COVID-19 – 05-19-20 BULLETIN RELEASE – PPP Loan Forgiveness Further Guidance

Late in the day, Friday, May 15, 2020, the SBA came out with the instructions and application borrowers will use to request PPP loan forgiveness from their lender. While this new information provides some welcomed relief to pieces of the forgiveness puzzle for many, it falls short in answering all outstanding questions that still remain on other aspects of the loan forgiveness process and details. This email will, therefore, be brief as we summarize the changes most folks will likely find beneficial.


Alternative Payroll Covered Period – As we already know, the 8-week “covered period” for loan forgiveness begins the day PPP loan proceeds are received. The SBA has now defined an alternate covered period SOLELY for payroll to make the payroll portion of the forgiveness puzzle less confusing and easier to track. Basically, the borrower may elect to use the “Alternative Payroll Covered Period” SOLELY for payroll costs with the non-payroll covered costs remaining on the 8-week period beginning with the PPP loan deposit date. This alternate payroll period can begin with the first day of the first payroll cycle AFTER the PPP loan deposit date. For example, if the loan deposits on May 8th and the next payroll cycle begins on May 13th then the Alternative Payroll Covered Period can begin May 13th, and the 56 day period (8 weeks) will start May 13th instead of May 8th. If there is no payroll cycle when the PPP loan is deposited due to office closure, then the alternate payroll period would begin on the first workday which is likely at or near re-opening. This will benefit practices that received PPP loans before they were able to open and chose NOT to bring back employees until they were able to open. Again, this is ONLY for payroll costs. 


An Eligible Covered Expense – With respect to an eligible covered expense, it must be either paid during the covered period (8 weeks from the loan date) OR incurred during the covered period and paid on or before the next regular billing date even if paid AFTER the 8-week covered period. For payroll, costs are incurred on the day the employee pay is earned and it is considered paid when the borrower distributes the funds or originates an ACH transaction. Payroll costs incurred and NOT paid during the last day of the covered period (or alternate covered period) are still eligible as long as they are paid on or before the next scheduled payroll date.


Loan Forgiveness Reduction due to a Change in FTEs  -The SBA provided two new changes to borrowers that may allow them to be exempt from this possible loan forgiveness reduction test. First, a simplified method has been added to delineate between an employee who works full time and an employee who works less than full time. Instead of going through the various calculations on various dates, to calculate the FTE’s (full-time equivalents) you may use the number 1 for one FTE and .5 for any employee working less than full time. A safe harbor test has also been provided where if this test is met, there will be no reduction in loan forgiveness under the FTE hurdle. Basically, if (1) you reduced your FTEs between February 15, 2020, and April 26, 2020, and (2) you restored your FTEs by June 30, 2020, to the same number as the payroll which included February 15, 2020, then the loan forgiveness will NOT be reduced under the FTE test.


We are hopeful that payroll processing providers will use this new information to develop their PPP loan forgiveness worksheets to make the forgiveness application process much easier for everyone as it relates to the various payroll related forgiveness tests.