PPP Loan Forgiveness Application Update
And it’s Good News for Employers!
Last Updated: June 18th, 2020
The PPP Flexibility Act was signed into law on June 5, 2020 and provided significant relief to employers who had either already received or who planned to apply for the Paycheck Protection Program Loan. However, even after that initial round of good news, many questions remained unanswered. On 6/16/20 the Treasury Department published an updated PPP Loan Forgiveness Application as well as an EZ Loan Forgiveness Application that answer many of those questions and bring even more good news. Below is a brief summary of the new rules surrounding having your PPP loan forgiven.
- EZ Form – This form tremendously simplifies the forgiveness process by eliminating cumbersome calculations related to Wage Reductions and Full Time Equivalent (FTE) Reductions. If a borrower can establish one of the following 3, the EZ Loan Forgiveness Application form can be used.
- Borrower is Self-employed, an Independent Contractor, or a Sole Proprietor who had no employees at the time of the PPP loan application submission and did not include employee salaries in the computation of the loan amount.
- Borrower did not reduce the annual salary or hourly wages of any employee who did not make more than an annualized rate of $100,000 during any pay period in 2019 by more than 25% during Covered Period compared to the period of 1/1/20 to 3/31/20 AND the Borrower did not reduce the number of employees or the average paid hours of employees between 1/1/20 and the end of the Covered Period.
- Borrower did not reduce the annual salary or hourly wages of any employee who did not make more than an annualized rate of $100,000 during any pay period in 2019 by more than 25% during Covered Period compared to 1/1/20 and 3/31/20 AND the Borrower was unable to operate the business during the Covered Period at the same level as before 2/15/20 due to COVID-19 compliance.
- Covered Period
- OLD RULE: Initially, PPP loans were subject to an 8-week covered period that commenced on the date the loan was funded. Employers had only these 8 weeks during which they needed to establish that the loan monies were spent on payroll and other qualified expenses that would count towards the total amount of the loan that could be forgiven.
- NEW RULE: Now, employers may choose to still use the initial 8-week period but have the option of utilizing a 24-week period to qualify for loan forgiveness.
- Payroll Expenses
- OLD RULE: Initially, at least 75% of the total loan amount needed to be spent on payroll costs for the loan to be fully forgivable. Spending less than 75% would cause the total loan forgiveness to be adjusted down on a pro-rated basis.
- NEW RULE: Now, employers are only required to spend 60% of the total loan amount on payroll. After the initial passage of the PPP Flexibility Act, it appeared that this new 60% threshold was an “all or nothing” cliff. The newly released forgiveness application makes it clear that this is not the case. Spending less than 60% will not cause the entire loan amount to not be forgiven. It will simply cause the forgivable amount to be adjusted down.
- Payroll for Owner-Employee, Self Employed, General Partner
- OLD RULE: Initially, forgivable payroll for these individuals could not exceed 8 weeks worth of 2019 compensation, capped at $15,385.
- NEW RULE: Now, employers who use the 8-week covered period can still use 8 weeks of 2019 payroll described above. However, employers who elect the 24-week period must limit owner compensation to 2.5 months of 2019 compensation, capped at $20,833. However, we now know that retirement plan costs for S corporation owners are allowed to be included in forgivable payroll costs.
- Salary/Wage Reductions
- OLD RULE: Initially, the total loan forgiveness was reduced dollar for dollar for any reductions in annual salaries or hourly wages for employees making less than the equivalent of $100,000 per year. A Safe Harbor existed for employers to bring those wages back up by 6/30/20 to avoid any loan forgiveness reduction related to wages.
- NEW RULE: The prior Safe Harbor still exists but now allows employers to restore wages by the earlier of the date of the loan forgiveness application is submitted or 12/31/20.
- Full-Time Equivalent (FTE) Reduction
- OLD RULE: Initially, the total loan forgiveness was reduced proportionately if the employer cut their headcount during the Covered Period compared to one of 2 reference periods. A Safe Harbor existed for employers to bring their headcount back up by 6/30/20 to avoid any loan forgiveness reduction.
- NEW RULE: The prior Safe Harbor still exists and is now referred to as Safe Harbor #2 and gives employers to the earlier of the date on which the loan forgiveness application is submitted or 12/31/20. Additionally, there is a new Safe Harbor #1 which allows an employer to simply check a box stating that due to COVID-19 compliance restrictions, the business has not been able to return to the same level of operations as before 2/15/20. If you can attest to that statement, you are given no loan forgiveness reduction related to FTE count.
There are still more open questions that we hope will get answered in regs and possibly Q&As from the SBA and/or the Treasury Department. This is evolving quickly, so keep informed.
Join us for a FREE WEBINAR on Wednesday, June 24, 2020 at 2 pm PDT to dig into some of these details and engage in a lively Q&A session. Please register in advance:
Call us and schedule an appointment now if you need help projecting your PPP forgiveness and its impact on your staffing decisions. We’re here to help!