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The Small Business Administration (SBA) released the forgiveness application and instructions for those businesses and organizations that were able to secure Paycheck Protection Program (PPP) loan funds. The application includes the following:

  • PPP Loan Forgiveness Calculation Form;
  • PPP Schedule A;
  • PPP Schedule A Worksheet; and
  • PPP Borrower Demographic Information Form (optional).

The application along with its instructions starts to provide some clarity on the guidelines and restrictions of the PPP loan forgiveness. Additionally, the Department of Treasury also issued Paycheck Protection Program Loans Frequently Asked Questions, and they intend to continue to update these FAQs as necessary.

Some of the key issues addressed in the application instructions and the FAQs to date are outlined here as we await any additional updated FAQs.

Owner Bonus

An indirect bar on using bonuses to owner-employees to fill shortfalls ineligible expenses used to apply for loan forgiveness is buried in the representations where the representative initials on second page of the application form. There the form says that the amounts being submitted as payroll costs for forgiveness related to owner-employees, self-employed individuals, and partners, “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.

This would appear to be in place to stop owners from soaking up any excess loan via a bonus, at least assuming less than $100,000 in 2019 compensation. There appears to be no such discussion of limiting the rank and file.

Paid/Incurred Issue

The question of whether paid and/or incurred expenses during the 8-week period can be forgiven has been on the minds of business owners since they received their PPP loan. Based on the application, this issue has been resolved very much in a borrower’s favor. Costs that will work for forgiveness include:

  • Eligible costs paid during the 56-day period regardless of when they were incurred and
  • Eligible costs incurred during the 56-day period so long as they are paid by a standard payment date defined for each cost type.

For wages incurred before day 56 but not yet paid, they just need to be paid no later than the next regular payroll date to be eligible for forgiveness. For other costs, such as utilities, those expenses just need to be paid on or before the next billing date, interpreted to be the due date shown on the bill.

Alternative Payroll Covered Period

The creation of a new Alternative Payroll Covered Period allows borrowers to align the 56-day period with their own payroll period. Further instructions on this are found payroll costs under the program. Note that even if you use this alternative period for payroll, other expenses stay on the standard 56-day period starting on the date of loan funding, but if pay payroll at least bi-weekly, you can start that 56-day period on the date of the beginning of the first payroll period after receiving the funds. Obviously, for bi-weekly payroll that eliminates the issue of having to pick up a partial payroll at the end.

75% Salary/Wage Reduction Rule

For the 75% salary/wage reduction rule, the SBA is looking at an average salary/pay rate for the first quarter for each employee actually on the payroll in the eight week period. So you don’t need to worry about employees who quit but worked for some of the first quarter. Owner-employees aren’t part of the calculation for this or FTEs either.

FTE Calculation

We finally got an FTE calculation—and it’s 40 hours. No employee can count as more than one FTE. There is a simplified method where every employee that works 40 hours normally is 1.0 FTEs and those that normally work less are 0.5 FTEs. Employees that turn down your offer of reemployment don’t impact the FTE calculation, assuming you made the proper offer and documented the refusal. Also interesting, the documentation of the offer and refusal do not need to be sent with the request for forgiveness.

Contact Us

Finally, we have received some clarity on the PPP loan forgiveness and hopefully there is more to follow in terms of FAQs to be answered by the SBA. If you have questions regarding secreting forgiveness for our PPP loan, Selden Fox can help. For additional information please call us at 630.954.1400 or click here to contact us.

Joseph Meyer

In providing extraordinary service to his clients through his leadership and ability to build the right team for the engagement, Joe Meyer has served clients since 1988 as business advisor and team leader across a spectrum of industries.