PPP loan forgiveness application is released, with guidelines to help borrowers calculate qualified expenses

The Paycheck Protection Program (PPP) brought many small business owners a much-needed lifeline during the pandemic to help cover payroll and other business expenses during an 8-week period.  Now that PPP funds have been distributed, loan recipients must begin tracking qualified expenses and prepare to submit records to earn loan forgiveness.  The SBA has released Form 3508, the PPP Forgiveness Application and Instructions, for borrowers to submit to his or her lender.   Some key points are:   

Alternative Payroll Covered Period:  There is an option for borrowers who use a biweekly or more frequent payroll schedule to calculate payroll costs using an “alternative payroll covered” period that aligns with borrowers’ regular payroll cycles by using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).

Eligible Non-payroll Costs: Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period (56 day) after receiving their PPP loan (Covered Period). Form instructions state that non-payroll expenses that are incurred during the covered period must be paid on or before the next regular billing date, even if the billing date is after the Covered Period.

Calculation of Average Full-Time Equivalents (FTEs): The FTE calculation used to determine whether the Borrower’s loan forgiveness amount must be reduced due to a statutory requirement concerning reductions in full-time equivalent employees includes a  another method for administrative convenience, wherein the borrower can assign a 1.0 for employees who work 40 or more hours per week and assign a 0.5 for employees who work less than 40 hours per week. The simplified method can be used at the election of the borrower.

Salary/Hourly Wage Reduction Safe Harbor: This safe harbor allows for restoration of annual salary or hourly wage level on an employee-by-employee basis as of June 30, 2020, if the average annual salary or hourly wage between Feb. 15, 2020, and April 26, 2020, decreased from the annual salary or hourly wage as of Feb. 15, 2020.

FTE Reduction Exceptions:  Includes exceptions to reductions in loan forgiveness based on a reduction in FTE if positions for which the Borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee (interim final rules released Friday, May 22, 2020 includes a requirement for borrowers to notify the state unemployment office of an employee’s rejected offer within 30 days of that rejection); and (2) any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours. Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness.

FTE Reduction Safe Harbor: A 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; and (2) the Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.

Loan recipients who need assistance gathering required documentation showing qualified expenses for PPP loan forgiveness should contact their ShindelRock tax professional.