Q.- We had a part-time employee who did not work for a few months because we were closed due to COVID restrictions. We received a Paycheck Protection loan and paid the employee even though he didn’t work. Do we count the “hours” that he was paid for ACA purposes?
A.- Most likely yes, but you should consult with your tax advisor. The IRS’ definition of “hour of service” for ACA purposes is-
- Each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer, and
- Each hour for which an employee is paid or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.
The IRS’ definition of hour of service does take into account payment from an employer when an employee is not actively working which would encompass salary paid with PPP loan proceeds. However, we suggest discussing with your tax advisor because the use/treatment of the loan proceeds and the designation of the employee as working or not working might impact the potential forgiveness of the loan.
