PPP Forgiveness

Guidance has finally been issued from the Small Business Administration (“SBA”) regarding the forgiveness application of your PPP loan along with the actual application.

The major points of information and clarification are below:

Amount Eligible for Forgiveness

Total amount used on “eligible” expenses in the 8-week period beginning when the loan is received. Expenses in the “eligible” categories (defined as payroll, employee benefits, state payroll taxes, rent or lease, mortgage interest and utilities) are allowed to be considered for forgiveness if they were paid during the 8-week period or if they were incurred during the 8-week period and paid by the next regular payment date directly after the close of the 8-week period. Meaning, if your 8 weeks expires on June 30, but payroll is paid on July 1, it would count towards the 8-week deadline. The SBA has also offered clarification that the term 'utilities' applies to electricity, gas, water, telephone and internet access.

Payroll wages will be capped at $15,385 (100,000 / 52 weeks x 8 weeks) per employee. This will be the same limitation for each owner of a company or an otherwise self-employed person. A self-employed individual will be capped based on their 2019 self-employment income first if that was less than $100,000.

Reduction of Amount Forgiven

Once you've been able to total all eligible expenses for your 8-week period, this amount may be further reduced if the number of Full-Time Equivalent (FTE) Employees has decreased, or if individual employee income was reduced by more than 25%. In addition, 75% of the total spent and eligible for forgiveness must be spent on payroll costs. If that ratio was not satisfied, the amount of non-payroll costs eligible for forgiveness will be reduced until the ratio is proportionate.

Full-Time Equivalent Reduction

FTEs can be calculated by dividing actual hours worked per week by 40 and rounding to the nearest tenth (with a maximum of 1), or any employee working 40 hours or more can be counted as 1 and any employee working less than that can be counted as ½ regardless of hours worked.

If the number of FTEs during the 8-week period were less than the number of FTEs during either February 15, 2019 – June 30, 2019 or January 1, 2020 – February 29, 2020, then the loan amount eligible for forgiveness will need to be reduced in the same ratio.

Alternatively, a “Safe Harbor” was created to exempt the FTE calculation above. For those that eliminated staff between 2/15/20 and 4/26/20 but restored the FTE count as of 6/30/20 to the same level as the payroll period including 2/15/20 will not be limited.

Salary Reduction

If the pay of an individual employee was reduced by more than 25% from the first quarter of 2020, then the reduction in excess of 25% will be deducted from the amount of your loan eligible for forgiveness. This reduction includes both salaried and hourly employees. Therefore, even if an hourly wage is the same if total hours worked were reduced by more than 25% for any one employee, there would still be a limitation on your loan forgiveness.

Documentation Required

With your forgiveness application, a number of documents will need to be provided to your loan servicer. Including payroll reports (or bank statements) documenting cash compensation paid to employees, payment receipts or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that are included in the forgiveness calculation, documentation showing average FTE employees on payroll per month for the comparison period selected, documentation verifying the existence of non-payroll obligations (specifically rent, utilities, mortgage interest) prior to February 15, 2020 such as lease agreement or utility invoices.

Additional documentation should be kept on file but will not need to be submitted at the same time as your application for forgiveness. These should support the individual employee listings in your calculations, including that each listed employee's single pay period figures did not exceed the annualized amount of $100,000 (or are already limited appropriately). Also keep support on file to document the FTE safe-harbor calculation, if applicable and any paperwork to prove any jobs were re-offered to employees who refused them. Any other job offers, refusals, for-cause firings, voluntary resignations, and written requests by any employee for reductions in work schedule must also be kept on file.

All documentation should be kept for a minimum of six years following the date your loan is forgiven, or the date the balance is paid off whichever is later.

If you are concerned about the calculation and/or planning for forgiveness or repayment, feel free to contact our office. We're very familiar with the available information and are happy to help!