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PPP Loan Forgiveness FAQ’s

Here are some frequently asked questions about loan forgiveness. Guidance on loan forgiveness is evolving and rules may change, so check back for updates.

  1. What are permitted uses for PPP loans?
  • Payroll costs (as described below).
  • Interest on mortgage obligations, in force before February 15, 2020.
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.
  • How will the amount of loan forgiveness be determined? Can a PPP loan be fully forgiven?

Yes, the amount of the loan can be fully forgiven as long as certain conditions are met. The specific amount will generally depend in part on what portion of the loan is used on eligible payroll costs and whether the employer has maintained staffing and pay levels during the covered period.

A loan may be fully forgiven if all the following three conditions are met:

  • The loan proceeds are spent, or qualifying costs are incurred, within the applicable covered period following receipt of the loan proceeds (unless using an Alternative Payroll Covered Period for payroll costs, described below).
  • At least 60 percent of the loan amount was used for eligible payroll costs, and no more than 40 percent was used for the other Loan Uses described above.

    Example: If a small business seeks 100% forgiveness on a loan for $50,000, at least $30,000 must be for payroll costs during the applicable covered period following disbursement of the loan. No more than $20,000 may be for the other Loan Uses described above.
  • Staffing and pay levels must be maintained during the applicable covered period immediately following disbursement of the loan (see below).
  • What is the period within which I must spend my loan proceeds to obtain full loan forgiveness?

To obtain full forgiveness, loan proceeds must be spent during the 24-week period immediately following disbursement of the loan or by December 31, 2020, whichever is earlier (the Covered Period). If you received your loan prior to June 5, 2020, you may choose the 8-week period following disbursement of your loan as your Covered Period. Also, if you pay your employees on a biweekly or more frequent schedule, you may choose to begin the covered period on the first day of the first pay period following disbursement of the loan (“Alternative Payroll Covered Period”) for qualifying payroll costs only.

  • How will the determination of whether my business has maintained staffing levels be made?

To determine whether staffing levels have been maintained, the average number of full-time equivalent employees (FTEEs) during the Covered Period or Alternative Payroll Covered Period will be compared to one of two time periods. Borrowers may either use the period from February 15 through June 30, 2019 or January 1 through February 29, 2020. For instance, if the employer had 20 FTEEs from February 15 through June 30, 2019 and 18 FTEEs from January through February 2020, the borrower would most likely choose the latter time period since it may be more advantageous. If the number of FTEEs during the Covered Period or Alternative Payroll Covered Period is lower than the time period chosen, the amount of loan forgiveness may be reduced proportionately.

Seasonal employers may compare the average FTEEs employed during the Covered Period or Alternative Payroll Covered Period to either period listed above or to any consecutive twelve-week period between May 1 through September 15, 2019.

Note that your forgiveness amount will not be reduced by a failure to maintain staffing levels during the Covered Period or Alternative Payroll Covered Period if (a) your average FTEEs between February 15 and April 26, 2020 is lower than your FTEES as of February 15, 2020, and (b) you restored the level of FTEEs by December 31, 2020 to be equal or higher to the FTEE levels as of February 15, 2020.

  • When calculating the amount of loan forgiveness, how will the determination of whether my business has maintained pay levels be made?

Repayment of part of the loan may be required if an employee’s average annual salary (for salaried employees) or average hourly rate (for hourly employees) are reduced by 25% or more during the Covered Period or Alternative Payroll Covered Period compared to the period of January 1 through March 31, 2020.

However, if (a) a given employee’s wage levels (annual salary level for salaried employees and hourly wages for hourly employees) between February 15 and April 26, 2020, are lower than as of February 15 and (b) you restore the wage levels by December 31, 2020 to be same or higher than as of February 15, 2020, there will be no reduction in forgiveness based on that employee’s wage levels.

Note: When comparing wage levels to determine if your loan forgiveness amount will be reduced, employees who earned wages or a salary at an annualized rate of more than $100,000 in any pay period of 2019 aren’t considered.

  • My company previously laid off an employee, but later offered to rehire the employee. If the employee declined the rehire offer, will my PPP loan forgiveness amount still be reduced?

Loan forgiveness will not be reduced based on an inability to rehire employees if the employer can document (1) written offers to rehire individuals who were employees of the organization on February 15, 2020; or (2) an inability to hire similarly qualified employees for unfilled positions by December 31, 2020.

