CLICK HERE FOR A LINK TO OUR PRESENTATION ON MAY 28, 2020 REGARDING PPP LOAN FORGIVENESS CALCULATIONS
6/4/2020
On June 3, 2020, the Senate passed a bill that allows borrowers to choose to extend the 8-week covered period to 24 weeks, or keep the original 8-week period. The bill also lowered the payroll expenditure requirement to 60% of the total forgiveness, but clarified that at least 60% of the funds must be spent on payroll or none of the funds will be eligible for forgiveness. The bill is awaiting the President's signature.
We are continuing to monitor the Dept of the Treasury and SBA sites for additional guidance and will continue to share this information as it becomes available.
5/21/2020
General Forgiveness Provisions
The full loan can be forgiven upon application to the lender. The amount eligible for forgiveness is the total eligible costs paid during the Covered Period. Payroll costs must account for at least 75% of the forgiveness amount. The CARES Act states the lender must issue a decision on the forgiveness within 60 days of receiving the application for forgiveness. Any amount not forgiven will be a two-year note payable at 1% interest.
Covered Period
The Covered Period begins on the date the loan funds were received by the borrower and ends 8 weeks later. This period must be used for nonpayroll costs and is the default period for payroll costs.
For payroll cost purposes, the borrower may elect to use an Alternative Payroll Covered Period which begins on the first day of the first pay period following the PPP funding date. This only applies to borrowers with biweekly or more frequent pay schedules.
Eligible Costs
The amount eligible for forgiveness is the sum of eligible costs paid or incurred and paid during the covered 8-week period. Costs incurred prior to the end of the Covered Period and paid on or before the next regular payroll date or regular billing date are eligible even if that date is after the end of the Covered Period. Eligible costs are as follows:
Full Time Equivalent Calculations
The borrower must report the total average weekly full-time equivalency (FTE) during the reference period. For nonseasonal employers, the borrower can choose either 1) 2/15/2019-6/30/2019 or 2) 1/1/2020-2/29/2020 as the reference period. Seasonal employers can choose 1 or 2 above, or any consecutive 12-week period between 5/1/19-9/15/19.
The FTE calculation must be performed by employee. For each employee, calculate the average number of hours paid per week, divide by 40, and round to the nearest tenth. This same calculation must be performed for the Covered Period or Alternative Payroll Covered Period. Borrowers may use a simplified method of applying an FTE of 1 to employees averaging 40 or more hours per week and an FTE of .5 to employees averaging less than 40 hours per week.
Reduction in Forgiveness
Loan forgiveness is reduced proportionally based on reductions in staffing or compensation. The reduction calculations are as follows:
Average FTEs during the chosen reference period
Employees fired for cause, voluntarily terminated, or voluntarily taking reduced hours will not result in FTE reduction. Those employees who refused rehire offers will also be excluded from the FTE reduction if the documentation requirements are followed.
The FTE safe harbor is met and forgiveness will not be reduced if both of the following conditions are met: (1) the employer reduced its FTE levels during the period 2/15/20-4/26/20 and (2) the employer restored its FTE level by 6/30/20 to the FTE level in the pay period including 2/15/20.
The salary and wage reduction safe harbor is met and forgiveness will not be reduced if the employee’s average annual salary or hourly wage of in effect at 6/30/20 is greater than or equal to the employee’s average annual salary or hourly wage in effect at 2/15/20.
Documentation for Forgiveness Application
The Act states that the application for forgiveness should be submitted to the lender and should include federal and state payroll tax filings, and checks, receipts, or other documents verifying payments of eligible non-payroll expenses. The Act also states that no forgiveness will be granted without submitting the required documentation to the lender. Page 10 of the Loan Forgiveness Application contains the list of required documentation. We recommend borrowers maintain a contemporaneous file containing copies of the invoices, payroll registers, and similar documents supporting the eligible expenses and calculations performed to facilitate efficient completion of the forgiveness application. The PPP loan application, forgiveness application, and all supporting documentation must be retained by the borrower for six years after the loan is forgiven or repaid in full.
Additional Resources:
Small Business Administration PPP Loan Forgiveness Application
Department of Treasury - Additional Guidance for Borrowers
US Chamber of Commerce Guide to PPP Loan Forgiveness
Template - Forgiveness Expense Tracking Spreadsheet
6/4/2020
On June 3, 2020, the Senate passed a bill that allows borrowers to choose to extend the 8-week covered period to 24 weeks, or keep the original 8-week period. The bill also lowered the payroll expenditure requirement to 60% of the total forgiveness, but clarified that at least 60% of the funds must be spent on payroll or none of the funds will be eligible for forgiveness. The bill is awaiting the President's signature.
We are continuing to monitor the Dept of the Treasury and SBA sites for additional guidance and will continue to share this information as it becomes available.
