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On Friday, May 15th, the Small Business Administration (SBA) released their Paycheck Protection Program (PPP) loan forgiveness application and instructions. The new form provides step-by step instructions on how to calculate the amount that is eligible for loan forgiveness. In addition, the form includes some new measures that are intended to simplify the process for borrowers and clarifies certain issues on how forgiveness will be calculated. Some of the highlights include:
Clarification on When “Covered Period” Begins
The first day of the Covered Period must be the same as the PPP loan disbursement date. For example, if the borrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, June 14.
A New “Alternative Payroll Covered Period”
Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the 8-week period that begins on the first day of their first pay period following their PPP loan disbursement date. For example, if the borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20. Note that the Alternative Payroll Covered Period only applies to payroll costs.
Flexibility to Include Eligible Payroll and Non-Payroll Expenses Paid OR Incurred During the Eight-Week Period After Receiving Their PPP Loan
Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the 8-week Covered Period (or Alternative Payroll Covered Period). 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). Similarly an eligible nonpayroll cost (i.e. mortgage interest, rent, utilities) must be paid during the Covered Period OR incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.
Clarification on Hours Used to Calculate Full-Time Equivalency and Option to Use Simplified Method
Average Full-Time Equivalency (FTE) for the Covered Period or the Alternative Payroll Covered Period for each employee is calculated by using the average number of hours paid per week, divided by 40, and then rounding the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the borrower.
A Full-Time Equivalency Reduction Safe Harbor
The borrower is exempt from the reduction in loan forgiveness based on FTE employees if both of the following conditions are met: (1) the borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (2) the borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the borrower’s pay period that included February 15, 2020.
Addition of a New Exemption From the Loan Forgiveness Reduction for Borrowers Who Have Made a Good-Faith, Written Offer to Rehire Workers That Was Declined
In certain cases, FTE reductions will not reduce the borrower’s loan forgiveness. These include any positions for which the borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee and any employees who during the Covered Period or the Alternative Payroll Covered Period were fired for cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours.
While there are still several unanswered questions, the SBA is expected to soon issue regulations and guidance. In the meantime, the loan forgiveness application and instructions do provide a preview of the information borrowers should begin to collect in order to calculate their eligible loan forgiveness amount.
As always, Lanigan, Ryan, Malcolm & Doyle will continue to monitor this evolving situation and add updates to our COVID-19 Resource Center as they become available. As an “essential” business in the state of Maryland, we will continue to work for clients to meet upcoming deadlines, while emphasizing the safety of both our clients and our team. Please know that your Lanigan, Ryan team members are always available for questions.