PPP Loan Forgiveness and Process Interim Final Rules
The SBA released new Interim Final Rules regarding PPP loan forgiveness and process.
As you may already know, the United States Congress is currently working on further legislation regarding the PPP loan. The below information is based on what we know right now and may change in the coming days/weeks. For the initial set of instructions issued, reference the PPP Loan Forgiveness Application. The details outlined below expand upon the instructions included on the application. We highly recommend that you work closely with your CPA and/or attorney throughout this process.
Below are some important details of the Interim Final Rules released on Friday, May 22nd. 1) Incurred vs Paid PAYROLL Costs and Covered Periods: a) Borrowers may seek forgiveness for payroll costs using one of two 8-week (56 days) covered period timelines: i. 8-weeks (56 days) from the date funds were received (covered period) ii. 8-weeks (56 days) from the first day of the first payroll cycle in the covered period (alternative payroll covered period) b) To use the alternative payroll covered period, you MUST have a bi-weekly or more frequent payroll cycle. EXAMPLE: A borrower has a bi-weekly payroll schedule and received the PPP funds on June 1st. Under the covered period, this means the 8-week period ends on July 26th. The first day of the borrower's first payroll cycle that starts in the covered period is June 7th. The borrower may elect an alternative payroll covered period for payroll cost purposes that starts on June 7th and ends 55 days later (for a total of 56 days) on August 1st. Payroll costs PAID during this alternative payroll covered period are eligible for forgiveness. In addition, payroll costs INCURRED during this alternative payroll covered period are eligible for forgiveness as long as they are PAID on or before the first regular payroll date occurring after August 1st (the last day of their alternative payroll covered period in this example.) 2) Bonuses, Hazard Pay, and Pay to Furloughed Employees: a) Payroll costs include: i. Compensation paid to furloughed employees ii. Bonuses and hazard pay NOTE: The above costs will be eligible for forgiveness as long as they do not exceed an annual salary of $100,000 3) FTE Reduction Exception: a) A borrower can exclude an individual employee from their FTE calculation if ALL of the following conditions are met: i. The borrower made a good faith, written offer to rehire the employee (or restore the reduced hours of such employee) during the covered period or 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 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 - For Colorado, you can access the Refusal of Suitable Work Form via this link NOTE: Further guidance from the SBA on this last point is expected shortly b) Reminder: An employee who is "fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction" will not be counted for the reduction test. The Rules add that "borrowers should not be penalized for changes in employee headcount that are the result of employee actions and requests". 4) FTE Employees: a) The Reference Period for comparing the number of FTEs in the covered period or alternative payroll covered period is one of the following: i. February 15, 2019 through June 30, 2019 ii. January 1, 2020 through February 29, 2020 iii. Seasonal Employer: Either of the two methods above or a consecutive 12-week period between May 1, 2019 and September 15, 2019 b) Borrowers must document their average number of FTE employees during the covered period (or alternative payroll covered period) and their selected reference period c) FTE means an employee who works 40 hours or more, on average, each week i. Divide the average number of hours paid for EACH employee per week by 40, capping this quotient at 1.0. EXAMPLE: An employee who was paid 48 hours per week during the covered period (or alternative payroll covered period) is considered to be an FTE employee of 1.0. d) For those who work less than 40 hours, you can calculate FTE in one of two ways: i. Calculate the average number of hours a part-time employee was paid per week during the covered period (or alternative payroll covered period) ii. Use a full-time equivalency of 0.5 for EACH part-time employee EXAMPLE: If an employee was paid for 30 hours per week on average, the employee could be considered to be an FTE employee of 0.75 (30/40) OR you may elect to use a full-time equivalency of 0.5. NOTE: You must apply whichever method you use consistently to ALL part-time employees for the covered period (or alternative payroll covered period) and the selected reference period e) After you have computed the FTE employees for each week, you can compute the reduction quotient: i. Calculate the aggregate total of FTE employees for both the selected reference period and the covered period (or the alternative payroll covered period) by adding together all of the employee-level FTE employee calculations. ii. Divide the average FTE employees during the covered period (or alternative payroll covered period) by the average FTE employees during the selected reference period, resulting in the reduction quotient. 5) Reduction in Employee's Salary or Wages Forgiveness Reduction: a) A reduction in an employee's salary or wages in excess of 25% may result in a reduction in the loan forgiveness amount if the employee continued to work on a full-time basis b) To ensure that borrowers are not doubly-penalized, the salary/wage reduction applies ONLY to the portion of the decline in employee salary and wages that is NOT attributable to the FTE reduction 6) June 30th Safe Harbor Test a) To meet the safe harbor test, the borrower must have had a reduction in employee or salary/hourly wages between February 15th, 2020 and April 26th, 2020. If this reduction did not take place, the borrower cannot use the safe harbor even though there may be a reduction that took place during the covered period (or alternative payroll covered period) when compared to the reference period. 7) Incurred vs Paid NON-PAYROLL Costs: a) A non-payroll cost is eligible for forgiveness if: i. It was PAID during the 8-week covered period (starting from the date the funds were received) ii. It was 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. 8) Loan Forgiveness Process a) The borrower must complete and submit the Application to the lender servicing the loan b) The lender has 60 days after receipt of a completed application to review the application (and supporting documentation) and issue a "decision to SBA" as to how much is to be forgiven. At this time, the lender will also request payment from the SBA of such forgiven amounts. c) The SBA is to then remit the applicable amount to the lender no later than 90 days after the lender has issued its decision i. The SBA will deduct up to $10,000 of EIDL advance amounts that have been given to the borrower from the amount remitted to the lender NOTE: The SBA may review any PPP loan but is not required to do this and may rely upon the borrower and lender for this 9) Loan Repayment a) Any balance due on a PPP loan must be repaid by the borrower on or before the two year anniversary of when the loan was made 10) 6-Year Record Retention a) Borrowers MUST retain the PPP documentation in their files for at least 6 years after the date that the loan is forgiven or repaid in full.