Tag Archives: PPP loan forgiveness

ATTENTION Paycheck Protection Program Loan Recipients: REVISED Forgiveness Application Issued

Contributed by Rebecca Dobbs Bush, June 23, 2020

As written about previously, the Paycheck Protection Program Flexibility Act, while short in text, went to great lengths in helping borrowers extend their “covered period” and maximize forgiveness.  As such, the previously issued forgiveness application needed to be revised.

Last week, on June 16, 2020, the SBA released a revised forgiveness application, a short-form and corresponding instructions for both. Generally, the short form is available for: 1) self-employed individuals; 2) those that did not reduce salaries by more than 25% and did not lay off any employees; or 3) those that did not reduce salaries by more than 25% and laid off employees, but did so because they were complying with CDC and OSHA guidance. The latter category is a new category of borrowers that no longer have to worry about prorated forgiveness. The revised applications and instructions can be found here:

Full Application

Instructions for Full Application

EZ Form

EZ Form Instructions

Specifically, the new Safe Harbor that exempts a borrower from having to worry about maintaining employee headcount is available for a borrower, that in good faith, is able to document the following:

…that it was unable to operate between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and precision, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

In addition to the above, the revised forgiveness application and corresponding regulations and instructions clarify that maximum “payroll costs” are revised to the following:

 Prior to PPP Flexibility ActPursuant to PPP Flexibility Act
Self-employed/sole proprietors/ ownersCash Compensation limited to: $15,385 (for an 8-week covered period)Cash Compensation limited to: $15,385 (for an 8-week covered period) OR $20,833 (representing 2.5 months of compensation with a 24-week covered period elected)
EmployeesCash Compensation limited to: $15,385 (for an 8-week covered period)Cash Compensation limited to: $15,385 (for an 8-week covered period) OR $46,154 (representing 24-weeks of payroll with a 24-week covered period elected)

Borrowers that intend to rely upon the new Safe Harbor should work with knowledgeable counsel to ensure adequate documentation is prepared for reference in the event an SBA audit occurs at a later date.

Forgiveness Requirements Relaxed with Passage of Paycheck Protection Program Flexibility Act

Contributed by Rebecca Dobbs Bush, June 5, 2020

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act. Notable changes will allow businesses more time to spend loan proceeds on permitted costs. This is significant relief for those businesses that were unable to continue operations and bring employees back to work.  With many of those employees being lower paid, paying them to stay at home was not well received as it interfered with the higher amounts of unemployment compensation they could otherwise receive.

The significant changes allowed by the PPP Flexibility Act are:

  • The period during which borrowers have to account for payroll and non-payroll expenses has been expanded from 8 weeks to 24 weeks.
  • Borrowers are only required to spend 60% on payroll costs and can spend 40% on non-payroll costs.  This is revised from the previous ratio of 75/25.  (Note that the definition of payroll and non-payroll costs remains unchanged).  This means a borrower has 16 weeks longer than originally legislated to cover rent and other permitted non-payroll costs.
  • Certain scenarios can provide for a borrower to be excused entirely from the FTE calculation. This means an employer that is unable to maintain the same employee levels during the 24-week period may not need to have the forgiveness of a loan prorated based upon a reduction in their average FTEs.
  • Repayment terms are modified.  Notably, the first payment will not be required to be made within 6 months of loan origination.  Instead, a borrower has 10 months from either the date the covered period ends or from 12/31/20 (whichever is later) to apply for forgiveness.  Initial payment is not due until forgiveness is determined.
  • The previous “cure” deadline of 6/30/20 where borrowers could rehire employees and/or reinstate salary levels has been extended to 12/31/20.
  • PPP borrowers are permitted to utilize the provision of the CARES Act that permits delay of payment of payroll taxes.

Register Now! Complimentary Webcast: A Short Tutorial on the PPP Forgiveness Application

This brief 30-minute webcast covers highlights of the recently released application for forgiveness.

Join attorney Rebecca Dobbs Bush on Wednesday, May 27 at 1 PM CT for a complimentary webcast as she reviews the instructions for PPP loan forgiveness with attendees and points out items of special interest for all employers.

Key Takeaways for PPP Borrowers: The Forgiveness Application is Finally Out!!

Contributed by Rebecca Dobbs Bush, May 18, 2020

Late Friday, May 15th, the SBA released long overdue guidance on how to determine and apply for forgiveness of loans received under the Paycheck Protection Program. The application and corresponding instructions can be found here on the SBA website.

