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June 2, 2020

PPP Loan Forgiveness FAQs

Posted by Armanino Financial Advisory Team

Updated 08/04/2020

The Paycheck Protection Program (PPP) loan forgiveness rules can be quite a confusing maze. Here are some answers to help you navigate the process.

New Questions

There are multiple steps to the review process:

  1. When you send us your calculation model and supporting documents, your application is not “final”, “official” or “submitted” yet. Uploading the spreadsheet and supporting documents simply moves your application to the next step in the process, even though you may have had to pass through a workflow step called “Review and Sign” (depending on your bank’s portal). You didn’t actually sign anything yet.
  2. Armanino will conduct an initial review of your application and supporting documentation. If any issues are identified, they will contact you via email for clarification or additional documentation needs.
  3. After the initial review is completed, Armanino will prepare and send you a “replica” of Schedule A of the application. This replica will contain all the correct and approved numbers for each line of Schedule A, which then feeds into the Application itself. If you had to enter “0” in the bank’s portal worksteps to move forward to submitting your documents, this will be your opportunity to see the forgiveness for which you qualify before “finalizing” your application. Note, you will also receive in the same email an unlocked copy of the Forgiveness Calculation Model for your records, which will show each of the numbers and how they were determined.
  4. A) Depending on your bank, you may simply be required to review the Schedule A, certify and sign, then upload the document to the bank’s portal. At this point, your application is considered “official” and there is nothing more for you to do. The bank will render its final decision and convey this to the SBA, who has up to 90 days to review and approve the decision. The bank will notify you when the SBA has completed its process.
    B) If your bank uses a portal with a workflow process, you will need to go back to the portal and navigate to the Schedule A workstep to re-enter the final figures on the “replica Schedule A” you were sent. From there, you will proceed through the workflow steps (Forgiveness — Supporting Files — Review and Sign to save your updated application. Even at this point, your forgiveness application still has not yet become “official,” which is defined as certifying and signing the completed application, because you haven’t been asked to sign anything yet.
  5. For banks with a workflow process — Armanino will conduct a second review of your application to be sure nothing was missed in the second workflow process using “replica Schedule A”. Assuming all is correct, you will be sent an executable PDF of the Forgiveness Application with Schedule A. You will be asked to initial the appropriate certifications and sign and date the application, which will render your application “Final and Official”. At this point, there is nothing more for you to do. The bank will render its final decision and convey this to the SBA, who has up to 90 days to review and approve the decision. The bank will notify you when the SBA has completed its process.

Those fields are auto-populated based on the Disbursement Date of your PPP loan (which you enter in cell A41 and is the same date that your Covered Period begins) and the number of weeks you selected for your Covered Period from the drop-down box in cell C23 (which automatically calculates the date your Covered Period ends). Remember, enter all data requested in the yellow cells and the white cells will populate properly.

Yes. The model will not accurately calculate FTEs without hours data. In your case, simply enter 37.5 hours for each person if you pay weekly, 75 hours if you pay bi-weekly, or 81.3 hours if you pay twice monthly. If your payroll register noted a deviation from the standard work week for an employee, incorporate that deviation into the data you enter for that pay period.

As it relates to Table 2 in the Pay Cycle Input tabs, where you are to input Hours Worked for the February 15, 2019 to June 30, 2019 period, you can safely skip entering data here if you are choosing to use the other baseline period of January 1, 2020 to February 29, 2020 (entered in Table 4). However, you do not have this option available to you for Table 1 in the tab, where you are to enter the gross wages paid per pay period. This data is required by the SBA for determining which employees are to be placed in either Table 1 or Table 2 of the Schedule A Worksheet (which the SBA requires each borrower to maintain for six years) and therefore properly considered or excluded from the Salary Reduction Factor calculation.

Enter all hours for which an employee was paid, whether worked or paid for other non-work reasons.

We are a law firm organized as a limited liability partnership. Is there a distinction between an LLP and an LLC as it pertains to how health benefits are applied for the partners who receive all of their income through K-1 distributions?

It depends on when you reduced that salary. If you reduced it between February 15, 2020 and April 26, 2020, then yes, reinstating that salary will provide you safe harbor from the Salary Reduction Factor. If, however, you took the reduction after April 26, 2020, reinstating it will not get you safe harbor.

In instances such as a leading zero (example, you entered 0569 but it shows as 569), that is fine. We will assume that it is missing the leading zero. Regardless, it will not create an error for you down the line as you complete the model, as this field is not used for any calculations.

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Forgiveness Calculation Model

Process

You understand correctly. Download the model from COVID page on the bank’s website, enter and save your data, then upload it to the portal using the link the bank will send to you via email when the portal is ready to begin accepting data. For banks that have a workflow for you to complete in the portal, you will use some of the output from the Excel model as input to the workflow.

The model was created in Excel for Office 365 MSO 64-bit. It is optimized to properly calculate in Excel 2016 or higher. Older versions of Excel will experience some limits in functionality, especially where advanced formulas are used that were introduced more recently than the older versions contained.

Yes.

You may begin entering historical data at any time, and then simply update as you get new data over time.

Yes. Please be sure to follow the naming convention for saving your file, which is described on Tab 0: Instructions & General Info.

Yes, it is required that you complete the full calculation model if filing using the Standard Form (which includes all the reduction factor calculations, Schedule A and Schedule A Worksheet).

No. If you choose this path, please download and complete the PPP Forgiveness EZ Calculation Model, which simply requires you to itemize your expenses in the non-payroll categories.

The review process cannot be initiated without the PPP Forgiveness EZ Calculation Model. This is a simple workbook for you to itemize the various expenses you included in Mortgage, Rent, Utilities or Owner’s Compensation items of the EZ form. Your application will be on hold until you complete this itemization model.

Armanino is providing an initial review of all forgiveness applications and comparing the supporting documentation with the data entered in the calculation model. This review is intended to validate the data and calculations, and takes place prior to you officially completing the final SBA Forgiveness Application and Schedule A (meaning, all data in the application is accurate and you have made all required certifications and signed the application).

Once the review is complete you will receive an email advising you the review has been completed. Attached to this email will be a PDF document that is a replica of Schedule A in the official application. You will be given instructions to complete your final application using the Schedule A data and to certify and sign the application in the appropriate places.

Upon receipt of you final, certified and signed application, the bank will conduct a final review and notify you of its forgiveness decision and recommendation to the SBA. The bank has up to 60 days to complete this step, and the SBA has an additional 90 days to review the bank’s decision, and assuming concurrence, reimburse the bank for the final forgiveness amount to be applied against the principal of your loan.

While we certainly understand the need to model various scenarios, legally and ethically neither the bank nor Armanino can conduct “test reviews” and provide advice on actions you should or should not take. You will need to evaluate your options on your own or in consultation with a retained professional advisory such as your CPA or attorney.

You should enter your total payroll in Line 1 of the EZ Form application directly on the portal. The downloaded calculation model is only for itemizing the non-payroll expenses.

No. If you want an estimate of your forgiveness amount before applying with your lender, you should use an estimating model in conjunction with your retained professional advisor. There are many available on the web, including one recently released by the AICPA. While these all have limitations and are not suitable for the actual forgiveness application due to traceability issues, they will give you a good sense of where you stand and can help you decide when to file your official application with the bank.

You can use either form you wish. The instructions for choosing the EZ form are listed on the website of the U.S. Department of Treasury under a link called “Loan Forgiveness Application Form EZ Instructions”. There you will find the relevant criteria for determining eligibility to use the EZ form, one of which reads:

“The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused.) See 85 FR 33004, 33007 (June 1, 2020) for more details.”

No. The Covered Period, as defined, is either eight weeks or 24 weeks. It is not something in between, no matter when you finished spending your money. That is not the same thing as choosing to file your forgiveness application early — this you can do at any time, but it does not change the duration of your Covered Period as defined.

Only you can answer this question, because it’s your choice. If you spent all your loan proceeds in eight weeks, there isn’t much point in waiting for 24 weeks to file your application, but you do have that option. Conversely, if you needed more than eight weeks to complete spending your PPP money, you probably would want to choose the 24-week Covered Period unless you want to skip getting forgiveness and would rather pay the money back to the bank.

You will be sent a replica of Schedule A after the initial review is completed, but before your forgiveness application becomes “official,” which is defined as certifying and signing the completed application. This replica will contain all the correct and approved numbers for each line of Schedule A, which then feeds into the Application itself. You will also receive in the same email an unlocked copy of the Forgiveness Calculation Model for your records, which will show how each of the numbers was determined.

Please enter “0” in the Schedule A step of the portal, as instructed by the error message you receive in the model. We will send the proper calculations back to you to enter in that step of the portal after we complete our initial review. Your application is not “final” or “submitted” until you complete this second step, then certify and sign the application, so rest assured you will have a chance to review your forgiveness outcome before finalizing the application.

The most likely culprit is cell A50 on Tab 1. Initial Data Input. This is where you are to put the date you are submitting your Forgiveness Application. If this cell is blank, it will throw errors downstream because the safe harbor calculations are based in part on this date. Even if you don’t know the precise date for submission, estimate it and don’t leave this cell blank.

It is also quite likely that your Excel 365 version may need to be updated. Microsoft releases new versions many times each year. The version this model was built in is version 2002 (Build 12527.20880) which was released in March 2020 as a preview for Semi-Annual Enterprise Users and officially updated and put into current production on July 14, 2020. This version contains the brand new XLOOKUP functionality, which is used heavily in this model. This function was only introduced into Excel on January 30, 2020. You can check your version of Excel by clicking on the File menu in the upper left corner, then selecting Account near the bottom of the left pane. This will open a page that includes a button called About Excel; next to that, it should list your version and license that your business is using.

You are doing nothing wrong. For some borrowers, your Forgiveness Calculation Model has a Tab 8 for entering data into the bank portal. If your model does not have this tab, it’s because your bank does not require it. If this error is displayed, it is because you are using an older version of Excel than the version used to create the model. Most older versions do not have the capability to read and execute some of the advanced commands that were necessary to prepare this complex of a model, and so the calculations would not display properly. It’s okay, the model isn’t broken and works just fine. Simply follow the instructions — enter “0” in the appropriate box in the bank portal’s workflow and continue with data entry and documentation upload. Following the initial review of your data, you will be sent a “replica Schedule A” and a copy of the unlocked and properly calculated Forgiveness Calculation Model for your records. You will use this “replica Schedule A” to go back to the bank portal and enter the correct figures where you previously entered “0”. From there, you will be able to complete your official forgiveness application.

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Initial Data Input Tab

Only on the Initial Data Input tab in cell A47. The model will automatically deduct this advance from your forgiveness, per SBA instructions.

No, do not leave this field blank as safe harbors are calculated based on this date. Enter the date that you expect to file for forgiveness — it’s okay if it’s not completely precise.

You should not include furloughed employees in either cell. That said, the SBA is asking for this data only as an indicator of your eligibility to apply for a PPP loan originally; they did not ask either of these when you applied. The data you enter for these two items does not factor into any calculation for forgiveness, so it’s okay if it’s not 100% accurate.

There are only two Covered Period options: eight weeks or 24 weeks. There is no option to pick a Covered Period in between. However, you can file your forgiveness application “early,” meaning when you have exhausted the PPP funds, if you so choose. Understand that doing so does not change the duration of your Covered Period. So, if you decide to file at 16 weeks, you still have a 24-week Covered Period for purposes of the model and the calculation rules for the Salary Reduction Factor, so you should select 24 weeks in the model.

You can use the EZ Form and the accompanying itemization spreadsheet. This is an error that occurs due to your using an older version of Excel than the version used to create the model. Your version cannot read the functions used in cell C50, so it stays defaulted to “No.” Ignore this and continue using the EZ Form if this error occurs for you.

Use the date you received the loan this marks the beginning of your Covered Period.

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Pay Cycle Input Tabs

No, you do not. If you have already made the decision to use the January-February 2020 period as your FTE baseline, you do not need to enter hours data for 2019. Similarly, if you can certify that you had no wage reductions that would trigger the Salary Reduction Factor and have the documentation to support it in an SBA audit, then you could skip entering the 2019 payroll data. Keep in mind that the rules around the Salary Reduction Factor are intricate and easy to mis-apply.

No. The purpose of the 2019 pay data is to identify employees who may be subject to the Salary Reduction Factor. Summary level data such as a full year of pay will not meet this need, because the rule relates to employees who exceeded a defined amount of pay in any single pay period, not in the aggregate.

The purpose of the 2019 pay data is to identify employees who may be subject to the Salary Reduction Factor. This rule relates to employees who exceeded a defined amount of pay in any single pay period, not in the aggregate. Furthermore, there are two time periods in 2019 that are used as possible baselines for the FTE Reduction Factor, so the hours data in Tables 2 and 3 (if appropriate) is necessary to properly perform that calculation.

