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The Paycheck Protection Program (PPP) loan forgiveness application and related rulings are out and they are beasts. Here is a list of key points to be aware of.

Key Documents

Read these if you want a headache or can’t fall asleep. All of the research sources from these documents.

Top 16 Summary

  1. Loan Forgiveness Timeline
  2. Loan Forgiveness Period Flexibility
  3. Employee Count Calculation
  4. Employee Count Timeframes
  5. FTE Reduction Safe Harbor
  6. Layoff Forgiveness \ Firing for Cause \ Resignation Impact
  7. Pay Cut Forgiveness Impact
  8. Owner Forgiveness Limits
  9. High Earner Limits
  10. Extra Payroll
  11. Bonuses
  12. Nonpayroll Cost Timing
  13. Utility Definitions
  14. Documentation Requirements
  15. Loan Review Likeliness
  16. Loan Review Focus

Top 16 Things to Know

1 – Loan Forgiveness Timeline

A deadline for submitting forgiveness has not been established. What has been defined is the timeline for lenders to process an application which is 60 days.

Note that there is a 6-month period from the receipt of the loan before payments and interest begin. Best to get the application in 60-days before the 6-month mark so as to reduce or eliminate principal and interest.

2 – Loan Forgiveness Period Flexibility

For businesses with biweekly (every other week) or more frequent payroll schedules, they can elect to define the start of their forgiveness period as the first day of their pay period following receipt of PPP loan funds and ends with 8 weeks or 56 days total.

For businesses with less frequent payroll dates, the forgiveness period is the day they received PPP loan funds.

3 – Employee Count Calculation

The PPP was all about employment so forgiveness will be reduced if employment was reduced. The method of calculating employees has been established as a Full Time Equivalence (FTE) calculation with 40 hours per week being the definition of full time. For full time employees who work more than 40 hours, they are 1.0 FTE employees regardless of hours worked.

To calculate FTE, you would take hours worked over a period divided by 40 divided by the number of weeks in that period. There are many variations so here are a few examples.

Scenario 1 – All Employees are Full-Time No Changes in Levels

Simply count the number of employees.

Scenario 2 – All Employees are Full-Time with Employment Level changes.

It gets tricky is when employees have started or left during a time period. In this case you would want to count them as a fraction.

Example for the 8-week forgiveness period:

  • 3 employees were there the entire time = 3.0 FTE
  • 1 employee started at the beginning of week 3 so 5 weeks worked during the period = 5 divided by 8 = 0.625 FTE
  • 1 employee was laid off 23 days into the forgiveness period = 23 days worked divided by 56 days in the forgiveness period = 23 / 56 = 0.41 FTE rounded
  • Total FTE for the period is 3.0 + 0.625 + 0.41 = 4.04 rounded

Scenario 3 – All Part-Time Employees

In this scenario, take the hours worked in a period divided by 40 divided by the number of weeks.

Example for the 8-week forgiveness period:

  • 3,580 hours worked by all employees
  • 3,580 divided by 40 divided by 8 = (3,580 / 40) / 8 = 11.19 FTE rounded

Scenario 4 – Combination of Full-Time and Part-Time Employees

In this scenario, you would want to divide up employees and use the approach of scenario 1 or 2 for full-time and 3 for par-time employees then combine the numbers.

4 – Employee Count Timeframes

To determine if employee hours or counts were reduced, there is a calculation to compare FTE counts during the forgiveness period versus a previous reference period. There are multiple options for reference periods:

  • February 15, 2019 to June 30, 2019
  • January 1, 2020 to February 29, 2020
  • Seasonal employers only can also use May 1, 2019 to September 15, 2019

This gets a little complicated as you may need to come up with 2 to 3 reference period calculations and use the best once against your forgiveness period.

If the forgiveness period is still lower, there is still hope thanks to the FTE Reduction Safe Harbor

5 – FTE Reduction Safe Harbor

If FTE counts between February 15, 2020 and April 26, 2020 are lower than the February 15, 2020 pay period, you may still have an option to not have your forgiveness amount reduced.

That option is if your FTE count as of June 30, 2020 (assumed they mean the pay period containing June 30, 2020) is equal or greater than the February 15, 2020 pay period calculation, you don’t have a reduction of forgiveness.

If neither of those are an option, your forgiveness is reduced as a ratio of the FTE count during loan forgiveness period.

That said there is one more option if people were let go and couldn’t be rehired.