Additionally, forgiveness will not be reduced for failure to maintain employment levels if the organization is able to document an inability to return to the same level of business activity as existed prior to February 15, 2020, due to compliance with COVID-19-related guidance for sanitation, social distancing, or worker or customer safety requirements from the Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA) between March 1 and December 31, 2020.

The SBA has suggested that the documentation required above would be satisfied if an employer made a good faith, written offer of rehire at the same salary/wages and for the same number of hours, the employee rejected the offer of rehire, and the employer notified the applicable state unemployment insurance office of the employee’s rejection of rehire within 30 days. Employees who are terminated for cause, voluntarily resign, or voluntarily request and receive a reduction of hours may also be excluded from the FTEE reduction calculations.

  • How are “payroll costs” defined under the PPP?

Under the PPP, payroll costs generally include:

  • Employee gross pay including salary, wages, commissions, bonuses, and tips, capped at the annualized value of $100,000 for the length of the applicable Covered Period or Alternative Payroll Covered Period. For employers who received loans prior to June 5, 2020, and choose to use an 8-week Covered Period, this limit is $15,385, which is the 8-week value of the annualized $100,000 cap.
  • All employer state and local taxes paid on employee gross pay, such as state unemployment insurance and employer-paid state disability insurance (in applicable states).
  • Employer-paid healthcare benefits, including insurance premiums.
  • Employer-paid retirement benefits, including defined-benefit or defined-contribution retirement plans and employer 401(k) contributions.

Note: The definition of payroll costs excludes employer federal taxes, workers compensation premiums, payments to independent contractors, and payments to employees for leave covered under the Families First Coronavirus Response Act.

  • Do all payroll costs need to be paid within the Covered Period or Alternative Payroll Covered Period?

No. The latest guidance from the government indicates that borrows are eligible for forgiveness for payroll costs paid and payroll costs incurred, but not yet paid, during the Covered Period or Alternative Payroll Covered Period. Payroll costs are considered paid on the date of distribution of paychecks or origination of 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 within the Covered Period or Alternative Payroll Covered Period must be paid by the next regular payroll date to be counted for forgiveness purposes.

  • What happens if I use less than 60 percent of the PPP loan on payroll costs?

The Paycheck Protection Program Flexibility Act provides that at least 60% of the covered loan amount must be used for payroll costs. The Treasury Department has indicated that a borrower may “be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”

  1. How do I apply for loan forgiveness? How long will it take?

You can apply for loan forgiveness through the lender that is servicing the loan. Lenders have 60 days to make a decision on loan forgiveness. The SBA has issued a loan forgiveness application, which can be found here,  (https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf)

10.  Does joining a PEO during the PPP loan forgiveness period adversely impact my business’s ability to apply for loan forgiveness?

No. Joining a PEO will not negatively impact loan forgiveness. A business that joins a PEO after receiving an SBA loan and before loan forgiveness will need to be able to produce payroll documentation for the period prior to the PEO relationship and payroll documentation from their PEO for the period following them joining the PEO relationship in order to support any request for loan forgiveness. (See SBA FAQ 10: A PEO client is considered an eligible borrower) or (https://www.sba.gov/sites/default/files/2020-05/Paycheck-Protection-Program-Frequently-Asked-Questions_05%2013%2020_2.pdf)

Loan Forgiveness Checklist

***Guidance on loan forgiveness is evolving and rules may change. To help you maximize the forgivable amount, consider these steps:

During the applicable Covered Period following receipt of the loan…

In the 8 weeks following receipt of the loan…

  • Maintain staffing levels.
  • Ensure that the average number of full-time equivalent employees (FTEEs) during the Covered Period or Alternative Payroll Covered Period is at least equal to the average number of FTEEs during the period from February 15 through June 30, 2019, or January 1 through February 29, 2020. If the number of FTEEs is lower during the Covered Period or Alternative Payroll Covered Period than during these two time periods, the amount of loan forgiveness may be reduced proportionately. *
  • *If applicable, reverse any reductions in staffing levels by December 31, 2020.
    • FTEE reductions occurring between February 15 and April 26, 2020 will not be considered in reducing the loan forgiveness amount if they are reversed by December 31, 2020. However, if the staffing reduction was made outside the February 15 to April 26 timeframe, the forgivable amount may still be reduced even if the staffing reduction is reversed by December 31, 2020.
  • Maintain pay levels.
    • Where possible, avoid reducing any employee’s average annual salary (for salaried employees) or average hourly wages (for hourly employees) by 25% or more during the Covered Period or Alternative Payroll Covered Period compared to the period of January 1 through March 31, 2020. If any employee’s pay is reduced by 25% or more, repayment of a corresponding part of the loan may be required.**

