Maximizing Paycheck Protection Program Loan Forgiveness

On Friday, June 5 President Trump signed the Paycheck Protection Program (PPP) Flexibility Act of 2020 into law. Our online PPP Loan Forgiveness Estimator has been updated to reflect the new guidance in the law. We continue to actively update our existing PPP resources on this site as additional guidance is released.

Use our Return to Work checklist to help in rehiring furloughed or laid off employees to maximize your PPP loan forgiveness potential, and our loan forgiveness estimator to crunch the numbers for your small business.

We’ve also provided answers to some frequently asked questions related to PPP loan forgiveness and the CARES Act Employer Retention Credit.

 

 

FAQs

For additional details around eligible PPP loan expenses and the repayment forgiveness program, please refer to these FAQs.

Information provided is current as of the date published and is subject to change based on additional guidance.

 

The PPP is intended to help business owners keep their employees on the payroll, return those who might have been furloughed, and keep their business open by offering loans that are forgivable for funds used on covered costs.

Covered costs include payroll, rent, mortgage interest, and utilities.

The SBA issued updated guidance on May 6 clarifying that an employer that applied for a PPP loan, received payment, and repays the loan by the safe harbor deadline (May 14, 2020) will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit. Therefore, the employer will be eligible for the credit if the employer is otherwise an eligible employer for purposes of the credit. If you are considering whether the Employee Retention Credit may be a better option for your business the updated guidance makes clear that if you return your loan proceeds by May 14, 2020 and are otherwise eligible you will be eligible for the Employee Retention Credit. We recommend you consult with your CPA/financial advisor to determine whether returning your PPP loan makes sense for you. More information on the Employee Retention Credit can be found on our blog and in the SBA guidance related to the Employee Retention Credits.

The full principal amount and any accrued interest can be forgiven for funds used to pay for covered costs during an eight-week period following loan disbursement.

Forgiveness cannot exceed the principal amount of the loan, and only eligible expenses during the eight-week period following loan disbursement are eligible. Since the purpose of the program is to keep employees on the payroll, not more than 25% of loan forgiveness amounts may be used for non-payroll costs.

Yes. Your eligible forgiveness amount is subject to reduction based on a reduction in number of full-time employees (FTE) and/or reduction in amount of salary or wages for those employees by more than 25%. Regarding the reduction of salary/wages, it cannot exceed 25% of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the eight-week period.

Based on current guidance, only eligible payroll costs earned during the 8-week (56 day) period following receipt of the loan proceeds are eligible for forgiveness. There are two possible start dates to the 8-week period. The Covered Period, available to all borrowers, begins when they receive the loan amount. The Alternative Covered Period, introduced in the Loan Forgiveness Application (released 5/15) is only for borrowers with a bi-weekly or more frequent payroll frequency. The Alternative Covered Period begins on the first day of the first pay period following their PPP Loan Disbursement Date.

We would not recommend changing your normal payroll schedule. You are still required to follow wage and hour laws in your state. Without final guidance, this may not result in the desired outcome.

There is no guidance available on if paying additional wages will be allowed for forgiveness. Normal payroll procedures should be followed; all loan forgiveness could be subject to an audit.

Any advance received for the EIDL program under the CARES Act reduces your loan forgiveness by the amount of the advance.

Based on the Loan Forgiveness Application the 8-week (56 day) Covered Period begins on the date you received the loan amount and the Alternative Covered Period begins on the first day of the first pay period following your PPP Loan Disbursement Date. Only borrowers with a payroll frequency of bi-weekly or more frequent can use the Alternative Covered Period.

Payments on the principal of the loan amount are deferred for 6 months. You can prepay your loan amount without penalty. Any amount not forgiven will roll into a loan at 1% interest for a two-year term.

Your forgiveness amount may be adjusted so that 75% of your forgiveness is equal to what you paid in payroll costs (payroll costs / .75). Payroll costs consist of eligible wages, ER healthcare contributions, ER Retirement contributions, and ER paid state and local taxes.

Your forgiveness will be reduced proportionately to your Full-time Equivalent (FTE) reduction.

Based on the Loan Forgiveness Application the 8-week (56 day) Covered Period begins on the date you received the loan amount and the Alternative Covered Period begins on the first day of the first pay period following receipt of the loan amount. Only borrowers with a payroll frequency of bi-weekly or more frequent can use the Alternative Covered Period.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining wages paid. Forgiveness may be reduced if the number of FTEs declines, or if salaries and wages decrease during the Covered Period or Alternative Covered Period. If FTEs and/or wages paid decline, you may owe some money back. However, you may be able to qualify for an FTE Reduction Safe Harbor and/or a Salary/Hourly Wage Safe Harbor if you meet certain criteria and take certain actions by June 30, 2020.

FTE Reduction Safe Harbor. The Borrower is exempt from the reduction in loan forgiveness based on FTE employees described above if both following conditions are met: (1) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (2) 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

Salary/Hourly Wage Safe Harbor. If you reduced wages between February 15 and April 26th you may be eligible for the Safe Harbor if you fully restore the annual salary and hourly wages to at least the annual salary and hourly wages existing on February 15, 2020.

