The long overdue PPP Forgiveness Application was released by the SBA on May 15, 2020, providing some much needed clarification for small businesses in calculating their potential forgiveness amount.

Further PPP changes could be on the horizon in attempting to provide loan recipients with more time and flexibility to use the funds as reported within a Wall Street Journal article this weekend, which you can access here and also covered under the potential HEROES Act bill recently passed by the House on May 15th.

In the interim, we have detailed below some updated guidance released as part of the new PPP Forgiveness Application as the clarifications will in all likelihood impact  your previous forgiveness calculation estimates.  See below for the full application pdf link.

Payroll Cost and Payroll Period Clarifications:

  • Payroll costs paid and payroll costs incurred during the eight-week (56-day) “Covered Period” or “Alternative Payroll Covered Period” are now eligible for forgiveness.
  • 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.
    • “Covered Period” – Eight-week (56-day). The first day of the Covered Period must be the same as the PPP Loan Disbursement Date. For example: if the Borrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, June 14.
    • “Alternative Payroll Covered Period” – Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”). For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20. Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in this application to “the Covered Period or the Alternative Payroll Covered Period.”

The maximum payroll cost for an individual employee in the Covered Period is $15,385 (Annual salary capped at $100,000, as prorated for the covered period).

The maximum amounts paid to any owner-employee or self-employed individual/general partner does not exceed eight weeks’ worth of 2019 compensation, capped at $15,385 per individual.

Eligible “Non-payroll”Costs: 

  • An eligible non-payroll cost (rent, utilities, and interest) 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. Count non-payroll costs that were both paid and incurred only once.

Clarification to Full-Time Equivalent (FTE) Definitions:

  • 40 hours must be utilized to determine FTE. With no guidance to utilize previously,  many assumed it was based off ACA definitions at 30 hours.

Salary/Hourly Wage Reduction Calculation Changes:

  • As previously detailed, the amount of your forgiveness can be impacted for those employees whose salaries or hourly wages were reduced by more than 25%. New, however, is that the comparison period to calculate the potential reduction is now based off of the average payroll from January 1, 2020 to March 31, 2020.

FTE Reduction Safe Harbor Clarification:

A safe harbor under applicable law and regulation exempts certain borrowers from the loan forgiveness reduction based on FTE employee levels. Specifically, the Borrower is exempt from the reduction in loan forgiveness based on FTE employees described above if both of the following 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.

We continue to monitor these important changes on a daily basis and will keep you informed.

See below for a direct link to the PPP Loan Forgiveness Application


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