      Note: When comparing wage levels to determine if your loan forgiveness amount will be reduced, employees who earned wages or a salary at an annualized rate of more than $100,000 in any pay period of 2019 aren’t considered.
  • **If applicable, reverse any reduction to an employee’s pay by December 31, 2020.
    • If (a) a given employee’s wage levels (annual salary level for salaried employees and hourly wages for hourly employees) between February 15 and April 26, 2020, are lower than as of February 15 and (b) you restore the wage levels by December 31, 2020 to be same or higher than as of February 15, 2020, there will be no reduction in forgiveness based on that employee’s wage levels. However, if the pay reduction was made outside the February 15 to April 26 timeframe, the forgivable amount may still be reduced even if the pay reduction is reversed by December 31, 2020.
  • Only use the PPP loan for permitted uses:
    • Payroll costs (as described below).
    • Interest on mortgage obligations, incurred before February 15, 2020.
    • Rent, under lease agreements in force before February 15, 2020; and
    • Utilities, for which service began before February 15, 2020.
  • Spend the loan proceeds, or incur qualifying costs, within of the applicable Covered Period or Alternative Payroll Covered Period. To obtain full forgiveness, loan proceeds must be spent during the 24-week period immediately following disbursement of the loan or by December 31, 2020, whichever is earlier (the Covered Period). If you received your loan prior to June 5, 2020, you may choose the 8-week period following disbursement of your loan as your Covered Period. Also, if you pay your employees on a biweekly or more frequent schedule, you may choose to begin the covered period on the first day of the first pay period following disbursement of the loan (“Alternative Payroll Covered Period”) for qualifying payroll costs only.
  • Use at least 60% on payroll costs during the Covered Period or Alternative Payroll Covered Period. Payroll costs include:
    • Employee gross pay including salary, wages, commissions, bonuses, and tips, capped at the annualized value of $100,000 for the length of the applicable Covered Period or Alternative Payroll Covered Period. For employers who received loans prior to June 5, 2020, and choose to use an 8-week Covered Period, this limit is $15,385, which is the 8-week value of the annualized $100,000 cap.
    • All employer state and local taxes paid on employee gross pay, such as state unemployment insurance and employer-paid state disability insurance (in applicable states).
    • Employer-paid healthcare benefits, including insurance premiums.
    • Employer-paid retirement benefits, including defined-benefit or defined-contribution retirement plans and employer 401(k) contributions.

      If less than 60 percent of loan is used on payroll costs, the loan (and interest) may not be forgiven and might need to be repaid.

Loan Forgiveness Scenarios

Guidance on loan forgiveness is evolving and rules may change, so check back for updates.

Scenario 1

Maria’s Eyecare received a PPP loan of $70,000 on April 10, 2020. The company elects to use the 8-week Covered Period length to meet the criteria* for loan forgiveness. The timeline starts as soon as the company receives the loan+.

In the 8 weeks after receiving the loan, Maria’s Eyecare didn’t reduce the number of full-time-equivalent employees (FTEE) and didn’t reduce the pay of any employee****.

Because the company met all the criteria for loan forgiveness, the entire $70,000 loan is eligible for forgiveness.

Scenario 2

Benny’s Metalworks received a PPP loan of $44,000 on April 12, 2020. The company elects to use the 8-week Covered Period length to meet the criteria* for loan forgiveness. The timeline starts as soon as the company receives the loan+.

Due to a loss of several major accounts, Benny’s Metalworks reduced staffing at the end of Week 1 but kept pay levels the same for remaining employees. As a result, Benny’s average number of full-time equivalent employees per month is 3 during the Covered Period, down from 5 during a permissible lookback period (Benny used January through February 2020).

Here’s how the company uses the loan in those 8 weeks.

Staff reduction: Since the company was not able to maintain staffing levels during the Covered Period, the amount of loan forgiveness is reduced proportionately:

Note: The forgiveness amount will not be reduced by a failure to maintain staffing levels during the Covered Period or Alternative Payroll Covered Period if (a) the average FTEEs between February 15 and April 26, 2020, is lower than the FTEES as of February 15, 2020, and (b) the company restored the level of FTEEs by December 31, 2020, to be equal or higher to the FTEE levels as of February 15, 2020. However, if the staffing reduction was made outside the February 15 to April 26 timeframe, the forgivable amount may still be reduced even if the staffing reduction is reversed by December 31, 2020.