Your forgiveness amount may not be the same as the loan amount if you reduced FTEs or wages during the Covered or Alternative Covered period or 75% of your costs did not consist of payroll costs. You can use the Loan Forgiveness Estimator on SurePayroll.com to estimate the amount of your loan that will be eligible for forgiveness and, very soon, a Loan Forgiveness Estimator located in-product.

Any amounts not forgiven must be paid back over a two-year term. The interest on your loan is capped at 1% and the CARES Act provides the borrower with a six-month deferment of payments. Interest will continue to accrue.

Yes. Based on current guidance, only eligible payroll costs earned during the 8-week (56 day) period following receipt of the loan proceeds are eligible for forgiveness. Based on the Loan Forgiveness Application the 8-week (56 day) Covered Period begins on the date you received the loan amount and the Alternative Covered Period begins on the first day of the first pay period following receipt of the loan amount. Only borrowers with a payroll frequency of bi-weekly or more frequent can use the Alternative Covered Period. Because your loan forgiveness amount may be reduced if 75% of your costs do not consist of payroll costs the sooner you rehire and restore any wage reductions the more of your loan amount may be forgiven.

Employees who made over $100k annualized for any pay period in 2019 are removed from the loan forgiveness wage reduction calculation. Wages included in Payroll Costs during the covered period are capped at $15,385 per employee.

Hazard pay is included in the 75% payroll costs calculation and is subject to all the same wage rules.

There is no guidance available on if paying retroactive wages will be allowed for forgiveness. Normal payroll procedures should be followed; all loan forgiveness could be subject to an audit.

Based on guidance the payroll costs that can be included in Payroll Cost must be earned during the Covered or Alternative Covered Period. We are still waiting on more specific guidance around this.

Based on guidance the wages that can be included in Payroll Cost must be earned during the Covered or the Alternative Covered Period. We are still waiting on more specific guidance around this question and if wages paid can be included.

Yes. Current guidance from the Treasury and SBA indicates that the amount of forgiveness available will relate to the number of FTEs retained.

If an employer reduces the number of FTEs during the covered period, then the amount of loan forgiveness eligibility will be reduced proportionately. The following formulas will be used based on reductions in the number of FTEs:

  • Average number of FTEs per month* employed by the borrower during the covered period divided by either the:
    • Average number of FTEs/month employed by the borrower from Feb. 15, 2019 to June 30, 2019, or
    • Average number of FTEs/month employed by the borrower from Jan. 1, 2020 to February 29, 2020
* The average number of FTEs is determined by calculating the average number of FTEs for each pay period falling within a month.

There is an exception for rehires. The amount of loan forgiveness is determined without regard to a reduction in number of FTEs or a reduction in salary/wages during the period from Feb. 15, 2020 through April 26, 2020 (30 days following enactment of CARES Act), so long as the employer has eliminated the reduction in FTEs and the reduction in salary/wages by June 30, 2020.

To calculate the average full-time equivalency (FTE) during the covered period, for each employee, capture 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. 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. You must use the same calculation method for the comparison period as you do for the Covered or Alternative Covered Periods.

Based on the Loan Forgiveness Application the 8-week (56 day) Covered Period begins on the date you received the loan amount and the Alternative Covered Period begins on the first day of the first pay period following receipt of the loan amount. Only borrowers with a payroll frequency of bi-weekly or more frequent can use the Alternative Covered Period.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining wages paid. Forgiveness may be reduced if the number of FTEs declines, or if salaries and wages decrease during the Covered Period or Alternative Covered Period. If FTEs and/or wages paid decline, you may owe some money back. However, you may be able to qualify for an FTE Reduction Safe Harbor and/or a Salary/Hourly Wage Safe Harbor if you meet certain criteria and take certain actions by June 30, 2020.

FTE Reduction Safe Harbor. The Borrower is exempt from the reduction in loan forgiveness based on FTE employees described above if both following conditions are met: (1) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (2) 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

Salary/Hourly Wage Safe Harbor. If you reduced wages between February 15 and April 26th you may be eligible for the Safe Harbor if you fully restore the annual salary and hourly wages to at least the annual salary and hourly wages existing on February 15, 2020,

Based on current guidance, it appears borrowers will need to provide documents that verify FTEs and pay rates as well as payments on eligible mortgage, lease, and utility obligations. Documentation also will include IRS tax filings, state tax filings payroll and unemployment insurance filings.

A request can be made to the lender servicing the loan.

Lender must make decision on forgiveness within 60 days. Loan payments will be deferred for a minimum of six months in the event you do have to pay on the loan, interest will accrue during this time.

Any amount of the loan that is not forgiven must be repaid. There are no prepayment penalties.

Payments on the principle of the loan amount are deferred for 6 months, interest (1%) begins immediately. You can prepay your loan amount without penalty. Based on information available today, 05/19/2020, there is no requirement that you apply immediately although once the deferment ends you will need to begin payments on any remaining principle amounts. Please remember, payments are deferred for 6 months. This time does include the covered period, therefore there is essentially a four-month time period where payments are deferred.

The rules regarding loan forgiveness are complex and the SBA has yet to issue specific guidance. The information presented here should not be considered legal or accounting advice, and should not substitute for legal, accounting, or other professional advice wherein the facts and circumstances may warrant. We encourage you to consult your accounting and legal advisors as it pertains to your own unique situation(s) and/or with any specific legal questions you may have.