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A Better Partnership


May 2020
May 27, 2020

SBA Issues Interim Final Rule Further Clarifying PPP Loan Forgiveness

On Friday, May 22, 2020, the Small Business Administration (SBA) and Department of Treasury issued an Interim Final Rule (IFR) that provides some additional clarity on Paycheck Protection Program (PPP) loan forgiveness. The IFR comes on the heels of the forgiveness Application that SBA issued several days prior (Application). In addition to the guidance in the Application, the IFR provides in part:
  • Examples of how to calculate payroll costs based on covered period and alternate covered period.
  • Salary, wage and commission payments to furloughed employees; bonuses; and hazard pay during the covered period are eligible for loan forgiveness as long as they do not exceed an annual salary of $100,000, as prorated for the covered period.
  • Owner-employees and self-employed individuals’ payroll compensation is capped. Specifically, the amount requested can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38% of 2019 compensation) or $15,385 per individual in total across all businesses. For self-employed individuals, including Schedule C filers and general partners, no additional forgiveness is provided for retirement or health insurance contributions.
  • Borrowers with employees who have rejected the borrower’s offer of employment or restoration of wages are exempt from loan forgiveness reduction if:
    • The borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period.
    • The offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours.
    • The offer was rejected by such employee.
    • The borrower has maintained records documenting the offer and its rejection.
    • The borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.
  • A full-time equivalent (FTE) employee is an employee who works 40 hours or more, on average, each week. In calculating the full-time equivalency of part-time employees, borrowers may choose to calculate the full-time equivalency by either:
    • Calculating the average number of hours a part-time employee was paid per week during the covered period and divide it by 40; or
    • Electing to use a full-time equivalency of 0.5 for each part-time employee.
    The IFR provides examples of how to calculate full-time equivalent employees.
  • Borrowers may avoid loan forgiveness reductions by bringing back FTEs that resulted from prior reductions in FTEs, salary and wage reductions in excess of 25%, or both, by June 30, 2020.
  • Examples of how to calculate forgiveness reductions based on salary and wage reductions.
  • Loan forgiveness reductions due to salary and wage reductions apply only to the portion of the decline in employee salary and wages that is not attributable to an FTE reduction of forgiveness for that same employee, ensuring that borrowers are not penalized twice for reductions.
  • Borrowers are not penalized if an employee is fired for cause, voluntarily resigns or voluntarily requests a reduced schedule during the covered period or the alternative payroll covered period.

The rules surrounding PPP loan use and forgiveness are complex and business specific. If you have concerns about the rules, please contact Ford Turrell, Timothy Hillegonds, Rob Davies, Matthew Crowe or your Warner attorney.

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