We have not been successful in getting the third-party payroll providers to produce a standard report that produces the input the model requires. It is possible that you may be able to develop a custom report that does so; if this is the case, you should be able to export to Excel and then copy the data into the appropriate cells in the Forgiveness Calculation Model. Otherwise, you will have to enter the data manually. Early experience suggests a benchmark of being able to enter bi-weekly pay going back to January 1, 2019 for 8-10 employees per hour.

The first issue in your question is that you cannot extend your Covered Period to December 31 unless your loan funds on or after July 17, in which case your Covered Period automatically ends on December 31. You can extend to 24 weeks from the date your loan funded if it funded before June 5, at your option. Your Covered Period is automatically 24 weeks if it funded between June 5 and July 17. The second issue in your question is the notion that your payroll costs will be three times your loan amount. You cannot claim forgiveness for spending your own money. The government wants to know how you spent its money, not your own. Thus, your payroll costs can be no more than your loan amount. So long as you can show that you spent PPP money for payroll, you can stop when you’ve exhausted the total loan amount assuming you are completely confident that you captured all forgivable spend correctly. If you spent at least the total loan amount during the Covered Period, any reduction factors will be applied against the total loan amount, regardless of whether you spent more than that on payroll during the Covered Period. Example: Loan amount = $200,000, payroll in Covered Period of 24 weeks = $300,000, FTE Reduction Factor = 20%. Forgiveness would be $160,000 ($200,000 less 20%), not $200,000 ($300,000 less 20%, rounded down to total loan amount).

You are doing nothing wrong. You are simply using an old version of Excel that doesn’t recognize grouped and collapsed columns and so can’t open them. Please go back to the bank website and download the current version of the model that has all columns opened for you already. You can simply copy and paste any data you have already entered from the original model to the new one you just downloaded.

Yes, so long as the payroll reports you ran have the same information that the calculation model requires.

No. The SBA form has not stated that companies may select an alternative to the last four digits of the SSN. There are worksheets attached to the application and they need to stay aligned in the event of an audit.

Keep it consistent throughout, so you’ll have to adjust somewhere. In this example, enter the employee data as hourly throughout since such employees have variable hours while salaried ones do not. When they converted to salaried, simply enter 40 hours for each pay period if weekly, 80 hours if you pay bi-weekly, or 86.7 hours if you pay semi-monthly.

No, no and no. Part-time status is irrelevant, terminations must be for cause, and a layoff is exactly what the PPP program was trying to prevent, so you can’t get an exception for that either.

The model is not designed to handle such a change. Simply load them all in as-is (i.e., semi-monthly pay in 2019 and bi-weekly pay in 2020, with “Semi-Monthly” chosen in cell B5 for Pay Cycle Frequency) and do not worry about the change in frequencies.

First, you don’t need to do any calculations of headcount — the model automatically does both the standard and simplified FTE calculations based on the hours worked data your entered in the Pay Cycle Input tab(s). For the employees you described, simply list them in Table 1 of the Pay Cycle Input tab and put a “Yes” in column E next to their name indicating they qualify as an Exception. The model will take it from there.

No. This exact scenario is why there are two tabs for two different Pay Cycles, Input 1 and Input 2, as outlined in the How-To Video, the User Guide and the webinars that have discussed this.

You could simply put a note to that effect in cell B11 of the Pay Cycle 1 Input tab, with no wage or hours information on the rest of line 11 to the right in the model, so the reviewer knows you didn’t skip entering necessary data. In such an instance, simply leave Tables 2 and 3 blank since those are asking for 2019 hours information that does not exist.

Enter the date that corresponds to your payroll report for ease of reference in the review process.

You have it correct. Despite the fact that the June 12, 2020 payroll was paid after the Covered Period, 100% of it was incurred during the period so you can claim all of it for forgiveness. Similarly, you get to claim the portion of your payroll that was incurred during the Covered Period in your last week (work performed June 7 through June 11, 2020) but not any costs incurred on June 12 or June 13 as they occurred after the end of your Covered Period.

If they were not paid using any PPP money, exclude them from the model entirely. Make a note in cell C11 of the Pay Cycle 1 Input tab that indicates which employees in the payroll report were paid using grant funds and not PPP funds, then leave all cells in line 11 to the right of cell C11 blank. To be clear, this note goes in the first line of employee data, using cell C11 under the heading “Last 4 of SSN” — do not enter this note in cell B11 where Employee Name goes; just leave cell B11 blank.

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If, on the other hand, during the Covered Period part of their pay came from grant funds and part came from PPP funds, do include the employee in the model and list all pay received, regardless of source. Create a supplemental schedule that explains the issue, lists the affected employees and the amounts that were paid using non-PPP funds, note the existence of this schedule in cell C11 of the Pay Cycle 1 Input tab, then upload the supplemental schedule to the portal as a General Document.

Guaranteed payments for non-equity partners should be added to the salary they were paid in the period the guaranteed payments were made, so that there is one entry for amounts paid to the employee in the pay period. Example: Salary payment (W-2) of $4,000, Guaranteed payment (K-1) of $3,000, enter $7,000 in the pay period for that non-equity partner.

Such non-standard payments to employees should be added to the salary they were paid in the period when the payments should have been made if they are corrections, or in the next pay period if they are payments such as bonuses, commissions or severance. Do not enter “off-cycle” pay periods in the model — stay consistent so the proper calculations can be made.

List all paid hours in the Hours tables (Tables 2-4).

It doesn’t matter what you used as the basis for your loan when you applied. Now, it’s only about how you spent the loan, so include all employees paid during the Covered Period and the baseline periods. Also, you only need to complete Table 3 if you consider yourself a seasonal employer and wish to use that as your baseline period for purposes of calculating the FTE Reduction Factor. If you anticipate using either of the two “standard” look-back periods, use Tables 2 and 4 to enter the hours everyone worked. Just to be clear, you enter the wages of all employees, seasonal or not, in Table 1.

No, do not skip entering this data as none of the FTE calculations will be correct. Salaried employees should have their hours entered as:

  • 40 hours for each pay period if you pay your employees weekly
  • 80 hours if you pay bi-weekly
  • 86.7 hours if you pay semi-monthly

No, the model does all calculations based on detailed data. Summary data will not work in the spreadsheet. As to ACA data, the ACA defines FTEs differently than the SBA is using for the PPP program, so this is definitely not a correct approach.

Enter them in total, net of any employee contributions, i.e., only enter the amount paid as the employer’s portion of the expense.

If all of their pay during the Covered Period was from non-PPP sources, exclude them from the model entirely (including from 2019 and Q1 2020 data so you don’t accidentally trigger a reduction factor that shouldn’t exist). Make a note in cell C11 of the Pay Cycle 1 Input tab that indicates which employees in the payroll report were paid using EPSLA funds and not PPP funds, then leave all cells in line 11 to the right of cell C11 blank. To be clear, this note goes in the first line of employee data, using cell C11 under the heading “Last 4 of SSN” — do not enter this note in cell B11 where Employee Name goes; just leave cell B11 blank.

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If, on the other hand, during the Covered Period part of their pay came from EPSLA funds and part came from PPP funds, do include the employee in the model and list all pay received, regardless of source. Create a supplemental schedule that explains the issue, lists the affected employees and the amounts that were paid using non-PPP funds, note the existence of this schedule in cell C11 of the Pay Cycle 1 Input tab, then upload the supplemental schedule to the portal as a General Document.

Owner’s fringe benefits are only includable here if the owner was paid a salary as an owner-employee of a corporation. Otherwise, these costs are not forgivable.

Only include such items if the owner was paid a salary as an owner-employee of a corporation. Otherwise, owner compensation goes in Tab 7. Owner’s Comp.

Yes, in that they asked for and received a reduction of hours.

You can ignore those red cells if the check sum reads $0.00. That is a simple rounding error in the formula and not meaningful. That said, those errors have nothing to do with seeing your results on the Forgiveness App tab. You get errors there because you are using an older version of Excel that can’t recognize the advanced formulas the model uses. Just enter 0 in the portal for those boxes as instructed; after the initial Armanino review, you will be given a copy of the workbook with those cells completed along with a “replica Schedule A” to enter into the portal prior to signing and submitting your official application.

No. You need actual costs to complete the application, not projected ones.

The rule is that the cost must have been incurred or paid during the Covered Period. Your May health insurance was incurred during the period even though it was paid before the period began. Similarly, your April 14-30 health insurance was incurred inside the Covered Period though it was paid prior. So yes, you can include both.

You are correct that those are not forgivable expenses because they were covered already under a different federal program. For purposes of the calculation model, simply make a note in cell C11 of the Pay Cycle 1 tab that instructs the reviewer to see a supplemental schedule that details such exceptions, then create that schedule and include it in your upload to the portal.

Without knowing the loan amount, this is a difficult question to answer. The net result of the caps is that you are, in effect, using company funds to pay the balance for the highly compensated employees.

That is partially correct and partially incorrect. The Flexibility Act did indeed extend the Covered Period to 24 weeks, at the borrower’s option. However, that does not mean that the borrower can pick any eight weeks in the midst of 24 for forgiveness. You may choose either an eight-week period that begins with the date you received funds or a 24-week period in which to spend the money, but not a hybrid of your own making.

Any individual who meets the “self-employed” test (“owner employees” who are sole proprietors, Single Member LLCs, General Partners, S-Corp shareholder/employees and C-Corp shareholder/employees) should be listed on Tab 7. Owner’s Comp. Do not list them in Tab 2. Pay Cycle 1 Input because the costs input in Tab 2 show up in Schedule A on other lines than line 9, where Owner’s Compensation is to be reported.

This cell was inadvertently locked in the version that was distributed. Just ignore the issue and leave the field blank.

Hours paid.

To eliminate the Checksum error, simply add the total hours of the salaried employees that were not listed on your payroll report to the sum on that report and enter that number in the Forgiveness Calculation Model. For example, if your report shows you paid hourly employees 500 hours in a given pay period, but you also had 5 salaried employees for whom you’ve entered 80 hours each, add these 400 salaried hours (5 times 80) to the 500 hourly employees’ hours and enter the result (900 hours) in the Excel model. The bank reviewer will be able to quickly see what you have done and understand the logic.

Ignore the red dates and checksums if they are $0.00. This is a conditional formatting issue that you do not need to worry about.

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Utilities Tab

Simply list any eligible Transportation expenses on the Utilities tab 6. You will note in cell A3 of this tab that allowable Utilities expenses includes Transportation.

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Portal

Yes. When you initially sign into the portal, you will have an option to add “Trusted Advisors” to have access to the portal. These could be assistants, other staff, your CPA, or anyone you choose.

Yes, so long as you have listed them as one of your “Trusted Advisors.”

Certifications and signatures will be handled electronically via DocuSign.

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Allowable Expenses

Payroll Costs

If the PEO made payments to a state or local authority on behalf of you as the employer, ask your PEO for appropriate evidence of the payments made. If you paid the costs directly, simply include those expenses in Table 7 of the Pay Cycle 1 Input tab in the Forgiveness Calculation Model. Please remember that State and Local Taxes for purposes of forgiveness exclude any amounts you withheld from your employees’ gross wages and remitted (or your PEO remitted) to the government. These costs are ONLY for taxes paid by the employer based on employee compensation.

Yes, that is included as employee pay, not owner’s compensation. In the Forgiveness Calculation Model, you would list this person and their compensation in the Pay Cycle 1 Input tab.

First, the dates you cite for your Covered Period are incorrect. If your eight weeks began on April 24, the last date of your Covered Period is June 18, not the following day. To your specific question, yes, you can claim the portion of your final payroll that was incurred prior to the end of your Covered Period, meaning any wages earned from June 14 through the end of June 18. You cannot claim any wages earned beginning June 19.

Yes, it’s allowed, using the guidance from SBA that defines an eligible payroll cost as “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 Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).” So, payroll costs that are paid during the Covered Period, but incurred prior, are deemed eligible based on this final sentence.

Yes.

No. The Alternative Covered Period is only available for payroll costs. All other forgivable expenses are bound to the Covered Period that begins with the date your loan was funded.

You are allowed to take the portion of the insurance costs that relate to the Covered Period, meaning from April 16-30.

Yes.

The Alternative Payroll Period option was put in place to simplify the calculation of payroll costs for businesses who pay weekly or bi-weekly, so that the business could use whole payroll cycles rather than have to apportion stub cycles at the beginning and end of the Covered Period. For an eight-week Covered Period, this means either eight complete pay cycles (weekly payers) or 4 complete pay cycles (bi-weekly payers). For 24 weeks, this would be 24 or 12 complete pay cycles. There are no “paid but not incurred” or “incurred but not paid” issues under the Alternative Payroll Period option.

Yes, this approach is correct.

