These days we're not shaking hands or even bumping elbows and feet. Forgive us, it's COVID, not you.
There is another type of forgiveness that is on everyone's mind and that surrounds the Paycheck Protection Program that we designed to preserve salary levels to some degree and prevent mass lay-offs. In large, the program has been successful but now small businesses are concerned with PPP loan forgiveness. The water gets a bit murky here.
On August 4, 2020 the U.S. Small Business Administration (SBA), in consultation
with the U.S. Treasury, released an updated 10-page FAQ in order to provide
guidance for small businesses who are trying to figure out how to get their
Paycheck Protection Program (PPP) loan forgiven.
This is a user-friendly summary with the latest information and updates so that
businesses understand how to navigate the forgiveness application.
Through July 31, the PPP has funded nearly 5.1 million forgivable loans totaling
more than $521 billion to help small businesses and other eligible entities impacted
by the recession sparked by the COVID-19 pandemic. More than $130 billion is
still available in the PPP, which has an Aug. 8 deadline for applications to be
approved by SBA.
Congress is currently considering a follow-up to PPP that would provide more
targeted assistance to small businesses but, in the meantime, employers want to
know how to be granted full or even partial loan forgiveness.
Just to recap, if you are a sole proprietor, independent contractor, or self-employed
individuals who had no employees at the time of the PPP loan application and did
not include any employee salaries in the computation of average monthly payroll
in the Borrower Application Form, you must use the Loan Forgiveness Application
Form 3508EZ or lender equivalent.
In addition, if your income has been adversely impacted by this COVID pandemic,
you have the option to apply for relief similar to Unemployment Insurance called
Pandemic Unemployment Assistance (PUA).
However, let’s say that you’ve received your PPP funds and have been using them
in the way they were intended. In order to:
~Avoid wage reductions of 25% or more (may impact amount of loan
~Avoid lay-offs and terminations
~Bring back workers (furloughed, laid-off, new)
And, further, that you understand and have complied with the definition of the
Covered Period (usually a 56-day period or 168-days if funds were received from
the loan prior to June 5 2020), then you should have already eliminated highly-
compensated employees from your PPP loan calculation and your business should
apply for forgiveness for all payroll costs include all forms of cash compensation
paid to employees, including tips, commissions, bonuses, hazard pay and
employer-paid retirement plan contributions and employer-paid health benefit
What about funds used for non-payroll items such as rent/lease? Non-payroll costs
are eligible for loan forgiveness if they were 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.
If you have asked employees to return to work but they are happy with their
unemployment benefits or afraid of the risk, you are not alone. This is how your
PPP forgiveness may be impacted if your full-time equivalent (FTE) staff numbers
are low at the time of applying for loan forgiveness.
“A borrower may exclude any reduction in FTE employees if the borrower is able
to document in good faith the following: (1) an inability to rehire individuals who
were employees of the borrower on February 15, 2020 and (2) an inability to hire
similarly qualified individuals for unfilled positions on or before December 31,
2020. Borrowers are required to inform the applicable state unemployment insurance office of any employee’s rejected rehire offer within 30 days of the employee’s rejection of the offer.”
Note that this last sentence is particularly important to communicate to workers
with their return-to-work offer letters. If they reject the offer, employers must
report to the Unemployment Department and that will most likely disqualify the
worker from receiving further benefits.
Finally, here is some information about the PPP from Jeff Drew at The Journal Of
Accountancy that you may not know: Congress created the PPP as part of the $2
trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-
136. The legislation authorized Treasury to use the SBA’s 7(a) small business
lending program to fund forgivable loans of up to $10 million per borrower that
qualifying businesses could spend to cover payroll, mortgage interest, rent, and
The loans are available to small businesses that were in operation on Feb. 15 with
500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal
concerns, self-employed individuals, sole proprietorships, and independent
contractors. Businesses with more than 500 employees in certain industries also
can apply for loans.
Congress designed the loans to support organizations facing economic hardships
created by the coronavirus pandemic and assist them in continuing to pay
employee salaries. PPP loan recipients can have their loans forgiven in full if the
funds were used for eligible expenses and other criteria are met. The amount of the
loan forgiveness may be reduced based on the percentage of eligible costs
attributed to nonpayroll costs, any decrease in employee headcount, and decreases
in salaries or wages per employee.
Congress approved $349 billion in PPP funding. After that money was quickly
exhausted, Congress authorized another $310 billion, bringing the program total
to $659 billion.
With this financial stimulus and relief funding program, we wish you the very best
in continued prosperity, a positive outlook and healthy workplaces.