PPP loan forgiveness application now available

Finance to Table Education for Operating Your Restaurant

The SBA released a PPP loan forgiveness application on Friday, May 15th along with instructions on completing the form. The application does provide some clearer guidance on some unanswered questions that people have been struggling with since the program started. There is clarity on how to calculate FTE (full time equivalent) employees, how to calculate the salary/hourly wage reductions based on the 1st quarter 2020 actual salary/hourly wage earned and additional guidance on an alternative payroll period date that can be used to calculate payroll costs during an eight week period after receiving loan proceeds.

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As suspected, the forgiveness calculation is essentially a two-part formula with the first part consisting of a salary/hourly wage reduction calculated based on an employee’s 1st quarter 2020 actual salary/hourly wage earned versus that earned during the 8 week covered period. The application provides a worksheet that can be used to calculate the salary/hourly wage reduction, which in summary form would need to be at least 75% of an employee’s 1st quarter 2020 salary/hourly wage earned to ensure no reduction in forgiveness. Keep in mind, that this appears to be an employee by employee calculation which may be time consuming to calculate. The good news (at least for restaurants outside of Arizona that do not have a slowing in sales during the summer months) is that there is a safe harbor that can be met eliminating the reduction in forgiveness due to the salary/hour wage reduction if the salary/hourly wage is restored as of June 30, 2020 to the salary/hourly wage rate as of February 15, 2020.

FTE’s employees will be calculated based on a 40-hour work week. There was some speculation that the calculation would be based on a 30-hour work week, similar to what is used in the Affordable Care Act but that is not the case. Also, there is an FTE reduction safe harbor which exempts certain borrowers from the loan forgiveness reduction based on FTE employee levels. Specifically, the borrower is exempt from the reduction in loan forgiveness based on FTE employees if both of the following conditions are met:

(1) the borrower reduced its FTE employee levels in the period beginning February 15, 2020 and ending April 26, 2020

(2) the borrower then restores its FTE employee levels by no later than June 30 2020 to its FTE employee levels in the borrowers pay period that included February 15, 2020.

Please note, that if you do not meet the safe harbor exemption, the SBA did release a Q&A a few weeks back that a borrower’s PPP loan forgiveness will not be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer. Be sure to keep written documentation of the offer and the rejection of the offer from the employee as the FTE calculation above can take this into account.

The loan forgiveness application did incorporate a new “alternative payroll covered period” which for administrative purposes allows a borrower to elect to calculate eligible payroll costs using an eight week period that begins on the first day of the borrowers first pay period following their PPP loan disbursement date. For example, if the PPP loan proceeds were received on Monday, April 20th and the first day of the borrowers first pay period following receipt of the loan proceeds is Sunday, April 26th, the first day of the “alternative payroll covered period” is April 26th and the last day is Saturday, June 20th, even though the eight week covered period for other costs may end on Sunday, June 14th.

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Lastly, there was some additional guidance on incurred and paid expenses and per the application both payroll and non-payroll costs that have been incurred during the eight week covered period but not paid by the end of the eight week period will still be allowed as long as these expenses are paid by either the next payroll date or the next regular billing date for non-payroll cost.

The PPP loan program and rules have been very fluid, and we believe this will continue as we do expect the SBA to issue additional rules and guidance regarding the forgiveness application in the coming weeks as there are still many unanswered questions that folks still have. Also, there is currently a bill in Congress, HEROES Act, that was passed by the House on May 15th and has moved to the Senate that does extend the covered period from June 30th, 2020 to December 31, 2020, which would have a significant impact to the above calculations, so stay tuned as we will keep you updated as the SBA issues more guidance and as the HEROES Act moves through Congress.

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For more information and resources on COVID-19, see our coronavirus page. Feel free to contact your Henry+Horne tax adviser with any questions.

Brian Campbell, CPA