On May 15, the SBA released its standard application that borrowers must complete to receive partial or full forgiveness for loans issued pursuant to the Paycheck Protection Program (PPP). Consequently, we have substantially revamped our Forgiveness Calculator to more closely align with the form. 

Notable and Clarified Items

• Measurement Period – Borrowers may elect an alternative payroll cost measurement period to more closely align with their standard payroll period.
• Timing of Payments – Payroll costs incurred during the measurement period are includable, even if the actual payment occurs after the end of the measurement period (provided that the payment is made on or before the next regular payroll date). Similarly, if a non-payroll cost is incurred during the measurement period but not due until after the end of the measurement period, that payment is potentially forgivable if paid on or before the next regular billing date.
• Full-Time Equivalent – The PPP uses a 40-hour week standard as one full-time equivalent employee (FTE). This can be calculated either by counting hours, dividing by 40 and rounding to the nearest tenth (provided that no individual can be more than one FTE), OR a simplified method treating all 40+ hour employees as one FTE each and all employees under 40 hours/week as 0.5 FTE each. Whichever method is chosen must be used consistently.
• FTE Exclusions – In FAQ #40, the SBA indicated that an employee who was laid off, furloughed, or otherwise had hours reduced involuntarily and then rejected a good faith offer to be rehired at such individual’s prior hours would be excluded from the FTE reduction analysis. In the application, the SBA expands this to add FTE exclusions for employees that (i) are terminated for cause (though cause is not defined), (ii) resign voluntarily, or (iii) voluntarily request reduced hours. Note, however, that if this position is subsequently filled, then the exclusion is disregarded.
• Personal Property Leases – These are included as part of forgivable non-payroll costs (i.e. equipment leases, copiers, printers, etc.).
• Reduction in Headcount and Reduction in Wage Safe Harbors –Two safe harbors in Section 1106 of the CARES Act are more specifically defined:
  • Reduction in Headcount Safe Harbor: There must have been (i) a decrease in average FTE headcount (FTEHC) from February 15, 2020 to April 26, 2020, as compared with the FTEHC on February15, 2020 and (ii) on June 30, 2020 the FTEHC must be equal to or greater than the FTEHC on February 15, 2020. This is an “all or nothing” safe harbor such that if it is not met, there is no restoration of any lost forgiveness.
  • Reduction in Wage Safe Harbor: With respect to any employee who received compensation during 2019 at an annualized rate of $100,000 or less, as well as any employee who was not employed by the borrower during 2019, if such employee’s annualized salary or average hourly wage is reduced by more than 25% during the measurement period, then the reduction of forgiveness can be eliminated if: (i) such employee’s annualized salary or hourly wage during the period from February 15, 2020 to April 26, 2020 is less than the employee’s annualized salary or hourly wage as of February 15, 2020, AND (ii) on June 30, 2020, the employee’s annualized salary or hourly wage is equal to or greater than the wage rate on February 15, 2020. For each employee this is an “all or nothing” analysis, but it is permissible to have some but not all of one’s employees qualify.

So What Do I Need to Show My Lender When I Apply for Forgiveness?

As an initial matter, you will need to complete the PPP Application Form and Schedule A. Our calculator is designed to map to the form to assist you. Additionally, in the application materials and in the calculator, a separate worksheet is attached to analyze each employee. You can add additional rows as necessary to perform your analysis on an employee-by-employee basis.

You will also need to provide documentary evidence to back up the calculations, which include:

• Payroll Costs (mandatory)
  • Bank account statements (or third-party payroll reports) documenting cash compensation paid to employees
  • Tax forms (or third-party payroll reports) for the periods that overlap with the measurement period:
    • Payroll tax filings (typically IRS Form 941)
    • State quarterly business and individual employee wage and unemployment insurance tax filings
  • Payment receipts regarding borrower contributions for forgivable employee health plans or retirement plans
• FTE Calculations
  • Documentation evidencing the number of FTEs for the applicable comparison elected by the borrower (February 15, 2019 – June 30, 2019; January 1, 2020 – February 29, 2020; or, for seasonal employers only, any consecutive 12-week period from May 1, 2019 – September 15, 2019)
  • Acceptable documentation includes payroll records, Form 941, or state tax filings
• Non-Payroll Costs
  • Mortgage/Secured Debt – Copy of amortization schedule evidencing existence of mortgage/secured debt prior to February15, 2020 and eligible interest amounts; copies evidencing payment of interest (i.e. cancelled checks, receipts). Note that payments of interest on unsecured debt is a permitted use of PPP proceeds, but is not a forgivable use of PPP proceeds.
  • Lease Payments – Copy of applicable lease agreements evidencing existence of lease obligation prior to February 15, 2020; receipts evidencing payment of rent
  • Utility Payments – Copies of invoices from February 2020 and those paid during measurement period; receipts evidencing payment

What Other Records Do I Need to Keep? What About Being Audited?

You will also need to retain (but do not need to submit) records, for up to six years, backing up all calculations included in the application, including payroll evidence for employees excluded from the reduction in wage analysis, records related to any claimed FTE exemptions, and documentation regarding the borrower’s compliance with PPP requirements.   

As previously noted in FAQ #46 (and in our advisory on May 13), any borrower that (together with its affiliates) borrowed more than $2 million from the PPP will be subject to an automatic audit, which includes an analysis of whether the borrower had an adequate basis to make a good faith certification as to the necessity of the loan request.  If a borrower does not reach this threshold, while the borrower may potentially still be audited, it will not occur automatically, and the borrower will be deemed to have satisfied the good faith certification requirement for SBA review purposes.

The SBA continues to produce new and revised guidance on this program, which may result in changes to this analysis and spreadsheet. This spreadsheet is provided as an educational tool to assist potential borrowers of a PPP loan in generally understanding the mechanism by which their loan may be forgiven in whole or in part but should not be relied upon as the final determination of such forgiveness amount. Borrowers should work with their lenders to determine the forgivable amount of their loan.