 at 4:29 PM, JohnH said:

So an interesting question arises. Were the tips included in the wages figure used to calculate the original PPP loan request?

Nope.

Tom
Modesto, CA

[JohnH]

Another one of those issues that arose from unclear and confusing info from SBA at the outset, leaving both applicants and (in some cases) lenders in the dark.  I've encountered a few others. 

[DANRVAN]

Tips are part of payroll cost as defined by CARES ACT section 1102(a)(1)(I)(aa)(BB).