No, you can’t take credit for the entire last payroll if your Covered Period ended in the middle of it. You may only count the portion that was incurred during the period, even though it was paid afterwards. The key words in the IFR you quote are “incurred during” the Covered Period. It says nothing about payroll costs incurred after the Covered Period, only about costs that were paid after but incurred during. The chart below illustrates what may and may not be included in costs based on the incurred/paid rules.

Allowable Expenses

First, let’s correct your opening statement. The maximum compensation for a 24-week Covered Period is $20,833 only for owners, not for employees. Employees are capped at $46,154 for this length of time. Based on your last sentence, we infer that you are asking about employees and not owners. If you were to apply for forgiveness after week 12, there is no guidance to suggest whether the maximum compensation for any employee is the full $46,154 of the 24-week Covered Period or half that ($23,077) for just 12 weeks. A technical reading of the guidance to date only references the eight-week maximum and the 24-week maximum, with no mention of what happens in between. Clearly you will have elected a 24-week Covered Period, since the only other option is an eight-week period which you have passed. Theoretically, this opens a very large loophole wherein a business could potentially pay a $240,000/year executive at full rate and get forgiveness for it, simply by filing for forgiveness after 10 weeks instead of eight when they would have been limited to just $15,385 ($240,000 per year = $4,615.40 per week times 10 weeks = $46,154). This is obviously not the intent of the Act, so we expect future guidance to clarify and close this loophole. Regardless, taking such a stance runs a high likelihood of SBA scrutiny.

Unless the priests own the church, which would probably defeat its non-profit status, their employment costs should be included in your Payroll Costs and not Owner’s Compensation.

Because they are part of your employee’s taxable income, and presumably reported on your Form 941 each quarter, these can be included in your Payroll Costs for your forgiveness application. If they were not taxed as income, they could not be included.

The Alternative Covered Period applies only to your payroll costs and not other costs. Those other costs will be for the period beginning the date you received your PPP funds. The Alternative Covered Period begins with the first day of the first complete pay period that starts after you received the funds.

Distributions are not forgivable uses of PPP funds.

Question 1: No. Pick either eight weeks or 24 weeks but remember the “incurred but not paid” rule described elsewhere. You also now have the ability to file for forgiveness before your 24-week Covered Period ends if you have used up all PPP funds. Question 2: You have 10 months from the end of your Covered Period to apply for forgiveness.

To your first two questions, no — those are not part of taxable wages. Your third question relates to the Salary Reduction Factor, in which you compare the Covered Period average wage to the average each employee earned in Q1 2020, not just January-February 2020.

The threshold used by the SBA is a 20% ownership stake.

This change came about when the PPP program was invented. See CARES Act language signed into law on March 27, 2020: Section 1102 of the CARES Act, which is what creates paragraph (36) and outlines the Paycheck Protection Program, defines in 1102(a)(2)(36)(A)(viii)(I)(bb) “the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as prorated for the Covered Period.” The forgiveness provisions outlined in Section 1106 state in paragraph (a)(8): “the term “payroll costs” has the meaning given that term in paragraph (36) of section 7(a) of the Small Business Act (15 U.S.C. 636(a)), as added by section 1102 of this Act.” So, it’s always been there.

To your first question, you have it correct. The amount paid for payroll in the Covered Period (in this case, paid May 1) can be included even if the cost was incurred prior to the Covered Period, so long as it is the immediately contiguous period. As to your second question, only the part that occurs during the Covered Period may be claimed. In this case, you do not get the benefit of the entire June 26 payroll, so you will have to figure out the amount you incurred through June 17 for forgiveness purposes.

Covered Period day one is the day the funds hit your bank account. So, in this case, you can include the payroll you issued on April 15, 2020.

No.

We assume you meant you are using a PEO company and not a PTO company. As a co-employer, your PEO company should be able to provide you with the necessary reports and documentation. Just ask them.

No. Workers comp is not an allowable payroll cost expense regardless of how you accrue it.

To calculate payroll costs, add up the total amount paid to your employees during the Covered Period you choose. Apply the maximum limit threshold explained elsewhere where necessary. Then add in any employer payments made for health insurance, retirement benefits or state/local taxes on compensation. Their 2019 pay level is irrelevant to how much payroll cost you can claim for your Covered Period in 2020. The 2019 pay comes into play only in determining whether they should be considered for the Salary Reduction Factor later on, so ignore it for payroll cost purposes.

Incorrect. Payroll costs include W-2 employees only. Contract employees paid through a 1099 are not to be included in your payroll cost calculation.

Without speculating on your reasons, the answer is no.

Correct.

Yes, the AICPA got that one right. Understand that employee withholdings are deducted from gross pay. Also understand that the payroll cost calculation uses gross pay for each employee. Therefore, those withholdings are “allowable” because they are included in gross pay. However, the payroll taxes paid by the employer, separate from the amounts withheld from the employees, are ineligible because otherwise you would be using federal government money to pay federal government taxes. If they wanted to do that, they would have simply waived the requirement to pay taxes and kept it simple. On that notion, though, they do now allow any business, regardless of whether it has had PPP money forgiven, to defer (not avoid) paying the FICA portion of payroll taxes (6.2%) through the end of 2020, with half of the deferral amount due December 31, 2021 and the other half due December 31, 2022.

No. To calculate payroll costs, add up the total amount paid to your employees during the Covered Period you choose. Apply the maximum limit threshold explained elsewhere where necessary. Then add in any employer payments made for health insurance, retirement benefits or state/local taxes on compensation. Do not simply take the last payroll and multiply by eight.

Yes.

No, that’s not how it works. For this or any other employee, you can only include up to $15,385 if using an eight-week Covered Period, or $46,154 if you choose 24 weeks. The $100,000 maximum is an expression of annualized pay, meaning how much they would have been paid if you had persisted for a full year at the same level you paid the person during the Covered Period.

Aside from possible employee relations issues this may cause, this is allowable. You could pay them $15,385 every week if you want — you would just be limited in your forgiveness claim to $15,385 once, assuming you are using an eight-week Covered Period.

No. Wages are capped at $15,385 during an eight-week Covered Period, or $46,154 during a 24-week Covered Period. There is no individual weekly cap.

For purposes of totaling your payroll costs during your Covered Period, add the total of each payroll you run during the period, plus any pay that your employees may have earned before the end of your Covered Period but that you didn’t pay until the next regular payroll cycle after your Covered Period. It doesn’t matter if the amount of pay varies widely from payroll to payroll — just add it up.

Yes. If in any single pay period in 2019 an employee was paid an amount that, when multiplied by the number of pay periods the business had in 2019 (i.e., annualized), totals more than $100,000, they are to be excluded from the Salary Reduction Factor calculation. The amount the individual was paid could include salary, wages, commissions, bonuses, overtime pay, sick leave pay, tips or other sources of taxable income. For ease of understanding, the limit in any single pay period in 2019 is as follows, depending on the frequency with which you pay your employees:

  • Weekly payroll (52 pay periods): $1,923
  • Bi-Weekly payroll (every 2 weeks) (26 pay periods): $3,846
  • Semi-Monthly payroll (twice per month) (24 pay periods): $4,167
  • Monthly payroll (12 pay periods): $8,333

Yes. Gross salary or wages includes an employee’s standard paycheck, plus any bonuses, commissions, overtime pay, tips, etc. that are considered taxable income. In total, they are subject to the $100,000 annualized maximum.

Yes. Every employee who works for you for even one paid hour during the Covered Period should be included in your payroll costs. It is to your benefit to include them.

Yes. Every employee who works for you for even one paid hour during the Covered Period should be included in your payroll costs. It is to your benefit to include them.

No. The only place where there is a $100,000 cap is on annualized gross salary or wages, which means a maximum of $15,385 if the borrower chooses an eight-week covered period or $46,154 for a 24-week period. The employer’s portion of pension payments and other retirement benefit payments, along with health insurance benefit payments, may also be forgiven in total regardless of the employee’s gross salary.

Yes.

Allowances and reimbursements are typically like other expense reimbursements — non-taxable and not considered wages — so they are not allowable for forgiveness. However, if you leased a vehicle for an employee to use for business purposes, that lease payment could be included in your rent costs.

Yes.

Unlike a temporary agency, a PEO (Professional Employer Organization) contracts with your organization as a “co-employer”. The PEO will file payroll tax returns and also administer benefit plans as your “co” employer. Employees paid in a PEO relationship will be provided benefits and you’ll work with your PEO in a relationship that allows you to control the employee. You will jointly provide benefits. When the employee files for unemployment, they can name you as the employer of record. The difference is documented in the contractual differences between the PEO and Temp Agency arrangements you engage in.

Prepayments are generally not allowed in the forgiveness program. However, in this example, because the payment would have been made in the next regular billing cycle and covered a cost that was incurred during the Covered Period, all three payments are able to be included in the forgiveness application.

Yes. Include all employees in your payroll costs, regardless of whether they are full-time or part-time.

For questions on self-employed persons, an excellent reference document is the IFR released on April 14. In that document, it was clear that owners of either sole proprietorships or pass-through entities can be forgiven for paying themselves the smaller of $15,385 (assuming an eight-week period) and 8/52 of their reported 2019 self-employment income. For borrowers choosing the 24-week period, this amount adjusts to the smaller of $20,833 (which is 2.5 months of $100,000) or 20.83% of their reported 2019 self-employment income. However, they may not be forgiven for spending on health or retirement benefits that are passed-through and deducted on their personal tax returns.

Employer costs for federal programs, including Social Security, Federal Income Tax, Federal Unemployment Tax Act and Medicare are expressly prohibited from being included in forgiveness by the CARES Act. Specifically, the law reads that “taxes imposed or withheld under chapters 21 (FICA and Medicare), 22 (Railroad), or 24 (FIT) of the Internal Revenue Code of 1986 during the Covered Period” are excluded. The federal government would essentially be giving you the tax money back if they allowed this. On the other hand, state taxes paid by the employer are forgivable, but not if those amounts were withheld from the gross pay of the employees.

The payroll spend will be eligible to be forgiven if it was used for W-2 employees, regardless of the calculation that was used to secure the loan originally.

The $100,000 cap is in place throughout the PPP program, originally in calculating your loan amount. In the forgiveness phase, this cap limits the amount of forgiveness available for payroll costs. This amount is also used to determine the employees who may be subject to the Salary/Hourly Wage Reduction Factor.

The Alternative Covered Period cannot pre-date the loan and would need to start after you received the funds.

The SBA has not defined seasonal employees; however, the clear implication is they are referring to summer workers. Employers using seasonal employees — from agricultural workers to lifeguards — have the option to include either of the two elective baseline periods or a consecutive 12-week period between May 1 and September 15, 2019.

Yes. PPP loans cover payroll costs, including costs for employee vacation, parental, family, medical and sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.

Yes.

Yes, anything that goes toward employee welfare such as dental, vision and HSA contributions (the employer portion) can be included in health insurance benefits.

No. The loan amount is determined by the loan document on record, not how much you have repaid. Furthermore, for forgiveness purposes the 60% payroll threshold is relative to what you spent during the Covered Period, not what the total loan amount was.

Yes, and it would be helpful to do so because it helps you get your FTE and wages up.

The $100,000 per person limit remains. Do not exclude employees who make more than $100,000 annually. Instead include payroll costs for those employees up to that limit, prorated for the number of weeks in your Covered Period.

There are two places where the $100,000 figure comes into play: payroll costs and the Salary Reduction Factor. For purposes of calculating payroll costs, you include all employees no matter what they are paid, but for those paid more than $100,000 annually you may only count gross salary paid up to $15,385 or $46,154 depending on the number of weeks during the Covered Period. Any pay over that amount will not be forgiven. For purposes of calculating the Salary Reduction Factor, you exclude those highly paid employees from the Salary Reduction calculation altogether.

Yes, all contributions to health insurance and pension programs for your employees are to be included in payroll costs for the forgiveness calculation.

This is correct.

Yes, any payroll paid during the Covered Period counts toward forgiveness.

No, do not divide by the number of payments. Instead, the maximum amount allowable to be claimed for any employee is either 8/52 or 24/52 of $100,000, depending on the number of weeks in your Covered Period.

No, that is incorrect. The rules have changed, but let’s first correct the misperception in your question. The payroll threshold test did not say that you could only get 75% of whatever you spent on payroll forgiven — that would be to multiply payroll costs by 0.75. Rather, you would divide by 0.75, in effect “grossing up” your payroll costs. So, under the old rules, at least 75% of the total amount spent (not just the amount that you spent on payroll) needed to be spent on payroll costs in order to maximize forgiveness. Under the new rules enacted by the PPP Flexibility Act, this 75% threshold has been reduced to 60%. In either scenario, every payroll dollar funded by PPP money will count toward forgiveness except for any amounts paid in excess of $15,385 (eight-week Covered Period) or $46,154 (24-week Covered Period) to any single employee.

