Update - Paycheck Protection Program (PPP) Loan Forgiveness Application

We are following up on the Treasury and SBA’s much-anticipated guidance to the Paycheck Protection Program (PPP) Forgiveness Application. Although the application answers questions to assist borrowers with expenditures related to the PPP 8-week loan period, there still remains inconsistencies and ambiguities to the guidance. 

Below is a summary of questions the application clarified:

Payroll Costs

Payroll Period

• Borrowers are eligible for forgiveness of payroll costs paid and incurred during the 8-week (56 day) Covered Period. The Covered Period begins the day the borrower receives funds from its lending institution.
• For administrative convenience, borrowers with biweekly (or more frequent) pay periods are allowed to elect to calculate eligible payroll costs using an Alternative Payroll Covered Period (APCP). The 8-week (56 day) APCP begins the first pay day of the next payroll period after the PPP loan disbursement date and ends within 56 days.
• Payroll costs incurred, but not paid until after the Covered Period or APCP are eligible for forgiveness, as long as they are paid on or before the next regular payroll date.
• Payroll is considered incurred on the day the employee earns the pay.
• Whichever method is selected, it must be used consistently throughout the application.

Wages

• The maximum payroll for an individual during the 8-week Covered Period or APCP is $15,385.
• The maximum payroll for business owners, self-employed individuals, and self-employed partners is the 8-week average paid for 2019, capped at $15,385.
• No conclusive guidance has been issued regarding whether wages for related persons such as spouses or children should be included in payroll costs eligible for forgiveness.
• No conclusive guidance has been issued regarding whether an employer could increase the wages paid to employees to maximize forgiveness.

Other Payroll Costs

• Other eligible payroll costs include the borrower’s portion of self-insured and employer-sponsored health plans, employer retirement plan contributions, and employer state and local taxes assessed on employee compensation paid or incurred during the 8-week Covered Period or APCP.
• It is still unclear whether group health insurance benefits and retirement benefits must be paid and incurred in the 8-week period. For instance, we still do not know whether a company could pay the entire amount of their 2019 pension plan during the Covered Period and get full forgiveness for the pension plan payment or make three health insurance payments during the covered period.

Nonpayroll Costs

• Forgivable nonpayroll costs must have been in place before February 15, 2020, and be paid during the 8-week Covered Period, or incurred during the Covered Period and paid before the next regular billing date.
• The next billing date can be on or after the Covered Period.
• Eligible nonpayroll costs include rent or lease payments, utility payments, and mortgage interest payments.
• Prepayment of nonpayroll costs is not allowed.

Loan Forgiveness Reductions

Full Time Equivalents (FTE)

• FTE employees are based on a 40-hour workweek.
• Any employee working 40 or more hours per week is counted as 1.
• Employees working less than 40 hours a week are fractional workers and calculated by dividing the average number of hours paid by 40 and rounding to the nearest tenth.
• Borrowers may elect to use a simplified calculation where employees who work 40 or more hours per week are counted as 1, and employees who work fewer hours are counted as .5.
• Borrowers who reduced their FTE levels beginning February 15, 2020 and ending April 26, and restored their levels by June 30, 2020 to its FTE level in the February 15, 2020 pay period, are exempt from a loan reduction based on FTEs.

FTE Exceptions

• Employees who are terminated for cause, voluntarily resign, or voluntarily request reduced hours can be included as FTEs as long as their position was not filled with a new employee.
• Employees who rejected good-faith, written offers to be rehired during the Covered Period or APCP can also be included in the headcount.

Salary/Hourly Wage Reductions

• Borrowers who reduced employees wages must complete the salary/hourly wage reduction worksheet.
• Borrowers must include employees whose wages were reduced by 25% or more during the Covered Period or APCP as compared to the period of January 1, 2020 through March 31, 2020.

We are closely monitoring this situation and anticipate additional guidance to be released later this week.

Contact your Whittlesey advisor for assistance completing your PPP Loan Forgiveness Application and loan certification documentation.