Small Business Administration
Paycheck Protection Program Update on Loan Forgiveness
The Small Business Administration (SBA) has updated its guidance on Loan Forgiveness.
Updated information from the SBA:
- The SBA has provided updated guidance as of May 22 that covers:
How to account for payments to furloughed employees during the Covered Period:
How to calculate payroll for owner-employees and self-employed individuals:
How to calculate full-time equivalency (FTE) employee reductions and the potential impact to your Loan Forgiveness amount:
If employers restore FTE employee levels as well as salaries and wages by June 30, 2020, the FTE Safe Harbor rule may apply:
Yes. The CARES Act defines the term ‘‘payroll costs’’ broadly to include compensation in the form of salary, wages, commissions, or similar compensation. If a borrower pays furloughed employees their salary, wages, or commissions during the covered period, those payments are eligible for forgiveness as long as they do not exceed an annual salary of $100,000, as prorated for the covered period. The Administrator, in consultation with the Secretary, has determined that this interpretation is consistent with the text of the statute and advances the paycheck protection purposes of the statute by enabling borrowers to continue paying their employees even if those employees are not able to perform their day-to-day duties, whether due to lack of economic demand or public health considerations. This intent is reflected throughout the statute, including in section 1106(d)(4) of the Act, which provides that additional wages paid to tipped employees are eligible for forgiveness. The Administrator, in consultation with the Secretary, has also determined that, if an employee’s total compensation does not exceed $100,000 on an annualized basis, the employee’s hazard pay and bonuses are eligible for loan forgiveness because they constitute a supplement to salary or wages, and are thus a similar form of compensation.
Yes, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses. See 85 FR 21747, 21750. In particular, owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf. Schedule C filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit.3 General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.
Yes. Section 1106(d)(5) of the CARES Act provides that if certain employee salaries and wages were reduced between February 15, 2020 and April 26, 2020 (the safe harbor period) but the borrower eliminates those reductions by June 30, 2020 or earlier, the borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in salaries and wages under section 1106(d)(3) of the CARES Act. Similarly, if a borrower eliminates any reductions in FTE employees occurring during the safe harbor period by June 30, 2020 or earlier, the borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in FTE employees.
No. Employees whom the borrower offered to rehire are generally exempt from the CARES Act’s loan forgiveness reduction calculation. This exemption is also available if a borrower previously reduced the hours of an employee and offered to restore the employee’s hours at the same salary or wages. Specifically, in calculating the loan forgiveness amount, a borrower may exclude any reduction in full-time equivalent employee headcount that is attributable to an individual employee if:
i. The borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;
ii. the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;
iii. the offer was rejected by such employee;
iv. the borrower has maintained records documenting the offer and its rejection; and
v. the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.4 The Administrator and the Secretary determined that this exemption is an appropriate exercise of their joint rulemaking authority to grant de minimis exemptions under section 1106(d)(6).5 Section 1106(d)(2) of the CARES Act reduces the amount of the PPP loan that may be forgiven if the borrower reduces full-time equivalent employees during the covered period as compared to a base period selected by the borrower. Section 1106(d)(5) of the CARES Act waives this reduction in the forgiveness amount if the borrower eliminates the reduction in full-time equivalent employees occurring during a different statutory reference period by not later than June 30, 2020. The Administrator and the Secretary believe that the additional exemption set forth above is consistent with the purposes of the CARES Act and provides borrowers appropriate flexibility in the current economic climate. The Administrator, in consultation with the Secretary, have determined that the exemption is de minimis for two reasons. First, it is reasonable to anticipate that most laid-off employees will accept the offer of reemployment in light of current labor market conditions. Second, to the extent this exemption allows employers to cure FTE reductions attributable to terminations that occurred before February 15, 2020 (the start of the statutory FTE reduction safe harbor period), it is reasonable to anticipate those reductions will represent a relatively small portion of aggregate employees given the historically strong labor market conditions before the COVID–19 emergency.
Information from the SBA on how to prepare for Forgiveness:
- The SBA provided the Paycheck Protection Program Loan Forgiveness Application
- We recommend you read the Paycheck Protection Program Loan Forgiveness Application and complete the PPP Schedule A Worksheet as it will be used during the online Forgiveness request process. The application includes information on the following:
- Giving businesses with bi-weekly or more frequent payroll schedules the option to use an “alternative payroll covered period” (page 1).
- Clarifying that eligible payroll costs are incurred when employees’ pay is earned (page 2).
- PPP Loan Forgiveness Calculation Form (page 3).
- PPP Schedule A to calculate payroll costs (page 6).
- Clarifying that a reduction in full-time equivalency (FTE) employees could affect your Forgiveness amount (pages 7-8).
- We will pre-fill the following information on your request:
- SBA PPP Loan Number
- Chase PPP Loan Number
- Funded PPP Loan Amount
- PPP Loan Disbursement Date
New guidance on Paycheck Protection Program Update on Loan Forgiveness
Verifying eligible payroll from the covered period or the alternative payroll covered period.
Below was sourced from the SBA’s Paycheck Protection Program Loan Forgiveness Application as of 5/15/2020
· Payroll: Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following:
Showing full-time equivalent (FTE) employees from the same time period as the selected covered period or alternative payroll covered period.
Below was sourced from the SBA’s Paycheck Protection Program Loan Forgiveness Application as of 5/15/2020
· FTE: Documentation showing (at the election of the Borrower):
· The selected time period must be the same time period selected for purposes of completing PPP Schedule A, line 11. Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specific time period.
Verifying non-payroll obligations/services prior to February 15, 2020 and eligible payments from the covered period.
Below was sourced from the SBA’s Paycheck Protection Program Loan Forgiveness Application as of 5/15/2020
· Nonpayroll: Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period.
Additional documentation that you must keep for at least 6 years after the date the loan is forgiven or repaid in full (page 10).
Below was sourced from the SBA’s Paycheck Protection Program Loan Forgiveness Application as of 5/15/2020
· PPP Schedule A Worksheet or its equivalent and the following:
· All records relating to the Borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the Borrower’s loan forgiveness application, and documentation demonstrating the Borrower’s material compliance with PPP requirements. The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.
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