Understanding the Paycheck Protection Program Loan Forgiveness

As part of our COVID-19 webinar series, attorney Susan J. Markey shares the latest guidance on the PPP forgiveness process. Below is a summary of her collective presentations. Guidance around PPP is constantly changing, the information contained herein is for general guidance purposes only and does not constitute legal advice.  The content is provided “as is;” no representations are made that this content is error-free.  You can view the complete on-demand library of Susan’s webinars here.

The SBA released a sample Paycheck Protection Plan (“PPP”) loan forgiveness application on May 16, 2020 (the “Application”).

The Application clarified several key issues, including the calculation of: the 8-week period; owner compensation; FTE calculation; and Loan Forgiveness. On June 3, 2020 Congress made PPP loans more flexible for borrowers by extending the PPP loan covered period from eight weeks to 24 weeks (or until December 31, 2020, which ever is earlier).

8-Week Period:

The CARES Act indicates that costs “incurred and paid” during the 8-week covered period were eligible for forgiveness. This created confusion about which expenses were eligible, particularly related to payroll calculations, as most businesses pay payroll in arrears.

The Application indicates that two different periods may be used for calculating payroll expenses. All Applicants may use the “Covered Period”, which is the 56-day period beginning on the loan disbursement date.

Applicants who use a biweekly or more frequent payroll schedule may choose to begin the 56-day period on the first day of the first period following the loan disbursement date.

The Application clarifies that payroll costs are deemed to be paid on the date that paychecks are distributed or the day the Applicant initiates an ACH credit transaction. Payroll costs are deemed to be incurred on the day that the Employee’s pay is earned.

Finally, payroll costs incurred but not paid during the last pay period are eligible for forgiveness if they are paid on or prior to the next regular pay date.  All other payroll costs must be paid during the 8-week period.

24-Week Period:

The Flexibility Act, passed on June 3, extends the PPP loan covered period from eight weeks to 24 weeks. Borrowers that already received a PPP loan before enactment of the Act can elect an eight-week covered period, which helps PPP borrowers that are approaching the end of their original covered period and have spent the majority of funds.

Borrowers have up to 10 months from the date of their covered period ends to apply for loan forgiveness.

Owner Compensation:

The Application clarifies that amounts paid to owner-employees, self-employed individuals, or general partners during the period is limited to the lesser of i) $15,385 for individuals earning $100,000 or more, or ii) 8-weeks of their 2019 compensation.

Nonpayroll Costs:

All eligible expenses other than payroll must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is not within the Covered Period. Eligible nonpayroll costs cannot exceed 25% of the total amount eligible for forgiveness (i.e. the expenditure on eligible expenses during the 8-week period).

Forgiveness Reduction:

Forgiveness is subject to limitation where the Applicant either reduces its number of full-time equivalent employees (“FTE”) or if pay to an employee earning less than $100,000

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