SBA Paycheck Protection Program (PPP) Loan Forgiveness

Covered Period Options

• Regular Covered Period: the 24-week (168-day) period beginning on the PPP Loan on the day the PPP Loan Disbursement was made. For example, if the Borrower received its PPP loan proceeds on Monday, April 20, 2020, the first day of the Covered Period is April 20, 2020, and the last day of the Covered Period is Sunday, October 4, 2020.
• Alternative Payroll Covered Period: Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using a 24-week (168-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date. For example, if the Borrower received its PPP loan proceeds on Monday, April 20, 2020, and the first day of its first pay period following its PPP loan disbursement was Sunday, April 26, 2020, the first day of the Alternative Payroll Covered Period is April 26, 2020. The last day of the Alternative Payroll Covered Period is Saturday, October 10, 2020.

Eligible payroll costs

Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the selected Covered Period. Payroll costs are considered paid on the day that paychecks are distributed, or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the selected Covered Period are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the selected Covered Period. For each employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period. Count payroll costs that were both paid and incurred only once. For information on what qualifies as payroll costs, see Interim Final Rule on Paycheck Protection Program posted on April 2, 2020.

Eligible non-payroll costs

Nonpayroll costs eligible for forgiveness consist of the following:

• Mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020;
• Rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020; and
• Utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

Eligible nonpayroll costs must be paid 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 nonpayroll costs cannot exceed 40% of the total forgiveness amount. Costs that were both paid and incurred during the Covered period may only be counted once.

Salary/Hourly Wage Reduction Safe Harbor

The amount of loan forgiveness the borrower will receive may be reduced if the salary or hourly wages of any individual employee during the covered period was reduced by more than 25% compared to the period from January 1, 2020, to March 31, 2020.  If the Borrower restored salary/hourly wage levels of these employees by December 31, 2020, the Borrower may be eligible for the elimination of the salary/hourly wage reduction amount.

FTE Reduction

The amount of loan forgiveness the Borrower will receive may be proportionally reduced if the Borrower’s average weekly number of full-time equivalent (FTE) employees during the Covered Period was less than during the Borrower’s chosen reference period.  The reference period is, at the Borrower’s election, either (1) February 15, 2019, to June 30, 2019; (2) January 1, 2020, to February 29, 2020; or (3) in the case of seasonal employers, either of the preceding periods or a consecutive twelve-week period between May 1, 2019, and September 15, 2019.

FTE Reduction Exceptions

Any FTE positions that meet the following do not reduce the borrower’s loan forgiveness:

• Any positions for which the borrower made a good-faith, written offer to rehire an employee on February 15, 2020, and the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020;
• Any positions for which the Borrower made a good-faith, written offer to restore any reduced hours or hourly wages, at the same salary or wages, during the Covered Period or the Alternative Covered Period and the employee rejected the offer;
• Any employees who during the Covered Period or the Alternative Payroll Covered Period
  • were fired for cause,
  • voluntarily resigned, or
  • voluntarily requested and received a reduction of their hours.

FTE Reduction Safe Harbor

The borrower is exempt from the reduction in loan forgiveness based on FTE employees under either option below:

• If the Borrower can document that they were unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity due to compliance with requirements established by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, 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.
• If the Borrower can document that 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 December 31, 2020, to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.

For more information, please visit the SBA Paycheck Protection Program or the U.S. Department of the Treasury.

I’m a Sole Proprietor. Should I be cutting checks to myself for wages?

The SBA guidance does not explicitly address this; however, to maximize the loan forgiveness, we recommend that during the 24-week period after you received the loan that you take disbursements equal to the lesser of $20,833 or the 2.5 month equivalent of the net profit shown on your 2019 Schedule C. Retain proof of these disbursements.

If I don’t bring any employees back, can I still get forgiveness for 40% of my loan used on utilities? 

At least 60% of the forgiveness amount must be for payroll costs. If you do not have any payroll costs, then, unfortunately, you would not qualify for the non-payroll costs such as utilities. However, if you can document that your business meets the FTE Reduction Safe Harbor, then you may still be eligible for the payroll forgiveness.

Can I increase my employees' pay to improve forgiveness?  

Yes, during the Covered Period, the SBA allows an increase in pay to employees in the form of an increased salary, hourly wages, bonuses, hazard pay, etc. These amounts are still restricted to a maximum pay of $100,000 per employee on an annualized basis. 

Can I increase my own pay? 

An owner’s payroll cost is limited to the lower of $20,833 or the 2.5-month equivalent of their compensation during 2019.

If I only bring back eight of my ten employees, can I pay them more to maximize the forgiveness? 

Reductions in full-time equivalents (FTE) and wages are calculated separately.  It would help if you attempted to maintain the number of FTEs or at least return to the same number of FTEs by December 31, 2020, to avoid a reduction due to a reduction in FTEs. Increased wages to the employees can increase the total payroll costs eligible for forgiveness but will not remove the penalty for having a reduction in FTEs.

What do I need to provide to show wages paid? 

See the loan forgiveness documentation guidance published from the SBA.

I’ve asked employees to come back, but they declined. How can I document they decided not to return, but still get loan forgiveness?  

Written proof that you offered to bring the employee back at similar pay to what they earned before the pandemic will be needed. This can be in the form of a signed letter, email, or text showing the offer and that they have declined. You also need to show proof that you notified the State unemployment office within 30 days of their refusal.

I’m a sole proprietor and work out of my home. How do I document what has been spent on utilities for my house? 

We recommend contacting your accountant. The SBA guidance indicates only expenses, such as utilities, reported on the business tax return may be included as non-payroll costs. 

I received an EIDL grant of $2,000 and a PPP loan of $3,000. Do I have to count the $2,000 against my forgiveness? 

Do not include the EIDL grant or loan funds in your PPP loan forgiveness calculation. The SBA will automatically adjust the forgiveness based on the EIDL proceeds. 

Do I need to pay the accrued interest on my PPP Loan? 

Interest began accruing on the PPP Loan as of the date of the note. The SBA guidance indicates the accrued interest will be included in the forgiveness. We understand this to mean that the SBA will forgive the accrued interest only on the portion of the loan that is forgiven. You will be responsible for the accrued interest on the unforgiven portion of the loan. 

What if I only use half the PPP money; when and how do I pay the rest back? 

You may voluntarily pay the loan balance at any time. If you apply for forgiveness of at least a portion of the PPP Loan, you may want to wait to pay the loan balance until you know the amount of your forgiveness. You will only qualify for the lesser of the calculated forgiveness and the loan balance at the time the forgiveness is approved. 

The Paycheck Protection Program Flexibility Act (PPPFA) was signed into law by President Trump on June 5, 2020. This new act provides businesses with greater flexibility around the SBA PPP program as well as created new rules for loan forgiveness.

*Applies to PPP loans after June 5, 2020.