You might have started to research how to get PPP Loan forgiveness. Take a look at Charles Zimmerer’s PPP Forgiveness page for the basics about how the calculations work.

The Key Takeaways about PPP Loan Forgiveness and the Flexibility Act which changed PPP are:

  • To be eligible for forgiveness, payroll expenses under the original PPP act needed to constitute 75% of the expenditures of the loan proceeds.
  • The Flexibility Act reduced that to 60%. Our thought, unless you’re on Duval Street, Lincoln Road, Rodeo, or Times Square, there may be only so much rent and utilities you can muster up.
  • What was the loan Disbursement date? This is key in many of the calculations including the covered period and alternative covered periods, and it is something you had little control over.
  • How many employees and owners earned more than $100k? Must exclude salaries in excess of 100k.
  • Also, Owners pay was limited to the lesser of 2019 comp or $15,385 for 8-week period or $20,833 for 24-week periods. Interestingly, what happens if the owner foregoes a salary, does that count as a reduction in salary or wages, thus reducing forgiveness?
  • If your reduction is 25% or less in salary, wages, or hours, then in effect there is no reduction in loan forgiveness. Get those employees paid up. If you reduced everyone by 25%, then there is no reduction in forgiveness.
  • Try to use the EZ form if possible. Normal businesses have employees coming and going, some employees decided to voluntarily resign or take furloughs to care for others. These calculations can become quickly complex. The issue for may employers we anticipate is there will be insufficient documentation of offers to rehire employees. To be safe, get those offers out by June 30th 2020.
  • Many companies we anticipate found it difficult to replace workers during the COVID restrictions.

To summarize, there are two PPP Forgiveness Forms, Form 3508EZ and the Revised Form, or the Long Form.

You are allowed to file the the EZ form if you are self-employed or have had no employment changes. That crowd has the option of filing the short or the long form, and everyone else has to file the long form. The fundamental difference between the long form and the EZ form is the FTE, or Full Time Equivalency calculation. Needless to say that calculation in and of itself can be daunting. Otherwise the EZ and Revised PPP Forgiveness applications are similar.

You are required to show your Covered Period, which is the 24-week period beginning with the date of disbursement of your PPP loan. That’s the day it hits your bank account. That 24 weeks is 168 days. An example is if your loan proceeds are paid April 20, 2020, then the Covered Period begins on that day and ends on October 4, 2020.

If your loan was disbursed prior to June 5, 2020, you may elect to use the Alternative Payroll Covered Period, which is 8 weeks. Furthermore, if your payroll period is bi-weekly or more frequent, you may elect to classify your Alternative Payroll Covered Period to begin on the date of the first payroll following the loan disbursement date (for administrative convenience).

Note that loans in excess of $2 Million are subject to examination by the SBA.

To summarize the base calculations from Charles Zimmerer’s PPP Forgiveness page :

  1. Gather your total eligible payroll costs incurred or paid during the Covered Period or the Alternative Payroll Covered Period.
  2. Gather the amount of business mortgage interest payments paid or incurred during the Covered Period for any business mortgage obligation on real or personal property incurred before February 15, 2020. Do not include prepayments.
  3. Gather the amount of business rent or lease payments paid or incurred for real or personal property during the Covered Period, pursuant to lease agreements in force before February 15, 2020.
  4. Gather the amount of business utility payments paid or incurred during the Covered Period, for business utilities for which service began before February 15, 2020.

In order to calculate #1 above, total eligible payroll costs, you will need to go through a more complex analysis.

First, you will be required to navigate to Schedule A Worksheet and list employees who were employed during the Covered Period or the Alternative Payroll Covered Period whose principal place of residence is in the USA and received Compensation no more that $100,000 in 2019 or were not employed by the Borrower in 2019.

Assume there are two employees, Alexander and Charles. Charles’ wages remained constant, but the company reduced Alexander’s wages in half.

Employee’s Name…Cash Compensation…Average FTE

Alexander……………$10,000………………….20

Charles………………..$15,000………………….40

Average FTE is the average full time equivalency during the Covered or Alternative Covered Period. You are required to make an adjustment if the annual salary or hourly wages were reduced by 25% or more during the Covered or Alternative Covered Period. In the example above, Alexander’s wages or his hours were cut in half. Note that if Charles’ time or wages had been cut by no more than 24%, then there would be no Salary Wage reduction reported.

To determine if Charles’ pay was reduced more than 25%, enter average annual salary or hourly wage during Covered Period or Alternative Payroll Covered Period: $15,000

Next, enter average annual salary or hourly wage between January 1, 2020 and March 31, 2020: $20,000
Divide $15 ,000/$20,000 = 50% or 0.75. If the result is 0.75 or more, your FTE Reduction is zero.

To determine if Alexander’s pay was reduced more than 25%, enter average annual salary or hourly wage during Covered Period or Alternative Payroll Covered Period: $10,000

Next, enter average annual salary or hourly wage between January 1, 2020 and March 31, 2020: $20,000
Divide $10,000/$20,000 = 50% or 0.50.

In this case, we should verify whether the Safe Harbors are met. The Safe Harbors can help us get the Forgiveness.

Two separate safe harbors exempt certain borrowers from any loan forgiveness reduction based on a reduction in FTE employee levels:

1. The Borrower is exempt from the reduction in loan forgiveness based on a reduction in FTE employees described above if the Borrower, in good faith, is able to document that it was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

2. The Borrower is exempt from the reduction in loan forgiveness based on a reduction in FTE employees described above if both of the following conditions are met: (a) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (b) the Borrower then restored its FTE employee levels by not later than December 31, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.

If you cannot meet the safe harbor tests, then you must make a salary wage reduction.