The Small Business Administration and the Treasury Department have finally issued a application and instructions for borrowers who request forgiveness of all or part of their Paycheck Protection Program (P3) loans. As might be expected, the material introduces new questions and ambiguities.
Highlights of the app and its instructions include:
Other period covered by payroll. Until now, the applicable rules and guidelines have provided that amounts appropriately used by borrowers during the eight-week period starting from the disbursement date of PPP loans (initial covered period) may be eligible for remission. However, the recently released app and instructions now provide for another period. Specifically, borrowers with a bi-monthly or more frequent pay schedule can choose to calculate eligible salary costs using the eight-week period that begins on the first day of their first pay period following the PPP loan disbursement (coverage period). alternative salary). Borrowers may find this particularly useful as it can allow for an easier audit trail. However, it is not clear whether companies that use different pay schedules for different employees would be eligible to use the alternate payroll coverage period if a pay schedule is less frequent than every two weeks. If a borrower chooses to use the alternative payroll coverage period, they should do so for all purposes, including calculating rent, utilities, and mortgage interest for which a rebate is requested. (References to the applicable period of coverage below are intended to refer to the original period of coverage or the period of alternative payroll coverage, as chosen by the borrower.)
Eligible salary costs. As it is well known, PPP loan borrowers are generally eligible for exemption from salary costs paid and incurred during the applicable covered period. The instructions state that salary costs are considered paid on the day the paychecks are distributed or the borrower completes an ACH credit transaction. Additionally, salary costs are considered incurred on the day the employee’s salary is earned, which means that, for example, salary costs incurred but not paid during the borrower’s last pay period of the applicable Covered Period are eligible for a discount as long as the amount is paid on or before the next regular pay date. Not surprisingly, borrowers can only count for remission after salary costs have been paid and incurred and the instructions include a reminder that cash compensation is capped at $ 100,000, prorated over the period. covered applicable. The instructions do not provide further guidance on various outstanding issues that apply to benefit costs.
Eligible non-salary costs. The instructions clearly state that eligible non-salary costs (such as covered commercial mortgage interest payments, covered rent obligations, and covered utility payments) must either be paid during the applicable covered period or incurred during the period. applicable coverage and paid on or before the normal invoice date, even if the invoice date is later than the applicable covered period. The instructions also remind borrowers that non-salary charges cannot exceed 25% of the total rebate amount and that non-salary charges that were both paid and incurred during the applicable Covered Period can only be accrued. ‘once.
Potential reduction in the forgiven amount. As a reminder, the amount remitted may be reduced due to reductions in wages or hourly wages.
The instructions provide a long-awaited definition of a full-time equivalent (FTE) employee. Borrowers are asked, for each employee, to calculate the average number of hours paid per week, divide by 40, and round the total to the nearest tenth, capping each employee at 1.0. The instructions also offer a simplified calculation method that allocates 1.0 for employees who work 40 or more hours per week and 0.5 for employees who work fewer hours that can be used at the borrower’s choice. Guidance is also provided for the purpose of calculating the amount of wage reduction / hourly wage and various FTE reduction exceptions, including a reinstatement of FTE employee levels by June 30, 2020.
Other topics. The instructions provide important details regarding the information and documentation that must be submitted in order to apply for a PPP loan forgiveness, so be sure to carefully review the application and instructions and discuss the submission with your legal and financial advisors. The request also includes a detailed representation and certification by the borrower on various matters, including the use of the remitted amount and a six-year document retention requirement (for documents submitted to the lender and other backup documents).