PPP Loan Forgiveness Resources

The SBA has offered some flexibility for payroll during the eight-week (56-day) loan spending period (Covered Period).

     •  You now can choose to calculate payroll costs using an eight-week period starting the day your loan was funded (Covered Period) or using an “Alternative Payroll Covered Period” that aligns with your regular payroll cycle.

          -  For example, if you pay employees bi-weekly, you can start your “Alternative Payroll Covered Period” on the first day of your business’s first pay cycle following disbursement of your loan, making it easier to calculate your total payroll costs in the loan forgiveness application.

Enhancements through the PPP Flexibility Act announced on June 5, 2020:

     •  The period to spend your proceeds has been increased from 8 to 24 weeks.

     •  The amount of the loan that must be used for payroll is lower, at 60% rather than 75%.

Costs eligible for inclusion in your forgiveness application include expenses paid and expenses incurred.

     •  Payroll costs incurred but not paid during the last pay period of the Covered Period or the Alternative Payroll Covered Period are eligible for forgiveness if paid on or before the next regular payroll date.

     •  Eligible nonpayroll costs must be paid during the Covered Period 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.

The SBA issued guidance on full-time equivalent (FTE) reductions that – if not filled by new hires – can be exempted from forgiveness calculations. You can exclude the following situations from forgiveness calculations:

     •  Any positions for which you made a good-faith offer in writing to rehire an employee during the Covered Period, which was rejected by the employee;

     •  Any employees who during the Covered Period were terminated for cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours.

Your loan forgiveness amount may be reduced due to a statutory requirement concerning reductions in employee salary and wages. The amount of loan forgiveness will depend on whether salary or hourly wages during the Covered Period or the Alternative Covered Period were less than from January 1, 2020 – March 31, 2020.

     •  If salary and hourly wage levels were restored, you may be eligible for elimination of the salary and hourly wage reduction amount.

     •  You will need to complete a worksheet – only for employees whose salaries or hourly wages were reduced by more than 25% – to determine whether to reduce the amount of loan forgiveness for which you are eligible.

The SBA now allows you to qualify for a safe harbor exemption from loan forgiveness reduction if you restore FTE levels by June 30. This safe harbor applies if the following two conditions are met:

     •  You reduced your business’ FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and

     •  You then restored FTE employee levels by June 30, 2020 to the FTE employee levels in the pay period that included February 15, 2020.

Enhancements through the PPP Flexibility Act announced on June 5, 2020:

     •  You now have more time to restore FTE levels, by December 31, 2020 rather than June 30, 2020.

The SBA issued guidance on calculating reductions in employee salary and wages, and it involves:

     •  Determine if pay was reduced by more than 25%.

     •  Determine if the salary and hourly wage reduction safe harbor is met.

     •  Determine the salary and hourly wage reduction.

You may qualify for a salary and hourly wage safe harbor if certain criteria are met.

The PPP loan is intended to help small businesses keep employees on their payroll. Loans may be forgiven if an eligible small business uses it for full and part-time employee wages between the first eight and 24 weeks after the loan money is received.

     •  60% of the loan amount must be used for payroll costs. These include:

          -  Employee salaries - Salary cap is $100,000 per employee.

          -  Group health care benefits, retirement benefits, and state/local taxes on employee salaries.

          -  Note: 1099 employees are ineligible for loan forgiveness calculations.

     •  No more than 40% of the loan amount can be used for non-payroll costs in place prior to February 15, 2020. These include: mortgage interest, rent, and utilities.

A list of the documents each borrower must submit with its PPP loan forgiveness application is available on Page 10 of the SBA application here. You will have to provide proof of qualifying expenses, so you are encouraged to keep very good payroll and expense records. Some businesses may want to consider working with a tax professional or a CPA for help with recordkeeping.

The following actions may increase your likelihood of forgiveness after the eight-week period:

     •  Keep disciplined records: Create account codes or sub-codes so there’s a paper trail for qualified expenses.

     •  Keep supporting documents: Stay organized with your documentation of PPP fund usage - especially for payroll, interest, rent, and utilities payments.

          -  Payroll: Retain payroll registers and proof of ACH transfers. If you outsource this, save your payroll invoice that shows payroll costs and employee benefits.

          -  Utilities: Keep invoices and statements for electric, phone, internet, gas and heating providers.

          -  Rent and mortgage interest: Keep proof of payments.

TIP: Keep your documentation electronically. When it becomes time to submit your application with us, we will be using an online portal and your access to electronic records will be most efficient.