Important Updates Regarding PPP Loan Forgiveness

Last Friday, the Small Business Administration (SBA) released guidelines for PPP Loan Forgiveness which entails critical information in facilitating the proper calculation. 

Here’s What to Consider

Covered Period

  • The 8-week period in which the funds are to be used begins on the date of funding
  • There is a provision to allow for an Alternative Covered Period for Payroll to reduce the administrative burden of calculating the payroll to be forgiven. 
  • If you have a biweekly (or more frequent) pay schedule, you are allowed to shift the start of the 8 weeks to the first day of the first pay period following the PPP loan disbursement (We will discuss with you the best option for your particular circumstances)

Eligible Payroll Costs

  • Payroll must be incurred to be forgiven – that means no prepayments will be forgiven
  • Payroll costs are considered incurred on the day that the employee’s pay is earned 
  • Payroll costs are considered paid on the day that paychecks are distributed, or the Borrower originates an ACH credit transaction 
  • 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 
  • For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period which is $15,385.

NOTE: Additionally, on the Certification there is a requirement that the amount forgiven does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual. 

Eligible Non-Payroll Costs 

  • Covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020
  • Covered rent obligations: business rent or lease payments according to lease agreements for real or personal property in force before February 15, 2020
  • Covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020
  • An eligible non-payroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. 
  • Eligible non-payroll costs cannot exceed 25% of the total forgiveness amount.

There are 2 ways the amount forgiven can be reduced for eligible payroll-related costs:

1) Average Full-time Equivalent (FTE) Headcount Reduction 

This is calculated as a percentage of the actual FTE reduction, however, there is a Safe Harbor Provision that eliminates this reduction if the following 2 conditions are met:

  • the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and 
  • the Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.

There is also an FTE Reduction Exception in which if any of the following applies then the loss of the FTE does not reduce the forgiveness if the position was not filled by a new employee:

  • If you 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
  • 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.

Additionally, the reference period for the calculation of the FTE reduction can be chosen by the borrower to be either 1) February 15, 2019, to June 30, 2019, or 2) January 1, 2020 to February 29, 2020.

2) Salary/Hourly Wage Reduction

  • If an employee’s salary or hourly wage were reduced by more than 25% during the Covered Period or the Alternative Payroll Covered Period as compared to the period of January 1, 2020, through March 31, 2020
  • NOTE: If the Borrower restored salary/hourly wage levels, the Borrower may be eligible for the elimination of the Salary/Hourly Wage Reduction amount.

Click here to read more information on guidance and application. 

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