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PPP...please forgive me!

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.

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