5/21/2020
General Forgiveness Provisions
The full loan can be forgiven upon application to the lender. The amount eligible for forgiveness is the total eligible costs paid during the Covered Period. Payroll costs must account for at least 75% of the forgiveness amount. The CARES Act states the lender must issue a decision on the forgiveness within 60 days of receiving the application for forgiveness. Any amount not forgiven will be a two-year note payable at 1% interest.
Covered Period
The Covered Period begins on the date the loan funds were received by the borrower and ends 8 weeks later. This period must be used for nonpayroll costs and is the default period for payroll costs.
For payroll cost purposes, the borrower may elect to use an Alternative Payroll Covered Period which begins on the first day of the first pay period following the PPP funding date. This only applies to borrowers with biweekly or more frequent pay schedules.
Eligible Costs
The amount eligible for forgiveness is the sum of eligible costs paid or incurred and paid during the covered 8-week period. Costs incurred prior to the end of the Covered Period and paid on or before the next regular payroll date or regular billing date are eligible even if that date is after the end of the Covered Period. Eligible costs are as follows:
- Payroll costs
- Salaries & wages, tips, paid leave, severance pay, similar compensation. FFCRA paid leave must be excluded.
- Health insurance
- Retirement benefits
- State unemployment tax
- Eligible compensation may not exceed $15,385 for any individual.
- Eligible compensation for owner-employees may not exceed the lesser of 8/52 of 2019 compensation or $15,385.
- Sole proprietor compensation up to the amount of eight weeks’ worth of 2019 net profit (2019 Sch C line 31 * 8/52). Health insurance and retirement benefits of self-employed owners are NOT eligible expenses.
- Nonpayroll costs
- Rent for real or personal property under a lease agreement in effect before 2/15/2020
- Mortgage interest on a mortgage on real or personal property in effect before 2/15/2020
- Utilities that were in service before 2/15/2020
- Covered utilities are electricity, gas, water, telephone, internet or transportation utility
Full Time Equivalent Calculations
The borrower must report the total average weekly full-time equivalency (FTE) during the reference period. For nonseasonal employers, the borrower can choose either 1) 2/15/2019-6/30/2019 or 2) 1/1/2020-2/29/2020 as the reference period. Seasonal employers can choose 1 or 2 above, or any consecutive 12-week period between 5/1/19-9/15/19.
The FTE calculation must be performed by employee. For each employee, calculate the average number of hours paid per week, divide by 40, and round to the nearest tenth. This same calculation must be performed for the Covered Period or Alternative Payroll Covered Period. Borrowers may use a simplified method of applying an FTE of 1 to employees averaging 40 or more hours per week and an FTE of .5 to employees averaging less than 40 hours per week.
Reduction in Forgiveness
Loan forgiveness is reduced proportionally based on reductions in staffing or compensation. The reduction calculations are as follows:
- Full time equivalents – the forgiveness amount will be reduced, but not increased, by multiplying the sum of the eligible costs by the quotient of:
Average FTEs during the chosen reference period
Employees fired for cause, voluntarily terminated, or voluntarily taking reduced hours will not result in FTE reduction. Those employees who refused rehire offers will also be excluded from the FTE reduction if the documentation requirements are followed.
The FTE safe harbor is met and forgiveness will not be reduced if both of the following conditions are met: (1) the employer reduced its FTE levels during the period 2/15/20-4/26/20 and (2) the employer restored its FTE level by 6/30/20 to the FTE level in the pay period including 2/15/20.
- Wages – the forgiveness amount is reduced for any employee whose average salary or hourly wage is reduced by more than 25% compared to their average salary or hourly wage for the period 1/1/2020-3/31/2020. Employees with annual wages >$100,000 for 2019 are excluded from this calculation. The reduction in forgiveness will be the total dollar amount of the pay reduction in excess of 25% using the employee’s average hours per week between 1/1/2020-3/31/2020 or the employee’s average annual salary for 1/1/2020-3/31/2020 times 8/52.
The salary and wage reduction safe harbor is met and forgiveness will not be reduced if the employee’s average annual salary or hourly wage of in effect at 6/30/20 is greater than or equal to the employee’s average annual salary or hourly wage in effect at 2/15/20.
Documentation for Forgiveness Application
The Act states that the application for forgiveness should be submitted to the lender and should include federal and state payroll tax filings, and checks, receipts, or other documents verifying payments of eligible non-payroll expenses. The Act also states that no forgiveness will be granted without submitting the required documentation to the lender. Page 10 of the Loan Forgiveness Application contains the list of required documentation. We recommend borrowers maintain a contemporaneous file containing copies of the invoices, payroll registers, and similar documents supporting the eligible expenses and calculations performed to facilitate efficient completion of the forgiveness application. The PPP loan application, forgiveness application, and all supporting documentation must be retained by the borrower for six years after the loan is forgiven or repaid in full.
Additional Resources:
Small Business Administration PPP Loan Forgiveness Application
Department of Treasury - Additional Guidance for Borrowers
US Chamber of Commerce Guide to PPP Loan Forgiveness
Template - Forgiveness Expense Tracking Spreadsheet