Within the application and instructions, several common questions have finally been answered:

  1. How do we calculate payroll costs?  Do we go by pay period date or pay date?  What if the 8-week covered period doesn’t match up with our payroll?

A payroll cost must be either incurred OR paid. Initially, the CARES Act indicated that it had to be both incurred and paid during the 8-week period. You look to costs paid or incurred during the 8-weeks (or 56 days) counting the date you received the loan proceeds. You can also adjust your 8-week period to an “alternative” covered period if your payroll is at least bi-weekly or more frequent.  In that case, you can begin the 8-week period starting with the first pay period that begins immediately following the date you received the loan proceeds.

Payroll costs are considered “incurred” on the day that the employee’s pay is earned.  Payroll costs are considered “paid” on the day paychecks are distributed or the date the borrower originates an ACH credit transaction.

This is not exactly a windfall that will allow you to randomly payout money in order to maximize forgiveness.  In terms of cash compensation, no individual employee can account for more than $15,385 (i.e., $100,000 prorated over 8-weeks).  This cap operates to limit the amount of cash payroll costs that you can account for.

2. Can we pay non-payroll costs early and use PPP loan proceeds for those?

The answer to this is: maybe. Again, this is better than expected with the original language in the CARES Act indicating the cost had to be both incurred and paid.  Instead, the forgiveness application indicates that a permissible non-payroll cost must be either incurred or paid during the covered period.  Going a bit further, the instructions permit borrowers to account for those non-payroll expenses “paid on or before the next regular billing date, even if the billing date is after the Covered Period.”

For example: A borrower’s eight-week “Covered Period” ends on May 31st. The borrower’s internet bill is paid on the 15th of each month.  That borrower can use PPP loan proceeds to pay the bill due on May 15th and also pay the bill that would otherwise be due on June 15th as long as three things apply: 1) the internet service being paid is one that began before February 15th; 2) the June 15th bill is paid before the expiration of the 8-week period on May 31st; and 3) the additional payment is not going to cause the borrower to have total non-payroll costs that exceed 25% of the total forgiveness amount.

3. What is an FTE?  And how do we count part-timers?

Full-Time has been clarified to mean 40 hours per week.  To account for part-timers, a borrower has two options.  The borrower can take weekly hours worked and divide by 40 to determine a percentage FTE for anyone working less than 40 hours/week.  Alternatively, and at a borrower’s election, employees working 40 hours/week or more can be counted as 1 and employees working on a part-time basis can be counted as a .5. 

4. In determining FTE headcount, do we have to account for people who can’t, or don’t want to, work?

No!  This is a big relief for those employers that have been struggling with natural attrition of their employees.  The instructions recognize certain circumstances where a borrower can claim an exception and account for an individual as a FTE even though they are no longer employed with the company as of the date of the forgiveness application.  These are: 1) an employee that was “fired for cause;” 2) an employee who voluntarily resigned; or 3) an employee who  voluntarily requested and received a reduction of his or her hours.

In the event a borrower is going to rely on one of the exemptions, they will want documentation for the file to substantiate the basis of the exemption in the event they are subject to an audit by the SBA at a later date.

What if a Laid Off Worker Refuses to Return to Work under the PPP?

Contributed by Carlos Arévalo, May 5, 2020

3d human character a question mark

A couple of weeks ago, we examined two general factors that the Treasury will be examining to determine PPP loan forgiveness, namely whether at least 75% of the borrowed funds have been spent on “payroll costs” and whether employers maintained the same headcount and salary levels for full-time equivalent (FTE) employees.

On Sunday May 3rd, the Treasury issued additional guidance regarding the impact of layoffs on the headcount calculation for purposes of loan forgiveness. Specifically, FAQ #40 asked whether a borrower’s PPP loan forgiveness amount would be reduced if the borrower laid off an employee, subsequently offered to rehire the same employee, but the employee declined the offer. The Treasury’s answer reads in part as follows:

…SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

Based on the Treasury’s answer, there should be no adverse impact on a business “headcount” for purposes of loan forgiveness even where the business initially laid off a worker, but then extended the worker a WRITTEN offer to return and the worker rejected the offer. However, the business should keep a record of the worker’s rejection of the offer just like other PPP loan related documentation, i.e. payroll tax filings, cancelled checks, payment receipts, etc.

It should also be noted that, while not required, the written offer should include a statement that if the worker chooses not to return to work after the offer is made, doing so may, under some circumstances, be deemed a voluntary resignation potentially disqualifying the worker from continued unemployment benefits.   

NOTE: This is general information and should not be construed as legal advice. New guidance is continually being published. This information is only current through May 3, 2020.