As a semi-monthly payer, you do not have access to the Alternative Covered Period concept. Your Covered Period began the date you received the funds for both payroll and non-payroll costs.

No. Those employees are not subject to the Salary Reduction Factor because they made more than $100,000 in 2019.

Yes, but only if you make the Profit-Sharing contribution during the Covered Period or in the next pay cycle following the Covered Period.

You should include them as a normal business practice which you can demonstrate through historical records.

According to guidance from the SBA interim final rules, the answer is both. The guideline is 60% or more of the forgiveness amount, which is the amount spent during the Covered Period, must be spent on payroll in order to maximize forgiveness. A separate interim final rule notice also specifies that 60% of the total loan proceeds are to be spent on payroll. This would apply to any loan amount that is carried over beyond the Covered Period.

Yes, you are. The PPP Flexibility Act reduced the amount required to be spent on payroll costs from 75% to 60%. However, subsequent guidance from the SBA and Treasury indicates that they are carrying over their prior interpretation that allows for a graduated forgiveness amount, even if a borrower fails to meet the 60% threshold. In this instance, the non-payroll costs will be reduced by an amount necessary to establish payroll at a 60% level. For example, a borrower who spends $540,000 on payroll and $460,000 on non-payroll (total: $1 million), would fail the 60% test, so they would have to lower the forgivable portion of their non-payroll costs to $360,000. This would adjust the ratio to be $540,000 on payroll (60%) and $360,000 on non-payroll (40%). The net effect of this adjustment would be to reduce their total forgiveness amount from $1 million to $900,000.

Yes. Paid time off and severance payouts to employees can be included in wages up to the limit of gross compensation per person in the Covered Period. However, keep in mind that eliminating those positions will also affect your FTE count in determining forgiveness reductions.

Yes. State taxes that are the employer’s cost can be included in the forgiveness calculations. Any state taxes that you withheld from the employee’s gross pay should be excluded because those costs are already captured in the gross wages part of the Payroll Costs calculation.

Yes. Technically you could cover a larger share of your employees’ health benefits during the Covered Period and submit it for forgiveness.

Yes. Any regular payments of wages, commissions, or bonuses can be included and may be forgiven up to the $100,000 per person annualized limit prorated for the length of your Covered Period, meaning maximum pay during the Covered Period is either $15,385 or $46,154 per person depending on the chosen time frame.

Fringe benefits are not included in the $100,000 cap. The $100,000 annual maximum (either $15,385 or $46,154 depending on the Covered Period) applies only to the gross salary or wages earned by the employee and does not include any benefits or other additional payroll costs.

Yes. The wage maximum is $100,000 annually per person. If you choose an eight-week Covered Period, this means that you can include no more than $15,385 per person on the forgiveness application. If instead you choose a 24-week Covered Period, the maximum you will be allowed to claim for any employee on your application is $46,154.

To properly accrue for and document earned wages at the end of your loan period that have not been paid but will be paid in the next payroll cycle, you should prepare a schedule that shows:

  • For hourly workers: hours worked in that accrual period and rate of pay
  • For salaried workers: their annual rate of pay divided by 260 to get their daily pay rate, then multiplied by the number of workdays between the final payroll and the end of the Covered Period

Yes.

The alternative payroll schedule ensures you don’t have to move your pay dates to match your Covered Period and enables you to more easily calculate costs for the forgiveness application. If your payroll schedule starts four days after your loan is funded, you can start counting your covered payroll on the first day of the next pay period (example: your loan funds on May 6 and your next pay period starts on May 11, you can start your Covered Period on May 11 for Payroll Cost purposes only). You may not change your Covered Period dates for non-payroll costs.

Eligible employers have either a bi-weekly payroll schedule or one that is more frequent, such as weekly. Bi-weekly means that you pay payroll every two weeks, or 26 pay periods per year. This does not apply to employers that have fewer than 26 pay periods per year, such as semi-monthly (example: paydays on the 15th and last day of the month) or monthly payers.

All three of those things can apply, providing you never pay an employee twice for the same hour or same period:

  • Any payroll cost paid during the Covered Period may be included in the forgiveness application (example: I received my funds on April 28. I paid my payroll on April 30 covering the period of April 15 to April 30.) This is allowable under the rule that allows costs based on the date that the paychecks were distributed.
  • At the end of your Covered Period, you may include payroll costs that have been paid to the payroll provider but not yet paid to your employees (example: your Covered Period ends June 14, with a payroll due on June 15, and you funded the payroll to your payroll provider on June 12. This too is allowable.
  • At the end of your Covered Period, your employees have earned pay that has not yet been paid but will be in your next regular payroll run. (example: you pay your payroll semi-monthly on the 15th and 30th, and your Covered Period ends June 24. You may include in your forgiveness application the payroll costs incurred, but not yet paid, for the period from June 15 to June 24.)

Gross wages without any other deductions for benefits or for taxes that the employee pays, state tax expense paid by the employer, health insurance benefits paid by the employer, and retirement plan benefits paid by the employer.

Yes. That’s how the cap was arrived at in the first place — it’s not a randomly generated number. They are one and the same. $46,154 = ($100,000 / 52 weeks) x 24 weeks.

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Retirement

ESOP contributions may include cash contributed to the plan, which is used to make a payment on a loan, or cash contributed to the plan for any purposes permitted under the plan document, or stock contributions to the plan.

There isn’t clear guidance on this yet. It’s unknown if the full amount of the ESOP contribution is forgivable, or if only a pro-rated amount of an annual contribution will be forgiven. It’s possible the SBA will issue further guidance on this in the coming weeks. 

No. To be forgivable, any profit-sharing contributions that you make should be related to the Covered Period. Our interpretation is that retirement plan expenses should be both paid and incurred in the period that is covered, or, incurred in the immediately preceding contiguous period and paid in the Covered Period, or, incurred in the Covered Period and paid in the immediately following contiguous period. 

A defined contribution plan is just like any other retirement plan, and if you can allocate the portion that is attributable to the period now, if it’s calculable, you could do that. You could put it in your forgiveness calculation, but you would also have to fund it and pay it so that it was both earned and paid in the Covered Period. 

For self-employed people generally, the answer is no. If an owner is on payroll in a corporation, receives a W-2, contributes to their own retirement and the company matches their contributions, the portion that is the employer matching expense can be included in the forgiveness calculation up to a maximum of 2.5 months’ worth of the employer’s 2019 contribution.

Yes. The employer cost that is 401(k) match expense can be included.

No. The 401(k)-match expense should be applicable to the Covered Period and not to a future period.

In general, yes. Contributions to an ESOP are considered tax contributions to a qualified retirement plan. Contributions should be forgivable if paid within the Covered Period.

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Mortgage and Other Debt

You may use PPP funds to pay eligible mortgage expenses; however, only the interest portion of that will be considered a forgivable expense. All principal payments made with the PPP money will not be forgiven.

Payments of other business debt that is non-mortgage related is an allowable use of PPP funds; however, none of those payments will be considered forgivable expenses. 

Yes and no. You may use PPP funds to pay non-mortgage related debt; however, none of those payments will be included in forgivable expenses.

Yes. An equipment loan is considered a mortgage for purposes of forgiveness.

Yes. Interest on personal property loans for business assets, such as equipment loans or loans used to buy delivery trucks, may be included in expenses for forgiveness. To be clear, the principal portion of payments made for these loans must be excluded from the forgiveness calculation.

No.

Yes, so long as they were in place prior to February 15, 2020 for real estate or other personal property associated with the business.

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Rent and Other Lease Expenses

No. Only rent is an allowable and forgivable expense. If the bill from the landlord clearly includes maintenance, common area maintenance charges, property taxes and insurance, those charges should be stripped out of the PPP request for forgiveness. 

Yes, so long as the storage unit rental was in place prior to February 15, 2020. Remember to provide your rental agreement for that storage space as documentation.

No. Rent expense needs to be paid or incurred in the Covered Period.

Yes. Leases of personal business property are included in the forgiveness calculation.

Yes. Business vehicle leases are an acceptable use of PPP funds and are included in the PPP calculations for forgiveness.

Yes, but in separate categories. The car leases should go in the Rent and Other Lease Expenses category while the gas expense should go under Transportation in the Utilities category.

Trucks and fuel are okay so long as the trucks are leased in the borrower’s name; leased employees are not. If all costs are combined into one amount without any supporting detail, you will need to provide an estimate for the amount that relates strictly to the truck lease and fuel costs.

Our rent statement shows both base rent and expense recovery. Can I only use PPP funds to pay the base rent or can I also include expense recovery?

No, because the expense was not incurred during the Covered Period.

No, they are not, since they are not covered by a pre-existing lease agreement. This is an operating expense.

Yes, if an expense is accrued for up to the last day of the loan Covered Period, and then paid on the next billing cycle, the amount applicable to the Covered Period can be submitted in the forgiveness application (“incurred but not paid in the period”).

Yes. The date you received funds is day one of your Covered Period.

If there is a separate lease agreement for the parking, then you can count it. If not, then it is an operating expense and not a rent/lease cost.

Yes.

Yes.

Yes, since the agreement was in place at February 15, 2020 and your documentation can demonstrate that.

Yes, so long as you have a lease agreement in place as of February 15, 2020.

No. Only the rent portion of a triple net lease is forgivable.

You will need to develop an estimate of the portion that is allocated to rent as opposed to the other, non-forgivable expenses, and include that in the documentation you submit with your application.

Renters on full service gross leases are not allowed to include common area maintenance or property tax expenses in their rent costs for forgiveness either, especially because those expenses are supposed to be paid by the landlord and not the tenant.

Unfortunately, no. Lease costs are allowed only so long as the lease agreement was in place at February 15, 2020.

You cannot use the entire payment in your rent costs calculation. That is effectively a pre-payment, which are expressly not allowed. You will need to pro-rate the lump sum payment for the length of your Covered Period.

Report the entire amount. Income from sub-leases is not a reportable item.

Yes.

Yes. That is a forgivable rent expense so long as:

  • There is a written agreement
  • It has not changed during the course of the Covered Period
  • It was in place prior to February 15, 2020

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Utilities

The only SBA guidance that has been issued thus far relates to self-employed individuals, and it states that gas which is used for driving a business vehicle is a forgivable use of PPP loan proceeds. There has been no further guidance to define the transportation costs, such as vehicle maintenance expense or other costs associated with owning a vehicle. Those have not been defined as being either forgivable or not forgivable yet.

In terms of forgiveness, you can submit for those costs providing that was your habit before February 15, 2020 as well.

No.

No.

No, these costs are not specified as a utility expense.

Because you paid the bill during the Covered Period, even though it was for a consumption period that pre-dated your Covered Period, you are allowed to include this cost.

No. Utilities costs guidance specifies that only internet access costs are to be included for IT.

Yes. You will need to determine the amount of the utility cost that was incurred from the beginning of the billing period to the end of the Covered Period in such situations.

This is a forgivable expense.

No. Expense reimbursements are not allowable expenses, they are payables.

No. This is not specifically highlighted in any guidance as a forgivable expense.

No. Those are not allowable uses of PPP funds.

If those were required expenses for your employees to perform their duties during the Covered Period, and you can demonstrate that this was in place prior to February 15, 2020, then yes, those expenses can be claimed as internet access and telephone expenses.

Yes.

No. They are not listed Utilities that qualify for forgiveness according to the CARES Act.

Water, gas, electric, internet access and phone access. Also, gasoline used in any vehicle that is owned or leased by the business. Reimbursements for employee cell phone expenses are forgivable as long as you can show that the business reimbursed employee cell phone bills before the pandemic as well.

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Self-employment

No. Only self-employment income is to be included in the loan forgiveness.

If your spouse is truly an employee and performing duties to the organization, the answer is yes. Be prepared to show that your spouse was a part of your staff before the loan was given to you or show that your spouse is filling in for someone who has refused employment.

No, not for self-employed persons who report their income on a Schedule C because they’re sole proprietors, nor for those who report their self-employment earnings on an S Corp return, or those who are owner-members of an LLC.

The definition here applies specifically to LLC owners, S Corp owners and sole proprietorships, specifically pass-through entities. 

No, because technically not-for-profit organizations do not have owners. 

The amount paid to owner-employees or self-employed individuals or general partners does not go in either Table 1 or Table 2 of the PPP Schedule A worksheet; instead, that compensation is listed on line 9 of the PPP Schedule A under the heading “Compensation to Owners” and is included in total payroll costs which are summed on the next line.

This depends on your form of organization, but these are two separate questions, though neither is dependent on the amount the owners are paid. Regardless of their pay, their healthcare costs are not to be included in payroll costs, with the exception of payments made for owners in a C Corp who are paid as employees. Separately, in the case of retirement contributions, payments made on behalf of owner-employees by an employer that is a corporation (such that the contributions are listed on the corporate tax return) are eligible for forgiveness. These retirement contributions for the owner-employees are limited to 2.5 months’ worth of the employer’s 2019 contributions for them. Retirement contributions for any owner in a non-corporate form of organization are not eligible for forgiveness.

