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FAQ’s About the PPP Loan Forgiveness Application

If you received a loan via the Paycheck Protection Program and are hoping to have the loan forgiven; it’ll soon be time to complete the Paycheck Protection Loan Forgiveness Application.  All government forms are often unnecessarily long, complicated, and difficult to understand, this one is no exception.  In fact, the PPP Loan Forgiveness Application may be one of the worst, in part because changes were made to the rules between the completion of the Application to receive the loan and the introduction of the loan forgiveness application.  You can review the guidance issued by the SBA here and here.

Below are FAQ’s that you might find useful when completing the application.  Please bear in mind that this information is current as of June 1st, 2020, and is subject to revisions.  It is also not meant to replace advice provided by either your attorney or your accountant.  Due to the complexity of these forms and the potential negative impact of incorrectly completing these forms, we strongly suggest you seek the advice of both your attorney and your accountant.

Paycheck Protection Loan Forgiveness FAQ’s

What is included in the application for loan forgiveness?
  • PPP Loan Forgiveness Calculation Form (SBA Form 3508)
  • PPP Schedule A (SBA Form 3508 Schedule A)
  • PPP Schedule A Worksheet (SBA Form 3508 PPP Schedule A Worksheet
  • PPP Borrower Demographic Information Form (this part is optional)
Where do I submit the application?

Verifying documents must be attached to your forgiveness application and the full-time equivalent (“FTE”)/25% reduction calculations are required. Verifying documents include:

  • Detailed Payroll Records for the eight-week measurement period
  • Payroll tax returns filed for periods inclusive of the eight-week measurement period
  • Employee Benefit Insurance Billing Invoices and proof of payments
  • Employee Retirement Plan Documents and proof of funding
  • Proof of payment of all Utility Bills (Electric/Gas/Water/Telephone/Internet)
  • Original Mortgage notes and proof of payments
  • Original Other Notes Payable and proof of payments
  • Original Lease Documents (Real estate, Equipment, Software) and proof of payments.

You must submit your completed SBA Form 3508 along with Schedule A and the Schedule A worksheet to the lender that is servicing your PPP loan. The lender has a 60-day period to render a decision on the forgiveness application from the date it is submitted.

What is the Covered Period and how is it calculated?

The Covered Period is the 8-week (56 days) timeframe in which your expenses must be incurred for them to be eligible for forgiveness. The Covered Period starts on the day you received your loan. Count that as Day one and count 56 days forward to determine the covered period. If you received the loan on more than one date, the first day you received funds is when your Covered Period begins.

What is the Alternative Covered Period?

The traditional Covered Period begins on the day you receive PPP funds, but the Alternative Payroll Covered Period allows borrowers to make the start date the first day of the next payroll period. For example, if you received your PPP funds on Monday, April 13 and your pay period begins Sunday, April 19, then your Alternative Payroll Covered Period begins April 19. This effectively helps businesses fit more paydays into an 8-week window, so they can more easily meet the 75% payroll requirement.

Payroll Cost Cap to Qualify

Payroll costs must make up 75% of the amount for which a borrower seeks loan forgiveness. Eligible nonpayroll costs cannot exceed 25% of the loan forgiveness amount.  I suggest rounding down to ensure that you do not exceed 25%.  There is a clause that specifically addresses rounding errors and is not forgiving of a slight miscalculation when arriving at the 75/25 split.

What do I calculate first the payroll costs or the non-payroll costs to determine the degree of forgiveness?

To calculate your loan forgiveness amount, you must perform the following calculations in the order below:

  • Step 1: Calculate the full amount of expenses eligible for forgiveness.
  • Step 2: Calculate the reduction amount for 25% or more salary/hourly wage reductions and subtract that dollar amount from your total eligible forgiveness amount.
  • Step 3: Calculate the FTE Reduction Quotient (it will be 1.0 or less) and multiply that quotient by the reduced forgiveness amount calculated in Step 2. This will be the “Modified Total.”
  • Step 4: Calculate the 75% payroll cost requirement by dividing the total payroll costs in your eligible forgiveness amount by 0.75.
  • Step 5: Compare your total PPP loan amount, your Modified Total, and your 75% payroll cost rule amount. The smallest amount of these numbers is your PPP loan forgiveness amount.
What can owners not include in the calculations?

Non-cash compensation for owners cannot be included in the payroll costs. Payroll costs comprise health insurance, retirement benefits, and employer paid state and local unemployment compensation taxes. Throughout the application, there is a clear distinction between employees and owners.  In addressing non-cash compensation, the application indicates only employee related non-cash compensation paid by the employer is included.  While inconsistent with prior interpretations, this result provides consistency amongst the business types (S-Corporation, partnership, self-employed individuals) applying for forgiveness.  Prior guidance clarified that partnerships and self-employed individuals are not eligible to include such non-cash compensation for themselves.  This effectively removes owner related health insurance; retirement benefits and employer paid state and local unemployment compensation taxes from the definition of Payroll Costs.

Is the covered period for payroll calculations 2 months or 8 weeks?

There was some confusion regarding this period of time since 2 months was used interchangeably with 8 weeks during the application period.  It has since been clarified as a period of time equal to 8 weeks.

Employee Questions related to the PPP Loan Forgiveness Form

What is the FTE Reduction Safe Harbor?

The FTE Reduction Safe Harbor is a measure to protect employers from facing penalties that would jeopardize their forgiveness eligibility because of laying off employees. If you’ve laid off employees due to coronavirus, you’re still eligible for full forgiveness if you meet both of the following criteria: You reduced your levels between the period of February 15, 2020, and April 26, 2020 (but not after). You return your FTE employee levels to the same level as that of your pay period that included February 15, 2020.

Do I have to include an employee who was fired in the loan forgiveness calculations?

Employees who were laid off or put on furlough may not wish to be rehired onto payroll. If the employee rejects your re-employment offer, you may be allowed to exclude this employee when calculating forgiveness. To qualify for this exemption:

  • You must have made a written offer to rehire in good faith
  • You must have offered to rehire for the same salary/wage and number of hours as before they were laid off
  • You must have documentation of the employee’s rejection of the offer

If any of these conditions apply to an employee, you can also qualify for an exemption:

  • They were fired for cause
  • They voluntarily resigned
  • They voluntarily requested and received a reduction of their hours

Note that employees who reject offers for re-employment may no longer be eligible for continued unemployment benefits.

If an employee works more than 40 hours, does that count as more than 1 FTE?

No. Employees are capped at 1 FTE equivalent, whether they worked 40 hours per week or 60.

I have already laid off or reduced salaries for some employees before applying for this loan. Can I rehire or increase pay for those employees?

Yes, you can rehire any staff that were laid off or put on furlough and reinstate any pay that was decreased by more than 25% to meet the requirements for forgiveness before the end of the eight-week period.

Please don’t shoot the messenger.  My guess is that further clarification will be coming.  These explanations and interpretations, in many cases, diverge significantly from the terms defined during the application process.  Such divergence is bound to cause confusion and frustration at a time when small business owners already have those emotions in spades.