On Friday, the Small Business Administration (SBA) provided a Paycheck Protection Program (PPP) Loan Forgiveness Application. This application provided some clarification to questions PPP borrowers have been waiting for.
The information provided does not, and is not intended to, constitute legal advice; instead, all information, content, and materials are for general informational purposes only.
Payroll Costs
The SBA guidance clarified that payroll costs paid or incurred are eligible expenses for purposes of debt forgiveness. The employer can elect to include expenses paid during the standard covered period which is eight weeks starting when the loan proceeds were received or an alternative payroll covered period. Under the alternative covered payroll period, the borrower can start the eight weeks on the first day of their pay period following the date they received their PPP funds. This alternative covered period is only for payroll costs. Payments for interest on a covered mortgage obligation, rent or utilities would still need to follow the traditional covered period.
Per the application, the inclusion of payroll amounts paid to owners is after the inclusion of employee health insurance, contributions to employee retirement plans and state and local taxes assessed on compensation. This means that only covered benefits for employees, not owners, should be included in the eligible payroll costs.
Nonpayroll Costs
In order for the nonpayroll costs to be included in the forgiveness calculation, they 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 after the covered period.
Eligible nonpayroll costs eligible for forgiveness include:
- Covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020.
- Covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020.
- Covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.
Full-Time Employee Equivalency (FTE’s)
The SBA guidance states that employees who work 40 hours or more hours per week will count as 1.0 FTE and the hours of employees who do not work 40 hours per week will be totaled and divided by 40 and rounded to the nearest tenth.
>> The link to the SBA PPP Loan Forgiveness Application
>> More resources from the SBA on COVID-19
Please contact our firm with any questions specific to your company.