Yes, but be careful to document these as “guaranteed payments” and not “distributions.” It is subject to the $100,000 cap — which is either $15,385 or $20,833 depending on the length of the Covered Period — and K-1 documentation will be required.

Unemployment filing is expressly for those who are unemployed and not receiving paychecks. Therefore, a person receiving payment from an employer, whether funded by PPP sources or not, must disclose that they are receiving paychecks. Payments will reduce eligibility for unemployment benefits.

Yes.

Yes.

This is a mixed answer. If the business is a C Corp and the owner-employee receives a W-2, then the answer is yes. If not, the answer is no as it relates to the main forgiveness application. However, for the EZ forgiveness application, there is a provision that allows for retirement contributions for owner-employees up to 2.5 months’ worth of the 2019 contribution. There is nothing in the main application instructions that indicates this same allowance is available there.

No. Limit owner’s compensation to 20% or greater owners.

No. You can provide profit distributions to shareholders at any time, you just can’t claim forgiveness for them.

Per the 19th Interim Final Rule issued on June 17, 2020: “The Administrator, in consultation with the Secretary, has determined that it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C or F to either eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week Covered Period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week Covered Period per owner in total across all businesses. This approach is consistent with the structure of the CARES Act and its overarching focus on keeping workers paid and will prevent windfalls that Congress did not intend. Specifically, Congress determined that the maximum loan amount is generally based on 2.5 months of the borrower’s average total monthly payroll costs during the one-year period preceding the loan. For example, a borrower with one other employee would receive a maximum loan amount equal to five months of payroll (2.5 months of payroll for the owner plus 2.5 months of payroll for the employee). If the owner laid off the employee and availed itself of the Safe Harbor in the Flexibility Act from reductions in loan forgiveness for a borrower that is unable to return to the same level of business activity the business was operating at before February 15, 2020, the owner could treat the entire amount of the PPP loan as payroll, with the entire loan being forgiven. This would not only result in a windfall for the owner, by providing the owner with five months of payroll instead of 2.5 months, but also defeat the purpose of the CARES Act of protecting the paycheck of the employee. For borrowers with no employees, this limitation will have no effect, because the maximum loan amount for such borrowers already includes only 2.5 months of their payroll. Finally, at least 60 percent of the amount forgiven must be attributable to payroll costs, for the reasons specified in the First PPP Interim Final Rule and SBA’s interim final rule posted on June 11, 2020.”

Owners are entitled to take the smaller of the maximum compensation allowed ($15,385 if opting for an eight-week Covered Period, or $20,833 for a 24-week time frame), or a proportionate amount of their 2019 net income (8/52 if 8 weeks, 2.5 months if 24 weeks).

Self-employed people have always been allowed to include such costs in their forgiveness application. What has changed, as of June 17, is the elimination of this language from the third Interim Final Rule (which was published April 14): “it is appropriate to limit loan forgiveness to a proportionate eight-week share of 2019 net profit, as reflected in the individual’s 2019 Form 1040 Schedule C.” They limited it thusly because “allowing such a self-employed individual to treat the full amount of a PPP loan as net income would result in a windfall.” Now, “it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C or F to either eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week Covered Period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week Covered Period per owner in total across all businesses.” This appears to relieve the prior limitation on overall loan forgiveness, such that non-payroll costs are additive to owner compensation up to the limit of the loan amount itself. For borrowers with no employees, this change is unlikely to have a material effect, but those with employees now have a possible avenue for additional forgiveness. Further clarification may be forthcoming in subsequent guidance.

If they are paid a salary that is reported on a W-2, then those costs should be captured on the employee pay tab (Pay Cycle 1 Input tab). If they are paid distributions or other non-guaranteed payments which they report on Schedule C of their personal income tax return, then those amounts should be captured in the Owner’s Compensation section.

Yes, that is included as employee pay, not owner’s compensation. In the Forgiveness Calculation Model, you would list this person and their compensation in the Pay Cycle 1 Input tab.

Any salary paid to an owner by your payroll provider is presumably reported as W-2 earnings at the end of the year, and as such should be reported on the Pay Cycle 1 Input tab so the amounts entered in a payroll cycle column match the total at the top (as denoted by a $0.00 in the CheckSum cell). The amounts that should be listed in the Owners Comp tab 7 of the model are non-salary amounts that an owner receives that are reported on their Schedule C or as guaranteed payments on a K-1.

Self-employed people are also subject to the $100,000 per year maximum, or $15,833 for the 8-week Covered Period forgiveness application. In the event of a 24-week Covered Period, this maximum increases to $20,833. If a self-employed person filed a Schedule C on their 2019 tax return (meaning that they’re a sole proprietor or a single member LLC), the net profit on the Schedule C for that self-employed person is also used to calculate the maximum allowable payroll cost for forgiveness. The rule allows for 8/52 of 2019 net profit for an eight-week Covered Period, or 2.5 months’ worth of 2019 net profit for a 24-week Covered Period. The 2019 Schedule C is required documentation for loan forgiveness in this instance. The self-employed person is required to use the smaller of the two maximums ($15,833 vs. 8/52 of 2019, or $20,833 vs. 2.5 months of 2019 net profit) in their forgiveness application.

No. Partners are limited to a pro-rata portion of their 2019 taxable profit found on their schedule K1 multiplied by .9235 to eliminate employer FICA.

No. Owner compensation caps are applied across all combined businesses owned by each taxpayer. Each taxpayer was only eligible for one PPP loan.

No. Sole proprietors and SMLLCs are limited to a pro-rata portion of their 2019 taxable profit.

No. S Corporation owners health plan premiums cannot be submitted for forgiveness.

Yes. S Corporation owners can submit the employer (corporation) paid portion contributed to their retirement plan.

Yes. C Corporation owners can submit the employer (corporation) paid portion of their retirement and health plans.

Business owners and shareholder/employees put their wages, or earnings from self-employment, on Schedule A, Line 9.

C Corp shareholder/employees put their wages on Schedule A, Line 9.

2019 compensation is found on corporation owners form W2. Partners will refer to schedule K1 reported Earnings from Self Employment. Sole proprietors and Single Member LLCs will find their business Net Profit on form Schedule C or Schedule F.

For an eight-week loan Covered Period, a self-employed person may submit the lower of $15,385 or 8/52nd of 2019 compensation. For a 24-week period, the amount is the lesser of $20,833 or 2.5 months (2.5/12) of 2019 compensation.

Self-employed persons, also referred to as “owner employees” in this context, are those who are sole proprietors, Single Member LLCs, General Partners, S-Corp shareholder/employees and C-Corp shareholder/employees.

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Disallowed Costs or Costs That Are Not Included in Payroll Costs

No.

No. Those are not taxable wages.

No. Wages included should be earned and/or paid in the applicable loan Covered Period. It would be inappropriate, for example, to prepay fourth-quarter wages in the loan Covered Period.

No. The employer part of Social Security tax (also known as FICA) is not to be included in the expenses for payroll when considering loan forgiveness.

Those costs are already included in their gross pay and should not be deducted from your forgiveness calculation.

No. In this category, you only include the portion of benefits that are actually paid by the employer. The employee portion paid via a payroll deduction is already included in the employee’s gross pay calculation. 

No. The bill should be apportioned between the part that is employer cost, which is covered, and employee cost, which is already included in their gross pay calculated elsewhere. Counting the entire health insurance cost would result in “double-dipping” by counting the employee portion twice.

No. That is a vendor bill and not an employee payment. You can only include W-2 employees that are on your Form 941 payroll returns. 

No, because those wages have been covered and earmarked and will be reported as paid for by another entity, they should not be part of your PPP forgiveness.

No. Only include the portion of union dues that relate to employee benefit costs for health, retirement and leave. You cannot include other costs such as membership, apprenticeship or industry advancement costs that may also be part of the union dues you pay.

You may include those costs only if the commissions are paid during the next payroll cycle following the end of the Covered Period.

No. The intent of this program is to cover health insurance premiums related to wages paid during the Covered Period and not in other periods.

No.

No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. Those are considered operating expenses.

Staff provided by temporary employment agencies receive a W-2 from the agency, not from the underlying client. Therefore, they are not employees of the client, do not participate in the client’s benefits programs and do not list the client as the responsible employer if they apply for unemployment benefits. Temp staff provided by an agency are no different than staff working on a client IT project that are provided by a consulting firm. The temp agency is a vendor, like many others contracted by the client. In this regard, temporary agency staff are comparable to 1099 contractors, who are very clearly prohibited from being included in payroll costs per Treasury guidance.

Temp agency staff are not allowed. Anyone employed by a staffing agency is, by definition, not your employee. The PPP loan only covers those you employ, and who will receive a 2020 form W2 from you. If you directly employ part-time staff, include them. Those you co-employ in arrangement with a PEO can be included. Provide a copy of your co-employment agreement confirming that you are responsible for taxes, benefits and other employment matters.

No. You cannot include workers comp, long-term care or voluntary paid disability insurance.

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Forgiveness Reduction Factors

Salary Reduction Calculation

Only put on Table 1 those employees who, during every pay period in 2019, earned less than $100,000 at an annualized rate. Also list any employees hired during 2020 on Table 1 regardless of their compensation. All employees who earned more than $100,000 annualized in any pay period in 2019 go in Table 2.

For each employee, find the maximum amount that they earned in any pay period in 2019 and multiply that gross wage by the number of pay periods that you had in 2019. For example, put on Table 2 anyone who:

  • Earned more than $8,333 in any pay period for a monthly payer (12 pay cycles)
  • Earned more than $4,167 in any pay period for a semi-monthly payer (24 pay cycles)
  • Earned more than $3,846 in any pay period for a bi-weekly payer (26 pay cycles)
  • Earned more than $1,923 in any pay period for a weekly payer (52 pay cycles)

Only salary and hourly wage reductions that were greater than 25% need to be calculated for purposes of the Salary Reduction Factor.

No. You only count the portion that was greater than the 25% cut. So, in this example you would only use 5% (30% minus 25%) and not the full 30%.

Overtime pay is paid to hourly employees. For those employees, you use the employee’s standard average hourly wage (e.g., $20.00 per hour) as the basis for determining a reduction, such that any reduction that exceeds a 25% cut (e.g., standard hourly wage reduced from $20.00 per hour to $14.00 per hour) must be included. Overtime becomes relevant after this step when you multiply the value of the reduced hourly wage beyond 25% (in this example, the difference between $15.00 and $14.00, or $1.00) by the average number of weekly hours during Q1 2020 (which may have included overtime hours). For salaried people, bonus compensation is not included for purposes of the salary reduction. The calculation is looking at salary on an average basis during the Covered Period versus average salary during the baseline period and comparing the two.

Compare the average salary or hourly wage paid to each employee during the Covered Period with the average salary or wage that they earned during the first quarter of 2020 from January 1 through March 31.

While there is no specific guidance yet issued on this point, our interpretation is no. Employees who were fired for cause are excluded from the FTE reduction calculation if the position was not backfilled — they get listed at the bottom of Table 1 on the Schedule A Worksheet. If the position was backfilled, then there is not a significant impact to the number of FTEs. It follows that this should be the case for the Salary Reduction Factor as well, in consideration of the spirit of the CARES Act. However, we expect future guidance will be issued to clarify or correct this interpretation.

Correct, it asks for “hourly wage”, meaning the rate per hour that you pay. Because you did not lower anyone’s hourly rate during the Covered Period as compared to Q1 2020, there is no Safe Harbor necessary or available to you. Furthermore, you had no employees with their hourly wage reduced by over 25%, so you will have no reduction factor to apply. On the other hand, had you actually had some employees whose average rate per hour did decline by more than 25%, then you would need to go through the Safe Harbor calculation (to see if you have that available to you), and if not, you’d have to go through the Salary/Wage Reduction Factor calculation which is where the impact of your Q1 overtime hours would show up — In this calculation, you multiply the amount of the hourly rate that exceeds a 25% reduction by the average hours worked during Q1, not during the Covered Period.

The actual amount of loan forgiveness depends in part on whether the average salary or hourly wage of certain employees (those under $100,000 annualized in every 2019 pay period, or anyone hired in 2020) during the Covered Period or Alternative Payroll Covered Period was less than during the first quarter of 2020. If the average during the Covered Period was more than 25% lower for any employee, the Salary Reduction Factor applies. There is a Safe Harbor available, but it only is available if the average salary or wage was lower during the period of February 15 through April 26 than the individual employee’s pay was at February 15 AND the borrower restores the salary/hourly wage levels back to the February 15 level by the earlier of either December 31 or the date that the application is submitted to the lender. This calculation needs to be performed for each employee individually, not in the aggregate. A similar Safe Harbor provision exists for restoring FTE cuts. Again, the salary/wage reduction Safe Harbor applies only to those employees who earned an annualized rate of pay of $100,000 or less during every single pay period in 2019 or were hired in 2020.

