July 23, 2020
If I don’t spend 60% on payroll during the Covered Period, am I eligible for any forgiveness at all?
Posted by Armanino Financial Advisory Team
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.