Last Friday, May 15th, the SBA and Treasury released the PPP Loan Forgiveness Application. This application provides new elections and exemptions available to borrowers, as well as clarifies certain questions regarding PPP loan forgiveness. These elections/exemptions/clarifications include:
Payroll Costs – Provides borrowers with a weekly or biweekly payroll schedule the option to elect to use an Alternative Payroll Covered Period covering the eight week period that begins on the first day of their first pay period following their PPP loan disbursement date. This alternate period only applies to payroll costs; nonpayroll costs must still be calculated using the eight weeks immediately following the loan disbursement date.
Average Full-Time Equivalency (FTE) Calculation – Clarifies that a borrower’s Average FTE for the Eight Week Covered Period and two Reference Periods (February 15, 2019 – June 30, 2019 and January 1, 2020 – February 29, 2020) must be calculated by summing the quotient of each employee’s average weekly hours by 40 rounded to the nearest tenth (not to exceed 1.0). Alternatively, borrowers may elect to use a simplified method by assigning 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer than 40 hours per week.
FTE Reduction Exemptions – States that FTE reductions for the following cases will not reduce the borrower’s loan forgiveness:
- Employees who were laid off and rejected a good-faith, written rehire offer from the borrower.
- Employees who 1) were fired for cause, 2) voluntarily resigned, and 3) voluntarily requested and received a reduction of their hours
- In both cases above, the exemption only applies if the position was not filled by a new employee.
Employer Retirement Contributions – Clarifies that in order to be included in eligible payroll costs, employer retirement contributions must be paid during the Eight Week Covered Period or Alternate Payroll Covered Period.
Salary/Hourly Wage Reduction – Clarifies that the reduction in loan forgiveness for decreases in individual employee pay is based on employee’s average annual salary or hourly pay rate. Therefore, additional pay such as bonuses and overtime are not factored into this calculation.
Covered Mortgage Interest/Rent – Clarifies that mortgage interest or rent paid on real AND personal property are eligible nonpayroll costs.
Documentation – In addition to providing documentation for payroll and nonpayroll costs incurred or paid during the eight week covered period, borrowers must also provide the following documentation:
- Support for the borrowers Average FTE calculation for the chosen Reference Period, such as federal and state payroll tax filings.
- Proof that nonpayroll costs were obligated/in service prior to February 15, 2020, such as February 2020 account statements or invoices.
Here’s what we suggest that you can be doing now:
1. Calculating your Average FTE for the two Reference Periods and maintaining the documentation used.
2. Gathering documentation to prove that nonpayroll costs were obligated/in service prior to February 15, 2020.