Include any employee hired in 2020 in Table 1 for the calculation, regardless of their compensation level.

You have to calculate both the Salary Reduction Factor and the Safe Harbor for each employee, not in the aggregate across all employees.

No. An employee who was laid off and not backfilled goes into Table 1 of the Schedule A Worksheet at the bottom as an FTE Reduction Exception, which means you do not have to calculate a Salary Reduction Factor for those exceptions.

An employee who refused an offer to return to work goes into Table 1 of the Schedule A Worksheet at the bottom as an FTE Reduction Exception, which means you do not have to calculate a Salary Reduction Factor for those exceptions.

The Salary Reduction Factor is calculated using a reduction in the hourly rate for non-salaried employees. In your example, you would not be required to calculate a reduction percentage because the hourly rate did not decline by more than 25%. Any hourly rate reduction that is larger than a 25% reduction (meaning they were paid less than 75% of their baseline hourly rate) needs to be included in the Salary Reduction Factor calculation. The math requires that you take the amount of the hourly rate that is beyond the threshold (e.g., for a 30% cut from $20/hour to $14/hour, you would use $1/hour — the difference between the actual cut and the allowable 25% cut to $15/hour) and multiply this by the average number of paid hours during Q1 2020, then multiplying this product by the number of weeks in your Covered Period (either eight or 24).

You are missing the distinction between payroll costs and the Salary Reduction Factor. Both use $100,000, but for different purposes. For payroll costs calculations, you are correct that compensation is capped at $100,000 on an annualized basis (either $15,385 or $46,154 depending on the length of your Covered Period). For the Salary Reduction Factor, the $100,000 threshold applies to annualized 2019 pay in any one or more payroll periods and determines whether you need to include or exclude that employee from the calculation. It is unrelated to the payroll costs calculation.

For Salary Reduction Factor calculation purposes, you need to list every employee in Table 1 because they were hired in 2020. If any of them experienced a pay reduction of more than 25% as compared to Q1 2020, then you will need to calculate the reduction for those employees.

The Safe Harbor is not a function of your overall wages. It is calculated on an employee-by-employee basis.

Somewhat. The basic math is still the same, except at the very end where any employees who are subject to the factor would have their average weekly reduction multiplied by 24 weeks instead of eight weeks.

The 2019 data is necessary to determine which employees earned more than $100,000 in any single pay period, so they can be properly placed in either Table 1 or Table 2 of the Schedule A Worksheet for purposes of calculating the Salary Reduction Factor.

No for two reasons. First, highly compensated individuals (over $100,000 annualized in any pay period in 2019) are excluded from the Salary Reduction Factor calculation; in other words, you can cut those people as much as you want with impunity as it relates to your forgiveness application. Second, your math is off even if you did need to include this person — a 50% reduction would make their pay $100,000, which is $50,000 less than the allowable reduction threshold of $150,000 (a 25% cut from their baseline pay), not $25,000. Furthermore, you are using annual amounts of pay; the Salary Reduction Factor calculation actually looks at the amount of the reduction during the Covered Period only.

The Salary/Wage Reduction Factor calculation uses the average hourly wage paid to the employee, without regard for overtime wages. However, if an employee does have a reduction beyond the 25% threshold, you would multiply that excess reduction in the hourly wage by the average weekly paid hours for the employee during Q1 2020, which does include any overtime hours they worked in the quarter.

No, that is not a correct presumption. If the employee’s commission rate stayed unchanged, but the outcome was lower because they failed to meet the first quarter performance levels on which the commission is based, it would not qualify as a Salary/Wage Reduction. Conversely, had the employee performed at an equivalent level but you lowered the commission plan so that the payout was less, that would trigger the Reduction Factor (if the rate dropped by more than 25%).

Yes, but let’s be clear about what you are asking. If you are asking for purposes of the Salary Reduction Factor, a person who is paid bi-weekly that received an amount greater than $3,846 in any single pay period in 2019 would be considered an “over $100,000” person — but ONLY for the Salary Reduction Factor. Do not confuse this $100,000 rule with the $100,000 maximum compensation cap. They are different rules that operate differently, but just happen to use the same line of demarcation. If you are asking whether that person has exceeded the $100,000 maximum compensation cap based on this one payroll, that is not the correct test. If you choose an eight-week Covered Period, the test is not what happens in any given payroll, it is what happens across the entire eight weeks — the total they could be paid for forgiveness purposes is capped at $15,385, regardless of how that amount was distributed across the eight weeks. The same holds true for a 24-week Covered Period, except the maximum amount there is $46,154 instead.

As it happens, “reductions” are the diametric opposite of “increases”. A wage reduction in excess of 25% means that the employee was paid at a rate that was less than 75% of what their hourly wage had been previously. That means their pay went down. Conversely, if their hourly wage was increased by more than 25%, that means their pay went up. Since what we are talking about here is the Salary Reduction Factor, we only want to focus on people who had a reduction. There is no Salary Increase Factor that you have to calculate for forgiveness, though any such employees would likely be happier.

If you have not reduced the hourly rate of pay or the salary of an individual, then the Salary Reduction Factor does not apply, even if you reduced hours. This factor looks only at rate of pay per unit of measure (rate per hour or salary per year) to determine if the factor should apply. Any furloughed employees, however, will bring the separate FTE Reduction Factor into play.

The test you are referring to is the second criterion in the instructions for using Form 3508EZ. There, you must meet two sub-tests to qualify: 1) you did not reduce rate of pay by more than 25% during the Covered Period compared to the Q1 2020 average; and 2) you did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of your Covered Period.

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The “active evaluation period” in both sub-tests ends with the final day of your Covered Period. After this date, you are permitted to take whatever steps necessary for your business needs without impacting loan forgiveness. Keep in mind, though, that there is a difference between “rate of pay” and “hours worked” — you seemed to combine those two concepts in your final question. Any reduction in hours means an FTE Reduction if it occurs during the Covered Period, and there is no 25% grace amount available on this reduction factor like there is on the Salary Reduction Factor.

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FTE Reduction Factor

Definitions

An FTE is defined as 40 hours worked per week.

No. Not even in France or Italy.

No. An FTE is 40 hours per week. This employee would be considered a 0.9 FTE.

No. Employees need to work 40 hours per week to be considered an FTE.

The SBA has chosen to abide by the prevailing wage and hour laws and defined an FTE as 40 hours, regardless of what the ADA or ACA defines as full-time work.

Yes. You must calculate their total hours worked and paid (up to 40) during the Covered Period and divide by the number of weeks to get the average hours per week, then divide this amount by 40 to determine the individual’s FTE.

Forgivable expenses include qualified expenses both incurred and paid in the loan Covered Period. In addition, guidance allows costs that were incurred prior to loan funding but are paid during the Covered Period to be included (“paid but not incurred in the period”). This applies to costs from the immediately contiguous period prior to funding, not to pre-existing liabilities from earlier periods. Further, costs that are incurred before the end of the Covered Period but not paid until after it ends are also eligible to be included (“incurred but not paid in the period”). However, to include any costs “incurred but not paid”, the borrower must pay those costs in the next immediate billing cycle following the end of the Covered Period and provide evidence of payment in their supporting documentation.

FTE stands for “Full-Time Equivalent” employee. In the PPP program, full-time is defined as 40 hours of work per week. Any employee paid a salary is considered one full-time equivalent unless they are on a reduced hours program where their salary is reduced accordingly (e.g., an employee with a salary of $83,200 asks for a reduced schedule of 30 hours per week instead of 40, and their salary is reduced accordingly to $62,400 (75% of $83,200)). Such employee would be considered a 0.75 FTE because of the reduced standard hours, even if they worked more than 30 hours some weeks due to business needs.

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If you have no “part-time employees,” then your FTE count is simply 1.0 times the number of employees you have, because presumably everyone is paid a straight salary every pay period regardless of hours worked.

Interest payments on non-mortgage debt obligations are “allowed” by Section 1102, paragraph 36(F)(i)(VII) of the CARES Act, which is part of the section that originated the PPP program. However, those payments are not included in the list of “forgivable” expenses by Section 1106, which details the forgiveness aspect of the law. Therefore, they are “allowable” but not “forgivable”. The fact that these particular costs may not be included in forgiveness does not suggest there will be future penalties associated with spending PPP funds on them; it just means you will need to pay the money back as part of the loan repayments.

Yes. The definition of FTE for purposes of the forgiveness application is a 40-hour work week; however, you are also calculating FTEs in a baseline period for comparison in the FTE reduction calculation. In both cases, if an employee worked 35 hours in the baseline period and 35 hours in the Covered Period, they would equal each other at 0.875, or rounded to 0.9 FTEs, which would not result in a reduction.

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Baseline Period

No. For calculating the FTE Reduction Factor, you must compare your average FTEs during your Covered Period with the most favorable prescribed baseline period: either February 15 through June 30, 2019 or January 1 through February 29, 2020. Seasonal businesses may alternatively elect a consecutive 12-week period between May 1 and September 15, 2019. You may not use Q1 2019. The calculations you made to determine the loan amount are irrelevant to the forgiveness calculations.

Only to the extent that the number of employees you listed on your loan application should match the number that you put on your forgiveness application on the line “Employees at time of loan application”. Any calculations you did for your loan application are not relevant to your forgiveness application because they focused on “average 2019 monthly payroll”, which is not used anywhere in the forgiveness application. Now, the focus is on FTEs, not employees, with one exception: FTE Reduction calculation criterion #1, which states “If you have not reduced the number of employees or the average paid hours of your employees between January 1, 2020 and the end of the Covered Period,” you can be exempt from the FTE Reduction Factor.

That was the correct calculation to do for your loan application. It is irrelevant to your forgiveness calculation because you’ll use FTE, not headcount. On the forgiveness application itself, you will be asked to provide headcount at the time you applied for your loan. The SBA is asking for this data simply as a verification that the number of staff comply with the PPP general limitation of 500 or fewer staff.

No. Your FTE Reduction Factor calculation definitely should not include independent contractors, only W-2 employees. Compare the average W-2 FTEs during your Covered Period with the average W-2 FTEs you had during the prescribed baseline period, disregarding any independent contractors. The fact that you included them erroneously when you applied for your loan is not relevant to this calculation.

Yes, you will need to consider the impact of the laid off employee in your FTE Reduction Factor calculation, as the employee affected your FTE count during the baseline period of February 15 through June 30, 2019. Remember, you have the option of choosing that period as your baseline or the period of January 1 through February 29, 2020, when that employee did not affect your FTE count. Choose the more favorable period.

No. It is supposed to be 2019. This is one of the baseline periods used in the FTE Reduction Factor.

For measuring your FTEs, you use your Covered Period which begins on the date your loan funded. For purposes of determining if you qualify for Safe Harbor from the FTE Reduction Factor, the baseline date is February 15, 2020 and that is not optional.

You are to use the payroll that includes the specified dates, such as February 15, 2020 or April 26, 2020.

You are to match up the numbers so as not to get any advantage or disadvantage. If you remove them from the baseline period, remove them from the Covered Period, and vice versa.

In calculating FTEs during any period, use the people employed at the time. FTE comparisons use an aggregation of people, not necessarily the same people. For example, if a business had one full-time employee in 2019, that person resigned in early 2020 and the business replaced the person, the business still has one full-time employee for comparative purposes.

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Calculation Approach

No. You can only use one method.

No. You may only use one method for both periods.

No. You have to use an FTE count in this analysis for forgiveness. Headcount is not the same as FTE count.

Something else. You can only use a maximum of 40 hours per week for each employee, so overtime does not count. Total those hours and divide by the number of weeks in your Covered Period to get the average work week. Take this number and divide by 40 to get the FTE calculation for each employee.

Yes. Calculate the FTE equivalent as one week out of the 8.6 weeks, which is a 0.1 FTE for the baseline period.

Yes, enter those employees as full-time, assuming you are paying them for the equivalent of a 40-hour work week.

FTE is not the same as dollars. If you did not reduce their hours you still have your full FTE count. However, if you reduced both their hours and their pay you would count them as 0.8 FTE.

Yes. Do not leave this section blank. You would simply put a 1.0 indicating Safe Harbor was met on line 13 of the Schedule A, and you would put zero on line 3 in Schedule A for the salary and hourly wage reduction and check the box in the line 3 text. 

Yes. You do not have to have the same people; you just need to have the same number of FTEs.

