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Paycheck Protection Program Loan Forgiveness Application

May 21, 2020

 

The Paycheck Protection Program Loan Forgiveness Application is now available on the SBA website. The form and instructions inform borrowers how to apply for forgiveness of their PPP loans. SBA 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.

Key Elements Include:

Alternative Payroll Covered Period

  • For borrowers with a biweekly or more frequent payroll schedule.
  • Allows borrowers to elect their covered period to start on the first day of the first pay period following the PPP loan disbursement date and continue through the following eight week period.
  • Any payroll considered both paid and incurred may be counted only once.

Payroll Costs

  • Cash Compensation paid to employees:  i.e. gross salary, gross wages, gross tips, gross commissions, and paid leave including vacation, family, medical or sick leave.
  • Any leave covered by the FFCRA is excluded from Cash Compensation.
  • May not exceed $100,000 on an annualized basis, or $15,385 for the Covered Period or Alternative Payroll Covered Period.
  • Non-Cash Compensation costs:  the total amounts paid by the Borrower for the employer contributions for employee health insurance, the employer contributions to employee retirement plans, and the employer paid portion of state and local payroll taxes.  These do not include any amounts withheld from employees.
  • Compensation to Owners:  includes amounts paid to any owner-employees (i.e. S-corp shareholders), self-employed individuals, or general partners.  It will be the lesser of $15,385 per person or the eight-week equivalent of their applicable compensation in 2019.

Nonpayroll Costs

For the following categories, include expenses paid or incurred during the Covered Period.  Any item both paid and incurred may be counted only once.  All related obligations must have been in place as of 2/15/20.

  • Covered mortgage obligations for real or personal property (interest only)
  • Covered rent obligations for real or personal property
  • Covered utility payments

Forgiveness Reduction – General

  • The maximum amount of loan forgiveness is Total Payroll Costs divided by 0.75 (not to exceed the original loan amount).
  • Forgiveness may be reduced if there is a drop in Salary or Hourly Wage during the Covered Period or Alternative Payroll Covered Period.
  • Forgiveness may be reduced if there is a drop in full-time equivalency (FTE) during the Covered Period or Alternative Payroll Covered Period.

Forgiveness Reduction – Salary / Hourly Wage

  • For each employee listed in Table 1 on the Schedule A Worksheet, the Salary / Hourly Wage Reduction is a dollar amount calculated by determining the amount that the Salary / Hourly Wage was reduced by more than 25% during the Covered Period or Alternative Payroll Covered Period as compared to the period from 1/1/20 to 3/31/20 and then applying the drop in rate to the average number of hours worked during the period from 1/1/20 to 3/31/20.
  • If fewer hours are worked during the Covered Period or Alternative Payroll Covered Period, it will not contribute to this portion of forgiveness reduction (though it will affect the Average FTE’s, see below).

For example:

  • employee’s average hourly wage from 1/1/20 to 3/31/20 = $30/hour
  • employee’s average hourly wage during the Covered Period or Alternative Payroll Covered Period = $20/hour
  • average number of hours worked during the period from 1/1/20 to 3/31/20 = 30
    $30/hour x .75 =  $22.50/hour
  • $22.50/hour – $20.00/hour = $2.50/hour
  • $2.50/hour x 30 hours/week = $75.00/week
  • $75.00/week x 8 weeks = $600.  So, $600 would be the amount of the Salary / Hourly Wage Reduction for this employee.

Forgiveness Reduction – Average FTE’s

  • The application does not indicate that any number of hours less than 40 may used as the threshold when calculating FTE’s.
  • A simplified method of calculating FTE’s may be used at the election of the Borrower.  It assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer than 40 hours per week.  So, whether an employee works 2 hours or 27 hours per week, they would each be considered 0.5 FTE’s.
  • To use the traditional method to calculate the average FTE’s, take the average number of hours paid per week for each employee, divide by 40 and round the total to the nearest tenth.  The maximum for each employee is 1.0.
  • You must be consistent with whichever method you choose to use in calculating FTE’s across the various time periods throughout the application.
  • Average FTE’s for each employee in the Schedule A Worksheet Tables 1 and 2 are based on the Covered Period or Alternative Payroll Covered Period.
  • This total will be compared to the Average FTE’s during the Borrower’s chosen reference period.
  • This reference period may either be from 2/15/19 to 6/30/19 or from 1/1/20 to 2/29/20.  In the case of seasonal employers, you may choose either of these reference periods, or you may choose any consecutive twelve-week period between 5/1/19 and 9/15/19.
  • If the Safe Harbor provisions are not met (see below), then the PPP loan forgiveness will be reduced by the same percentage as the percentage decline in Average FTE’s between the Covered Period and the chosen reference period.
  • This reduction will be applied after any Salary / Hourly Wage Reduction.

FTE Reduction Exceptions

In the case of any FTE reductions in the following situations that occur during the Covered Period or Alternative Payroll Covered Period, there will be no reduction in loan forgiveness:

  • An employee rejects a good-faith, written offer to be rehired
  • An employee if fired for cause
  • An employee voluntarily resigns
  • An employee voluntarily requests and receives a reduction of their hours

Include these FTE’s in the Schedule A Worksheet Tables 1 and 2 only if the position was not filled by a new employee.

Safe Harbor – FTE’s and Salary/Hourly Wage

The Safe Harbor provisions will exempt borrowers from loan forgiveness reduction when certain conditions are met.  There are two comparisons to be made.  They work similarly for both the Average FTE’s and the Salary / Hourly Wage.

  • There are three key time periods to keep in mind when evaluating the Safe Harbor:  2/15/20, the period from 2/15/20 to 4/26/20, and 6/30/20.
  • First, compare the Average FTE’s (or Salary / Hourly Wage) as of 2/15/20 to the period from 2/15/20 to 4/26/20.  There must be a drop during the period from 2/15/20 to 4/26/20 as compared to the levels as of 2/15/20.  If there is a drop, you may continue to the next comparison.  If there is no drop, then the Safe Harbor exemption is not available.
  • Second, compare the Average FTE’s (or Salary / Hourly Wage) as of 6/30/20 to those as of 2/15/20.  As long as the levels as of 6/30/20 have been brought back to the levels as of 2/15/20, then the Borrower may be exempt from these forgiveness reductions.
  • Since these Safe Harbor provisions look at 6/30/20 as the last date by which to bring your Average FTE’s and Salary / Hourly Wage levels back up to those as of 2/15/20, it may be of interest to wait until at least 6/30/20 to apply for PPP loan forgiveness.

Documentation

Keep all documentation submitted with and in support of this application for forgiveness, as well as the documentation in connection with the original loan application, in your files for six years after the date the loan is forgiven or repaid in full.

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