SBA released PPP loan forgiveness application
On Friday, May 15th, SBA released the Paycheck Protection Program (PPP) Loan Forgiveness Application and detailed instructions for the application. According to SBA’s press release, they will also “soon issue regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.”
We’ve summarized below key information that was released. Please contact us to discuss these in more detail and how they apply to your specific situation.
Forgiveness Reduction – The PPP loan amount eligible for forgiveness may be reduced if you had a reduction in full-time equivalent employees, and/or if employees making less than $100,000 had a salary/hourly wage reduction, and/or if you didn’t spend 75% of PPP loan on payroll costs. The application gives specific instructions on these calculations.
Owner Employees, Partners and Self-Employed individuals – The dollar amount for which forgiveness is requested “is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower. ” This effectively means that you cannot increase your 2020 compensation in order to maximize the forgiveness amount.
Alternative Payroll Covered Period – The SBA includes an option for borrowers that have biweekly (or more frequent) payroll schedules to use an Alternative Payroll Covered Period for payroll costs. For example, if you received the PPP loan proceeds on Monday, April 20, and the first day of your first pay period following the PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.
Eligible Payroll Costs – “Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).” The cash compensation limit of $15,385 per employee continues to apply.
FTE Reduction Safe Harbor – If the borrower reduced FTE levels between February 15 & April 26, 2020 and then restored them by June 30, 2020, the borrower is exempt from FTE based loan forgiveness reductions. Further, if the borrower had no reduction in FTE levels from January 1, 2020 and the end of the Covered Period, the borrower is also considered to meet the safe harbor for FTE computation purposes.
Average Full-Time Equivalency (FTE) Calculation – FTE are to be calculated using a 40 hour week as the base. “For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0” You can also elect to use “a ‘simplified’ method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower”
FTE Reduction Exceptions – Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness: “1) any positions for which the Borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and (2) any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours.”