No. You cannot claim forgiveness greater than your loan amount. Forgiveness relates solely to how you spent the PPP loan proceeds, not to how much you spent in aggregate on payroll and other authorized uses in 24 weeks, regardless of source. In your situation, clearly you will have spent all the PPP funds, along with a significant portion of operating funds you held independently from the PPP funds. You can’t claim forgiveness on your use of non-PPP funds. In this example, your gross forgiveness amount would begin with the total loan amount received, against which the FTE Reduction Factor would be applied, netting you 75% forgiveness.

Not likely. Part-time employees during your Covered Period will be calculated at either the actual FTE level (such as 0.8 FTE) or the simplified FTE level (where all part-time staff are counted as 0.5 regardless of how many hours they worked on average). The same approach you use to calculate this numerator must be applied to your calculation of the denominator during your baseline period as well. So, if your part-time employee worked a steady 24 hours per week in both the baseline and covered periods, they will count as 0.6 FTE in both — hence, no reduction. If, on the other hand, hours for the employee were less in the Covered Period (say, 16 hours per week, or 0.4 FTE), then that employee would create a reduction in your total FTEs by 0.2 assuming you used the actual FTE calculation and not the simplified method.

Yes. Remember, it is the Salary Reduction Factor that allows a decrease of up to 25% without penalty. The FTE Reduction Factor, which is calculated based on the hours worked and not the pay given, does not have such a feature. Even a 1% reduction in FTEs will lower your forgiveness amount.

Yes. All employees, regardless of role or exempt status, must be included in the FTE calculation.

Yes. Though they will not be counted in your Covered Period (the numerator in the FTE Reduction Factor) because the PPP program did not yet exist at March 31, they will need to be counted in your baseline period (the denominator) of either February 15 through June 30, 2019 or January 1 through February 29, 2020.

This employee would need to be considered in your baseline period FTE calculation. However, for purposes of the Safe Harbor rule that can eliminate the FTE Reduction Factor, this person would not factor into that calculation as they were terminated before the look back date of February 15.

For the FTE Reduction Factor calculation, this employee would be counted in your Covered Period FTEs assuming they stayed with the company through the period — so they would count in the numerator. They also would have a fractional impact to your baseline period if you selected the January 1 through February 29, 2020 period as your baseline, because they were employed by you for the final 12 days of that period. For the Safe Harbor calculation, this employee would not be counted in your February 15 look back baseline (the denominator), but they would be counted in your average FTE count during the period of February 15 through April 26, 2020 (the numerator). For the Salary Reduction Factor calculation, they would be included as a Table 1 employee regardless of their compensation level because they were hired in 2020, so any reductions they took would have to be considered.

You are allowed to exclude from your FTE baseline any employee who, during the Covered Period, was fired for cause, resigned and was not replaced, or asked for and received reduced hours. You may also exclude any employees who rejected a written offer to restore a prior reduction in hours to prior levels (assuming pay was also offered to be restored to prior levels). Finally, you are also allowed to exclude anyone who was an employee at February 15, 2020, was subsequently laid off, rejected a good faith written offer to be rehired, and you were unable to hire similarly qualified employees for the unfilled position on or before December 31, 2020.

The FTE Reduction Factor looks only at numbers, not names. In this example, there would be no reduction.

You are confusing different aspects of the program. If you elect it, the 24-week feature relates only to the amount of time in 2020 in which to spend your PPP loan funds. The 24-week time frame does not factor into any other calculations, including the FTE Reduction Factor. The baseline period stated for 2019 is correct.

If you did not lower payroll costs according to the Salary Reduction Factor calculation or reduce the number of employees between January 1, 2020 and the end of your Covered Period, you are entitled to use the Form 3508EZ to apply for forgiveness, so long as you also can demonstrate that you meet the test of not reducing average paid hours of your employees during the same time period. While specific guidance has not yet been issued on this last test and is expected, it is quite possible that this “average paid hours” test must be determined on an employee by employee basis and not in the aggregate across the entire business. There is also no guidance yet issued to indicate the specific time period to compare a “reduction” of average paid hours against, nor for how long a reduction needs to be in place to qualify as a reduction (for example, if someone worked 38 paid hours in the third week of May, does that count as a reduction thereby nullifying use of the EZ form?). If you are unable to meet all of the tests above, you should calculate your FTEs. The average number of FTEs is not the same as the average number of employees unless all employees were full-time in both the baseline and covered periods and there were no reductions or increases.

Since they were hired as full-time employees, you would count them among your FTEs as such. Had you hired them as part-timers, you could have chosen to count them as either 0.5 or a calculated fractional FTE.

Let’s be clear about what you are asking: to calculate any FTE reduction, you compare the average FTEs during your Covered Period with the average FTEs during either February 15 through June 30, 2019 or January 1 through February 29, 2020. Your FTE count at February 15, 2020 has no bearing on this part of the calculation. Where the February 15, 2020 date becomes relevant is in qualifying for Safe Harbor from the reduction calculation above. If what you are asking is whether you qualify for the Safe Harbor rule based on your circumstances, it is difficult to assess due to the timing of the events. You state only that you had a resignation and a layoff in February; if the resignation happened prior to February 15, 2020, it does not qualify you for an FTE exception. If after February 15, 2020, then it would, thereby reducing your February 15 FTE baseline to 27 since you did not backfill the position. Separately, because you laid off an employee in March, you reduced your FTE during the February 15 through April 26, 2020 period, which makes the Safe Harbor potentially available to you. The key now becomes whether you have restored your FTE count to the February 15 level as of the earlier of the date you file your forgiveness application or December 31, 2020.

Yes. The number of FTEs during your Covered Period was likely reduced as compared to your chosen baseline period in the FTE Reduction Factor calculation. The reason you outlined does not qualify as an FTE Exception.

Your payroll costs over 24 weeks may exceed your loan amount, but that does not preclude you from being affected by the FTE Reduction Factor. Keep in mind that total payroll costs over the 24-week Covered Period can only exceed the loan amount if you paid for the excess portion yourself and did not use PPP money to do so (since you’d already exhausted the PPP funds). The government is not asking how you spent your own money, only how you spent theirs. You can’t get forgiveness for spending your own money, nice as that would be. So, assuming you do these contemplated reductions during your 24-week Covered Period — which means prior to  September 17, 2020 for any borrower who was funded the day the PPP program opened (April 3, 2020), or later than that if funded after April 3, your forgiveness amount will be subject to being reduced based on a lower number of FTEs compared to your chosen baseline period.

This is the borrower’s choice. You may do the average calculations on each FTE to determine the FTE count of your part-time employees or you may simply adopt 0.5 for each part-time employee and total those. Choose the larger of the two for your FTE reduction calculation.

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Exclusions

There is not specific guidance that has been issued to date in either the FAQs, the IFRNs or the loan forgiveness application itself that specifically addresses disability and maternity leaves. It is possible that these qualify as “voluntarily reduced hours” but that is not clear. We expect additional guidance to be forthcoming. 

No. In the case of an individual fired for cause or who voluntarily resigned, it will not count against you if the position was not filled by a new employee. In such case you should enter the position as an FTE reduction exception at the bottom of Table 1 and count the FTE value in Box 2 only if the person who left earned less than $100,000 on an annualized basis during any single pay period in 2019. You may also exclude any employees who rejected a written offer to restore a prior reduction in hours to prior levels (assuming pay was also offered to be restored to prior levels). Finally, you are also allowed to exclude anyone who was an employee at February 15, 2020, was subsequently laid off, rejected a good faith written offer to be rehired, and you were unable to hire similarly qualified employees for the unfilled position on or before December 31, 2020.

No, you do not. You would put those down as FTE reduction exceptions at the bottom of Table 1 in Box 2, so long as those people earned in any pay period in 2019 an annualized amount less than $100,000.

Any employees who were fired for cause or voluntarily resigned and were not backfilled during the Covered Period will not count against your FTE reduction calculation. You should enter those positions as an FTE reduction exception at the bottom of Table 1 for Box 2 if during any period in 2019 they did not earn an annualized rate greater than $100,000.

The FTE Reduction Factor specifically excludes from the baseline period any FTEs who were fired for cause, resigned and were not replaced, or asked for and received a reduction in their hours (which we believe includes FMLA leaves). The Salary Reduction Factor also excludes such employees by listing them at the bottom of Table 1 of the Schedule A Worksheet with no reduction listed.

The FTE Reduction Factor does not discriminate between the individuals or the types of jobs; it only counts noses, no matter whose nose it is.

For employees who were laid off or furloughed and refused, for whatever reason, to return to work, you need to have both the offer to be reinstated (preferably, a formal offer letter) and their refusal in writing. In the case of insufficient business activity, you should be able to show a significant decrease in revenue or other relevant operating statistics during the Covered Period as compared to the same period in the prior year.

No, you are not precluded. Because the test is for sanitation, social distancing, or any other safety requirement related to COVID-19 to have been established or guidance issued by the Secretary of HHS, the Director of the CDCP or OSHA during the period beginning on March 1 and ending December 31, 2020, the eight-week Covered Period clearly falls within this applicable time frame. To be clear, however, restrictive requirements issued by health departments or other government officials at the state, county or city level do not meet this test; only federally issued mandates apply. However, if a lower level governing body implemented a restrictive requirement and based their decision in part on guidance from one of the federal agencies listed, that will meet the test so long as you can provide written documentation to that effect.

This is a tricky one and likely to be interpreted differently by different reviewers. By the letter of the law, your customers clearly have an exclusion available to them because they are unable to return to business activities. However, your business does not face that hurdle — you are able to work, you just don’t have sufficient work as you once did. Our interpretation would be that this does not meet the exclusion test as defined, but again, this is subject to potential future guidance.

No, in the broadest sense as you posed the question. Loan forgiveness is not solely a function of the number of your employees; that merely modifies your loan forgiveness amount. As it relates to just the FTE Reduction Factor calculation, if you replace them, you would count your FTEs accordingly. If you do not replace them during the Covered Period, either because you are unable to find suitable replacements or you simply don’t have sufficient work to justify hiring replacements, then you will be allowed to exclude the two positions from your FTE calculation.

Yes, you would need to document both the offer and the refusal in writing to show that you attempted to fill the position but were unable to do so.

Though FMLA is not specifically addressed in the forgiveness application or guidance to date, it is a reasonable interpretation to include FMLA in the exclusion category of “asked for and received a reduction in hours”, in this case to 0 hours. Thus, you would not be penalized.

Any employee who voluntarily requested and received a reduction of their hours does not count as an FTE reduction. You should list them at the bottom of Table 1 on the line that says “FTE reduction exceptions” in Box 2 and include their average FTE prior to the reduced work schedule going into place. For example, they worked 32 hours per week on average normally, but following their voluntary reduction they were down to 16 hours a week. You should enter 0.8, or 32/40 in Box 2 for that employee.

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Effect of Layoffs/Furloughs

You would be safe to reduce staff on June 15 without impact to your forgiveness calculations. Staff reductions that occur after the end of your Covered Period are permitted.

If your initial eight-week Covered Period ends before June 30 and you have exhausted your PPP funds, any layoffs after June 30 will not affect your forgiveness calculations. Under the new rules of the Flexibility Act, if you elect to use the full 24 weeks available to spend your PPP funds, employee reductions after June 30 will impact your FTE and Salary/Wage Reduction Factors subject to possible Safe Harbor qualifications by the earlier of the date you submit your forgiveness application or December 31.

Yes. The numerator in the FTE Reduction Factor calculation specifically uses the average FTEs during the Covered Period, whether eight weeks or 24 weeks. However, if you choose to apply for forgiveness prior to the end of your Covered Period, the clock apparently stops on this issue. Though no guidance has yet been issued to clarify the FTE calculation impact of filing early, it does appear impractical to determine what average FTEs may be at a future point in time subsequent to filing the forgiveness application. This may change with new guidance.

If you choose the eight-week Covered Period, it will have no effect because the reduction occurs after the end of the period. On the other hand, if you choose the 24-week option, it will reduce your average FTEs during your Covered Period and have a resulting negative impact to your forgiveness total unless you file your forgiveness application before you furlough the employees.

No. The FTE Reduction Factor looks only at average FTEs during the Covered Period as compared to a prior period. It does not consider any changes after the Covered Period.

If you have used all PPP funds during the eight-week period, there is no advantage to elect a 24-week Covered Period. To the contrary, there is actually a disadvantage to do so for this very reason. Any layoffs that take place after the Covered Period will not affect your FTE Reduction Factor calculation. If you opted for the eight-week window and did the layoffs afterwards, you will not have your forgiveness reduced for this reason. But if instead you chose 24 weeks, any reduction during the 24 weeks will negatively impact forgiveness unless you filed your forgiveness application before the reduction.

Simple math would say that 110-5=105, which is greater than 95. The requirement for not triggering the FTE Reduction Factor is that the ratio be 1.0 or greater. In this case, it would be greater than 1.0. Also, remember that the Covered Period FTE calculation is the average of the entire period, so if you were at 110 for most of the period and only dropped to 105 toward the end, your average would be somewhere between 105 and 110.

