SBA Updates Rules for PPP Loan Forgiveness

May 26, 2020

On May 22, the US Treasury updated the rules governing PPP loan forgiveness.  Some of the updates merely ratify the decisions made on loan forgiveness application form.  www.smgglaw.com/blog/ppp-loan-forgiveness-sba-released-application-form-and-instructions-on-friday-may-15.  However, none of the changes address any of the current proposals in Congress to reform the PPP loan program.

Copy of regulations

home.treasury.gov/system/files/136/PPP-IFR-Loan-Forgiveness.pdf

What payroll costs are eligible for Loan Forgiveness?

All salary, wages, commissions, cash tips (even if not reported on Form W-2, so long as the employer can reasonably estimate them), employee leave payments (vacation, parental, family, medical, or sick leave), severance or termination pay, employee benefits costs (group health care, including insurance premiums for health care, and employer’s share of retirement plan payments.  Any benefits paid by the employee through a salary reduction do not count), and employer’s payroll costs (e.g. PA unemployment and City of Pittsburgh payroll tax).  All of these payroll costs must be paid within eight weeks of the first loan disbursement from your lender and cannot be paid any later than June 30, 2020.

These costs must be at least of 75% of your total loan forgiveness amounts.

If the employer’s bi-weekly (or more frequent) payroll cycle does not match the eight-week period after the first loan disbursement, then the employer may start the eight-week period on the first day of the bi-weekly (or more frequent) payroll cycle.

What about wages paid as standby pay or for other periods of non-work?

They count for loan forgiveness.

What about wages paid as a short-term bonus or hazard pay?

They count for loan forgiveness.

What interest payments are eligible for Loan Forgiveness?

Mortgage interest on real estate and interest on equipment financing under a loan that was in effect before February 15, 2020.  Interest prepayments and any payments of loan principal do not count.   All of these costs must be paid within eight weeks of the first loan disbursement from your lender and cannot be paid any later than June 30, 2020.

What rent payments are eligible for Loan Forgiveness?

Rent payments on real estate and equipment under a rental agreement that was in effect before February 15, 2020.  All of these costs must be paid within eight weeks of the first loan disbursement from your lender and cannot be paid any later than June 30, 2020.

What “business utility” payments are eligible for Loan Forgiveness?

Utility payments for electricity, gas, water, telephone, internet access, as well as certain “transportation costs” (which appear be gasoline or diesel fuel for business vehicles) for which service began before February 15, 2020.  All of these costs must be paid within eight weeks of the first loan disbursement from your lender and cannot be paid any later than June 30, 2020.

Note – payments in the last three categories are capped at 25% of the PPP loan forgiveness amount.

What happens if an employer misses the head count hire back target because the employee refused the offer to be rehired?

The employer’s failure to reach the hire back target is excused for a particular employee if:

  1. The hire back offer is made in good faith and in writing;
  2. The offer was for the same salary and wages and the same number of hours as earned by the employee for the last pay period prior to the separation or reduction in hours;
  3. The offer was rejected by the employee;
  4. The employer keeps records of the hire back offer and the date of the rejection by the employee.
  5. The employer informs the PA unemployment office within 30 days of the employee’s rejection of the hire back offer. Note – This is a major change.  
    1. Note: notices mailed to PA more than seven days after the rejection of the hire back offer probably will not affect the employee’s unemployment benefits. See, smgglaw.com/blog/ppp-loan-hiring-back-employees-by-june-30-to-get-the-ppp-loan-forgiven

What happens if an employee is fired for cause, voluntarily resigns or voluntarily requests a schedule reduction?

That employee is exempted from the FTE head count requirement.  The employer must maintain documentation to support this analysis.

Who is a “full time equivalent employee” and how are part time employees counted?

A “full time” employee is an employee works 40 hours or more a week.  For example, a “full time” employee who works 48 hours a week, is treated as if his hours were capped at 40 hours.   A part time employee is aggregated with other part time employees to convert the number of hours worked into a “full time equivalent employee” count.  In the alternative, an employer may treat all part time employees as .50 of a “full time equivalent employee.”

What effect does a reduction in employees’ salary or wage have on loan forgiveness?

So long as the salary or wages are not reduced by more than 25 percent during the eight-week period after the loan disbursement, the reduction has no effect on loan forgiveness.  The employer must use the period of January 1 to March 31 as the reference period to determine if there has been a reduction.  If the employer had both a reduction in head count and a salary reduction, a complex calculation is required to prevent the employer from being doubly penalized.  (see pages 19 -21 of the regulations).

How can an employer “recover” from either a reduction in employees’ wages or a head count reduction?

If the employer restores the employee headcount and employees’ salaries and wages by June 30, 2020, any reductions that occurred during the eight-week period after loan disbursement are ignored.  (Section 5(g) of the regulations).

For questions regarding this subject, please contact S. John Kelly at jkelly@smgglaw.com.