The Treasury Department has released a new application form for Paycheck Protection Program loan borrowers to request loan forgiveness. The 11-page application offers some guidance and clarification for employers confused by previously announced requirements.
As part of its PPP lending, the Treasury bases loan forgiveness on whether a business hires back its former employees laid off as a result of the COVID-19 pandemic, or whether it offers the equivalent of those jobs in full-time hours. The new guidelines clarify full-time as 40 hours per week.
Among other key information included in the form:
Dates to know: The covered period of eight weeks began on the date of the disbursement. If a borrower received more than one disbursement, the period begins on the date of the first disbursement. For payroll costs, the SBA provides an administrative choice of the covered period to allow better alignment with pay periods.
Payroll costs: An eligible borrower can choose an alternative payroll covered period, which allows the borrower to align the eight-week period to the first day of its first pay period following the PPP loan disbursement date. To be eligible, a borrower must have a biweekly or more frequent payroll schedule. If the alternative method is chosen, a borrower must use the alternative method wherever it is referenced in the loan forgiveness application.
In another important clarification payroll costs incurred can be included in the elected covered period if the amounts are earned during the elective covered period and paid on or before the next regular payroll date.
Eligible non-payroll items: A borrower cannot choose an alternative measurement date for purposes of non-payroll costs. Amounts for eligible non-payroll costs can be paid or incurred during the covered period but cannot exceed 25% of the total forgiveness amount. Eligible non-payroll costs include mortgage obligations, rent obligations, and utility payments. A borrower’s non-payroll costs allow for both payments and amounts incurred for both real and personal property related to mortgage interest and rent.
Clarifying FTEs and reductions: Under the new guidance, FTEs are computed by taking the number of hours paid per week, divide by 40, and round the total to the nearest tenth. One employee can only count as a maximum of 1.0. In a simplification convention, a borrower can assign an FTE of 1.0 to an employee that works 40 hours or more per week and an FTE of 0.5 to an employee that works fewer than 40 hours more per week.
The loan forgiveness amount is to be reduced for a reduction in FTEs. To compute the reduction, the borrower should use the total average weekly FTEs during the period of its choosing (either Feb. 15, 2019, to June 30, 2019, or Jan. 1, 2020, to Feb. 29, 2020). The average FTEs during this testing period is then compared to the average weekly FTEs during the elected covered period. Any reduction in FTEs between Feb. 15, 2020, and Apr. 26, 2020 can be mitigated if the borrower restores the FTE level to the FTE level in the borrower’s pay period that includes Feb. 15, 2020, and not later than June 30, 2020.
Reduced salary and wages: Borrowers should use the average annual salary or hourly wage during the elected covered payroll period and compare that to the average salary or hourly wage between Jan. 1, 2020, and March 31, 2020. This analysis is done on an employee by employee basis and we welcome the change to the average versus the total wages being compared between the two periods. A salary or wage reduction between Feb. 15, 2020, and Apr. 26, 2020 can be mitigated if the reduction in salary or wage is eliminated not later than June 30, 2020. Any employee who received compensation at an annualized rate of pay of more than $100,000 for any pay period during 2019 is excluded from this analysis. Also, a borrower needs to only include employees that were employed during the elected covered period.
If you have questions about the new form, reach out to a professional at KraftCPAs.
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