On Friday, May 15th, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) Loan Forgiveness Application which attempts to answer many of the lingering questions loan recipients have about loan forgiveness. Here is a recap of what we now know:
Counting Your Full Time Employee Equivalents
Employers will have the choice of using one of two methods to calculate the number of full-time employee equivalents (FTE).
A full-time employee typical works 40 hours or more per week. However, 40 hours is applied to every period (the 2/15/19-6/30/19 or the 1/1/20-2/29/20) for computing your “base level” FTE.
Employers may choose a “simplified” approach where anyone working 40 or more hours per week counts as “1” and anyone working under 40 hours per week would be counted as “.5”
Restoring Your Full Time Workforce
An employer has until June 30, 2020 to restore the number of full-time equivalent employees if workforce reductions occurred between February 25, 2020 and April 26, 2020.
Payroll Limits for You and Your Full Time Workforce
Owner compensation cannot be increased from 2019 levels and is capped at $15,385 during the eight-week period which is in line with the $100k-per-year limitation. This is for cash compensation only.
Payroll cost will be capped at $15,385 per FTE during the eight-week period which is line with the $100k per year limitation. This is for cash compensation only.
Defining Your Eight Week Period
There are two methods for defining your eight-week period. The borrower will have the option to have the eight week period start from the date the funds were disbursed or may use the “alternative payroll covered period,” which begins on the first payroll period following the loan disbursement.
Defining Incurred vs Paid Payroll Cost
Payroll cost that are incurred during the loan period (using either method) will be allowable in the forgiveness even if the paycheck date falls outside the loan period. For example, if you have one week of payroll incurred out of a two-week payroll period, you will be eligible to use the one week of payroll incurred, even if it has not been paid yet. This was done to simplify the administration of moving payroll dates around. The important thing to note is the word incurred. This means hours worked during that portion of the pay period, and not the entire pay period.
Other Cost Paid Dates Defined
For payments associated with “other cost”, any bill, such as rent, that would have been for the period in which the loan was in force, that come after the end date of the eight week period, may be included as long as the bill is paid by the next regular billing date. The SBA appears to be trying to simplify items that would be for one of the months included, however the billing date falls outside the actual eight weeks. This is not to be read as “prepay” future expenses, but to pay bills which you would have incurred.
75/25 Computation Simplified
The application will take the lesser of the total loan amount, the total of payroll cost divided by .75 or the total allowable forgiveness due to reductions. The application still asks for “other” expenses, but the computation is now simplified.
Your Document Requirements
Including the application and worksheet, the borrower will need to provide:
Clients are strongly advised to contact their E. Cohen advisor to learn more about the Payroll Protection Program and the factors for loan forgiveness.