Forgiveness Rules:

Conditions:

+ To obtain full forgiveness, loan proceeds must be spent during the Covered Period or Alternative Payroll Covered Period. To obtain full forgiveness, loan proceeds must be spent during the 24-week period immediately following disbursement of the loan or by December 31, 2020, whichever is earlier. If you received your loan prior to June 5, 2020, you may choose the 8-week period following disbursement of your loan as your Covered Period. Also, if you pay your employees on a biweekly or more frequent schedule, you may choose to use the Alternative Payroll Covered Period and begin the covered period on the first day of the first pay period following disbursement of the loan for qualifying payroll costs only.

* A loan may be fully forgiven if all the following three conditions are met:

  • The loan proceeds are spent, or qualifying costs are incurred, within the applicable Covered Period or Alternative Payroll Covered Period.
  • At least 60 percent of the forgiveness amount was used for payroll costs, and no more than 40 percent was used for the other permitted Loan Uses.
  • Staffing and pay levels must be maintained during the applicable Covered Period or Alternative Payroll Covered Period ****.

Payroll Costs:

** Under the PPP, payroll costs generally include:

  • Employee gross pay, including salary, wages, commissions, bonuses, and tips, capped at the annualized value of $100,000 for the length of the applicable Covered Period or Alternative Payroll Covered Period. For employers who received loans prior to June 5, 2020, and choose to use an 8-week Covered Period, this limit is $15,385, which is the 8-week value of the annualized $100,000 cap.
  • All employer state and local taxes paid on employee gross pay, such as state unemployment insurance and employer-paid state disability insurance (in applicable states).
  • Employer-paid healthcare benefits, including insurance premiums.
  • Employer-paid retirement benefits, including defined-benefit or defined-contribution retirement plans and employer 401(k) contributions.

Note: The definition of payroll costs excludes employer federal taxes, workers compensation premiums, payments to independent contractors, and payments to employees for leave covered under the Families First Coronavirus Response Act.

Permitted Loan Uses:

*** PPP loans may be used for:

  • Payroll costs.
  • Interest on mortgage obligations, in force before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

Staffing and Wage Levels:

**** To determine whether adequate staffing levels have been maintained, the average number of full-time equivalent employees (FTEEs) during the Covered Period or Alternative Payroll Covered Period will be compared to one of two time periods. Borrowers may either use the period from February 15 through June 30, 2019, or January 1 through February 29, 2020. Seasonal employers may compare the average FTEEs employed during the Covered Period or Alternative Payroll Covered Period to either period listed above or to any consecutive twelve-week period between May 1 through September 15, 2019. If the number of FTEEs during the Covered Period or Alternative Payroll Covered Period is lower than these earlier time periods, the amount of loan forgiveness may be reduced proportionately. However, the forgiveness amount will not be reduced by a failure to maintain staffing levels during the Covered Period or Alternative Payroll Covered Period if (a) the average FTEEs between February 15 and April 26, 2020 is lower than the FTEES as of February 15, 2020, and (b) the company restored the level of FTEEs by December 31, 2020 to be equal or higher to the FTEE levels as of February 15, 2020.If the staffing reduction was made outside the February 15 to April 26 timeframe, the forgivable amount may still be reduced even if the staffing reduction is reversed by December 31, 2020.

Repayment of the corresponding portion of the loan may be required if an employee’s earnings are reduced by more than 25% during the Covered Period or Alternative Payroll Covered Period compared to the period of January 1 through March 31, 2020. However, if (a) a given employee’s wage levels (annual salary level for salaried employees and hourly wages for hourly employees) between February 15 and April 26, 2020, are lower than as of February 15 and (b) you restore the wage levels by December 31, 2020, to be same or higher than as of February 15, 2020, there will be no reduction in forgiveness based on that employee’s wage levels. If the pay reduction was made outside the February 15 to April 26 timeframe, the forgivable amount may still be reduced even if the pay reduction is reversed by December 31, 2020.

***** PPP loan proceeds may not be used to pay FFCRA paid sick or family leave wages for which a tax credit is allowed.

For additional FAQ’s please refer to the SBA link: https://www.sba.gov/sites/default/files/2020-05/Paycheck-Protection-Program-Frequently-Asked-Questions_05%2013%2020_2.pdf

***For FAQ’s for Independent Contractors and self employed: https://www.sba.com/funding-a-business/government-small-business-loans/ppp/1099-independent-contractors/

Guidance on loan forgiveness is evolving and rules may change, so check back for updates.

CREDIT: ADP

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