You are allowed to take whatever employment actions you need after your Covered Period has ended, without ramifications to your FTE Reduction Factor calculations.

Yes, it counts. Furloughs and layoffs are given equal treatment in the Paycheck Protection Program for purposes of the FTE reduction calculation.

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Safe Harbor for Forgiveness Reduction Factors

No. The Safe Harbor only applies to the calculation related to FTEs from February 15 to April 26, 2020 being less than FTEs at February 15 and is unrelated to the dates of your Covered Period. Those are the only dates that apply to Safe Harbor.

Yes, so long as your FTE count between February 15 and April 26 on average is less than your FTE count at February 15.

If you did not have any FTE reductions during your eight-week Covered Period, you are not required to maintain staff levels until either June 30 or December 31; you may make whatever changes you deem necessary after your Covered Period without affecting your forgiveness amount. That said, if you did have an FTE reduction during your Covered Period such that you need Safe Harbor, the June 30 date is no longer available for Safe Harbor purposes. The key dates now are December 31, 2020 and the date you submit your forgiveness application to the lender. By the earlier of those dates, you will need to have restored any FTE or salary/wage reductions back to the level of February 15, 2020 in order to qualify for Safe Harbor (assuming that you had reductions during the February 15 to April 26 period as compared to February 15).

To qualify for Safe Harbor, you will need to use your FTE numbers based on the earlier of the date you submit your forgiveness application to the lender or December 31, 2020. Do not use the FTE total as of the end of your Covered Period to determine if you have Safe Harbor.

No. Current rules are that the restoration will be determined based on your FTE count as of either the date you file for forgiveness or December 31, 2020, whichever is earlier. It does not matter if you restored before either of these dates, only if you have restored at the earlier of these two specific dates. Nothing yet has been issued that indicates there is any minimum amount of time required to have restored FTE levels in order to get Safe Harbor.

As it applies to the FTE Reduction Factor calculation, yes, so long as your FTE count is back to its February 15, 2020 level and you have not yet filed your forgiveness application.

Yes. This action would affect your Safe Harbor calculation and, assuming it met the February 15 test, eliminate any FTE Reduction Factor calculation.

To qualify for Safe Harbor, you will need to restore your FTE total by the earlier of the date you submit your forgiveness application or December 31, 2020.

If you choose an eight-week Covered Period, that ended on June 10. Your June 16 payroll cycle is past the Covered Period, meaning you would only be able to get forgiveness on the amount you incurred through June 10. You would be free to furlough the employee at any time after 6/10. If you determined that you needed the entire cost of the June 16 payroll, then you would have changed the picture significantly: your 24-week Covered Period will run through September 30 and any furlough you do during those 24 weeks will impact your FTE Reduction Factor unless you file your forgiveness application prior to the furlough. Model this carefully.

If you’re asking for purposes of qualifying for Safe Harbor, the June 30 restoration date is no longer in play; that date has shifted to December 31, or the date you file for forgiveness if before then. But yes, the application currently asks for the FTE count as of the earlier of those two dates. No guidance has yet been issued to indicate there is any minimum time frame for maintaining a restored number of FTEs to get Safe Harbor. On the other hand, if you are asking for purposes of calculating any FTE reduction, then hiring one day before the end of your Covered Period will have minimal effect. The reduction calculation uses average FTEs over the course of the Covered Period, not at a single point in time.

To begin with, a 24-week period ending in August would mean that you got funded no later than March 17, 2020, but since the program didn’t open for applications until April 3, 2020, your 24 weeks don’t end in August. That said, the Safe Harbor from the FTE Reduction Factor holds that you may qualify only if one of the following is present:

  1. The business was able to document 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 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. (Note: interpretive guidance on these rules is discussed elsewhere in these FAQs.)
  2. You reduced your FTE levels between February 15, 2020 and April 26, 2020 as compared to the level you employed at February 15, 2020, and you restored to the February 15 level by the earlier of the date you apply for forgiveness or December 31, 2020.

Two important items to note in the second test: you do not qualify for Safe Harbor if you reduced your FTEs after April 26, 2020 but held them constant between February 15 and April 26, and the dates are not dependent on your Covered Period but rather the date you apply for forgiveness if during 2020.

The Safe Harbor rule for FTE reduction applies only to the average FTEs that a borrower had between February 15 and April 26 and compares that number to the FTEs that the business had during the February 15 pay period. If the average during the February 15 to April 26 period is less than the February 15 FTE amount, then the Safe Harbor applies if the February 15 FTE count was restored no later than December 31.

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Safe Harbor for Demonstrating Need for the Loan

You need to be prepared to show your rationale for the original loan application, because you certified that you had a need for the funds due to economic uncertainty. Separately, you should also gather and keep all the documentation necessary to substantiate your use of funds because that is a separate audit which you’re also likely to undergo. You need to keep all of this documentation for six years.

This is really a question of whether you were eligible for the money in the first place. This is subject to review by the SBA and if they determine the borrower lacked “necessity” for the PPP loan, then all forgiveness will be eliminated. Conversely, if “necessity” is deemed met, then all standard forgiveness rules apply.

It is unclear what the SBA will evaluate in their assessment of need for these larger loans. They have given no guidance of any kind on what meets the “sufficient liquidity” test, other than to single out large companies with access to public markets.

The $2 million Safe Harbor rule applied only to the certification of need for the loan at the time that you applied for the loan. That Safe Harbor rule does not apply to any review or audit that may be conducted on the use of funds during the Covered Period or subsequent forgiveness calculations.

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Other

Applying for Forgiveness

Borrowers have 10 months from the end of their Covered Period to apply for forgiveness.

No. You can elect to use the eight-week Covered Period.

Yes, you can, but understand that your Covered Period election is still 24 weeks.

Yes, but it’s unlikely your paperwork will be reduced much. You will still have to list your staff, one at a time, to show that you did not reduce wages. You will also need to provide FTE calculations, unless future guidance indicates otherwise.

No. Review the entire application, particularly Schedule A, where all payroll costs are calculated. Line 1 and line 4 ask for cash compensation from the tables. Lines 6 and line 7 on Schedule A ask for employer portion of health insurance and retirement costs. If using the EZ form, there is no Schedule A worksheet and all payroll costs, including health insurance and retirement costs, should be listed on line 1.

You can find the main and the EZ application, along with instructions for both application forms and all Interim Final Rules, on the Treasury Department website: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses

A borrower qualifies to use the EZ form if any one of the three conditions below applies:

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  1. The borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and had no employee costs included in the calculation of their loan amount.
  2. The borrower has no employees who meet the Salary/Hourly Wage Reduction Factor requirement AND had no reductions in the number of their employees or the average paid hours of employees between January 1, 2020 and the end of the borrower’s Covered Period.
  3. The borrower has no employees who meet the Salary/Hourly Wage Reduction Factor requirement AND was unable to operate during 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 Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
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There are several important nuances to note in each of these:

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  1. In the first criterion, the test essentially is no employees in 2019 and none at the time of loan application either. The loan at that point was one for owner replacement compensation only.
  2. The second criterion raises several interpretation questions that future guidance must clarify. The Salary Reduction test is clear. The second part of the test requires no reductions in employees or average paid hours since the beginning of the year. If an employee resigns and it takes the business four weeks to replace them, does that qualify as a “reduction” since it happened during the time period? If a single employee takes two hours of unpaid time to see a doctor, such that they were paid for only 38 hours that week, is that a “reduction” in average hours paid? What time period, specifically, is a borrower to compare the “average paid hours since January 1, 2020” against to know if there was a reduction?
  3. “The same level of business activity” in the third criterion is also undefined to date. What is clear is that the “inability to restore” business means the inability to recover from a reduction, not simply experiencing a reduction. It is also important to understand that “during the Covered Period” means throughout the period, not just reduced at a point in time. Also be aware that this test appears to be limited solely to requirements issued at the federal level, meaning restrictions placed on businesses at the city, county or state level will not meet this test unless those lower level restrictions relied in part (and in writing) on guidance issued by one or more of the three federal agencies.
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The SBA has promised additional guidance that hopefully will clarify these important eligibility questions.

This is a good question for which we await additional guidance from the SBA. There has been no clarification around the words in the EZ form qualifications to date. A literal reading of the second qualification criterion would suggest that any unpaid time off — no matter how little the amount — would count as a reduction in the average paid hours of employees. The other challenge with properly interpreting this criterion is the use of the word “average” when the criterion is “no reduction in average paid hours between January 1, 2020 and the end of the Covered Period.” It is open to interpretation, and hopefully subsequent guidance, whether one is to calculate the average paid hours each week and study the trend, the average paid hours of the entire period and compare to some unnamed prior period, or what exactly.

This is a good question for which we await additional guidance from the SBA. First, let’s be clear that qualifying to use the EZ Form is not based solely on employees making under $100,000. That rule applies only to whether there was any Salary Reduction Factor — the first part of both the second and third criteria. From the facts presented, it would appear there is no risk of triggering the Salary Reduction Factor as it is unlikely that their pay would have been reduced by over 25% by missing a few hours. However, the FTE Reduction Factor, which is the second part of the second criterion, has no “grace amount” — any reduction at all will trigger that reduction factor. A literal reading of the second qualification criterion would suggest that any unpaid time off — no matter how little the amount — would count as a reduction in the average paid hours of employees.

Assuming the facts described, yes. The employees who departed each qualify as an “FTE Exception” for purposes of Safe Harbor. Because you say there were no reductions in pay, both factors required to meet the second qualification criterion appear to be met. However, you must be able to demonstrate that there was no reduction in average hours paid for your other employees, or you will not meet this test.

A borrower can apply for forgiveness when their PPP money runs out, regardless of whether you had pay reductions. “Early” application does not rely on not having Salary Reduction Factor impacts. The key thing to understand is that, if you do choose to apply prior to the end of your Covered Period, any Salary Reduction Factor calculations must use the full 24 weeks and will not be cut off because you ran out of PPP money earlier.

To the first question, the answer is number of employees equals actual headcount. It is not “FTEs”. For your second question, we will need additional SBA guidance. Use of the word “or” can be construed in either way you mention; preliminary interpretation suggests that “both” are required, but this is by no means a definitive interpretation. Finally, the end of the Covered Period is the date either 56 days or 168 days from the date the PPP loan was funded.

This is a good question for which we await additional guidance from the SBA. The opportunity to file an application prior to the end of the Covered Period emerged as an aside in the middle of guidance not specifically related to this important topic. The only discussion connected early forgiveness to having to use the entire Covered Period for calculating the impact of the Salary Reduction Factor. It was silent on the FTE Reduction Factor. However, the Standard Form application does request information in both categories as of the earlier of either December 31, 2020 or the date the application is filed in order to determine potential Safe Harbor. Keep in mind that this application form was issued prior to the surprise notice that a borrower could file early, so we anticipate future guidance and possible changes in this.

To be clear, we are not permitted to provide you any recommendations regarding actions you should or should not take. Such decisions must be made by you or in consultation with your professional advisors. The criteria for qualification to use Form 3508EZ are spelled out in the Instructions link on the Treasury website as well as elsewhere in these FAQs.

Not necessarily. That simply disqualifies a company from using Form 3508EZ based on the third criterion outlined in the Instructions. There are two other possible ways to qualify to use the EZ form, which are spelled out in the Instructions directly above the third criterion you mention.

That would qualify as an FTE Exception, so you would meet the second sub-test in the second criterion of the EZ Form qualification tests. However, you must also meet the first sub-test in that criterion that you did not reduce annual salary or hourly wage of any employee by more than 25% during the Covered Period as compared to Q1 2020.

Yes. There is no requirement in the EZ Form qualifications that you have spent all PPP funds you received.

The choice is yours as the borrower. Speculation as to actions the SBA may or may not take is simply speculation and not to be relied upon.

The bank will provide you a very specific list along with instructions for completing the application for forgiveness near the end of your Covered Period. According to the instructions for the forgiveness application produced by the SBA, on page 6 there’s a complete list of documents that each borrower must submit with the application as well as other documents that the borrower must maintain but is not required to submit. On the EZ form, this list is found on page 4. This documentation includes support for payroll costs, including tax forms such as a 941, as well as documentation for FTE calculations and all non-payroll costs.

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Auditability of the Loan

You need to be able to show a clean audit trail of the use of funds. While direct bank transfers are not required, they do provide a clear path. Absent such transfers, you will need to provide the payroll records and demonstrate that you did not use the PPP funds for unauthorized purposes.

Yes. Just remember you’ll need to show copies of the invoices paid, and evidence the cash was actually disbursed and received by a payee. Provide an audit trail from invoice to payment.

It is not required to set up a separate bank account to hold your PPP money. You can keep track of it in your accounting records to provide a clean audit trail.

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Definitions

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Calculations