6 – Layoff Forgiveness \ Firing for Cause \ Resignation Impact

The FTE count can be reduced for one of the following reasons:

  • A written rehire offer was rejected by a laid off employee
  • An employee was fired for cause or voluntarily resigned
  • An employee voluntarily requested and received a reduction of their hours

In those cases, their FTE calculations in the reference period can be excluded. Make sure you have good documentation here.

7 – Pay Cut Forgiveness Impact

Many businesses have needed to cut pay to survive. Pay cuts cannot exceed 25% for those who earned $100,000 or less in 2019. There is a complex set of calculations to determine if this is met with safe harbor for pay restoration by June 30, 2020. This alone merits a separate blog article.

8 – Owner Forgiveness Limits

There are specific limits to owner-employees \ self-employed individuals’ calculation for loan forgiveness. It is the lesser of:

  • 8/52 of 2019 compensation
  • $15,385

In terms of non-payroll compensations

  • Owner-employees can include employer retirement and health care contributions
  • Schedule C filers (sole proprietors and single-member LLCs) can only owner compensation based on 2019 net profit, so no benefits can be added to forgiveness

This is new since the application came out so be aware.

9 – High Earner Limits

There is a limit to the amount of payroll costs that can be applied to forgiveness for high earners. In the application, that amount was $100,000.

For the forgiveness calculation, this amount is $15,385.

10 – Extra Payroll

Some businesses who do semi-monthly (twice a month) payroll want to squeak out a partial payroll run to maximize their payroll forgiveness. Here is what is stated in the Interim Final Rule on Loan Forgiveness page 9

  • Payroll costs are considered paid on the day that paychecks are distributed or the borrower originates an ACH credit transaction.
  • Payroll costs incurred during the borrower’s last pay period of the covered period or the 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) to be eligible for forgiveness.
  • Payroll costs are generally incurred on the day the employee’s pay is earned

This is somewhat unclear and conflicting, but the statement on payroll costs incurred for the last pay period are indicated as eligible for forgiveness if paid on or before the next regular payroll date

Here’s some thoughts pending further guidance:

  • The application requests a total paid for the covered period
  • It can’t exceed $15,385 per employee (with owner exception)

Running a partial payroll ensuring that the checks are disbursed or ACH initiates before the end of the loan forgiveness period should be ok as long as that pay shows up in those payroll reports.

11 – Bonuses

Many businesses want to pay bonuses to maximize forgiveness. We have an answer finally. Payroll costs can include bonuses as long as total payroll costs don’t exceed $15,385.

Note that this may not work for owner-employees as bonuses are tied to 2019 compensation as well.

12 – Nonpayroll Cost Timing

In terms of when a nonpayroll cost occurs, there are two options:

  • Paid during the covered period
  • 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.

So in this case, it pays to pay on time!

13 – Utility Definitions

Per the PPP Loan Forgiveness Application page 2, utilities have been clarified as:

business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020

Transportation has not been clarified so keep track of any business transportation expenses such as business vehicles, fuel, maintenance, etc. in preparation for further clarification.

14 – Documentation Requirements

Here is what is stated as needed:

documentation verifying payroll costs, the existence of obligations and service (as applicable) prior to February 15, 2020, and eligible business mortgage interest payments, business rent or lease payments, and business utility payments.

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:

  1. Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
  2. Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
  3. Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
  4. State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
  5. Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount (PPP Schedule A, lines (6) and (7)).

To translate, every number in the form should be back up by a calculation and\or source document. Keep your records

15 – Loan Review Likeliness

There is a specific box to select if the PPP loan was in excess of $2 million. Loan (or audit review) is highly likely here.

The SBA has since stated: SBA may begin a review of any PPP loan of any size at any time in SBA’s discretion.


the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full

In practicality, smaller loans are less likely to be reviewed, but be prepared and like your income taxes save your documentation!

16 – Loan Review Focus

Here is what they will look for in a loan review:

  • Borrower Eligibility
  • Loan Amounts and Use of Proceeds
  • Loan Forgiveness Amounts

I’ve written on eligibility in the past with my article Should I Return My Paycheck Protection Program Loan?. My general guidance remains as stated there.

Final Thoughts

Are you feeling overwhelmed? It’s a lot to take in. If you didn’t use an accountant with the loan application, you are going to want one to help with or review your forgiveness application. It could save you money, keep you out of trouble, and preserve your sanity. We can help if needed.