SBA Issues Interim Final Rule Regarding PPP Loan Forgiveness
Late on the night of Friday, May 22, 2020, as most of us had already started our holiday weekends, the Small Business Administration (SBA) issued a long-awaited Interim Final Rule (IFR) addressing Paycheck Protection Program (PPP) loan forgiveness. The new IFR comes as Congress considers a number of changes to the PPP, including expanding the current 8-week loan forgiveness period to somewhere from 16-24 weeks. The 26-page IFR covers a lot of ground, and borrowers should contact their counsel regarding specific provisions and their application to each borrower’s individual situation. That said, below are some IFR highlights.
- Borrowers can consider the beginning of their applicable 8-week period to be either
- The date of disbursement of the loan proceeds; or
- Then first day of the payroll cycle in the covered period.
The 26-page IFR covers a lot of ground, and borrowers should contact their counsel regarding specific provisions and their application to each borrower’s individual situation
This will allow borrowers to include full pay cycles in their 8-week forgiveness period.
- SBA is interpreting the definition of “payroll costs” broadly. “[S]alary, wages, or commission payments to furloughed employees; bonuses; [and] hazard pay during the covered period” are eligible for loan forgiveness. “If a borrower pays furloughed employees their salary, wages, or commissions during the covered period, those payments are eligible for forgiveness as long as they do not exceed the annual salary of $100,000, as prorated for the covered period.” SBA determined that this approach fulfills the purposes of the PPP by allowing for payment to employees even if they “are not able to perform their day-to-day duties, whether due to lack of economic demand or public health considerations.”
- “[T]he amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation . . . or $15,385 per individual in total across all businesses.”
- “In general, a reduction in FTE employees during the covered period or the alternative payroll covered period reduces the loan forgiveness amount by the same percentage as the percentage reduction in FTE employees.” SBA has defined a full-time employee as one who works 40 hours or more during an average week. For employees who work less than 40 hours per week, their hours are calculated for purposes of loan forgiveness reduction as proportions of a single full-time equivalent employee (FTE). For example, an employee who works 30 hours per week is a 0.75 FTE.
- In order to provide some flexibility for employers who do not regularly track hours of their part time employees, SBA has authorized two approaches to calculating the full-time equivalency of part-time employees. The first is the method described above. “Second, for administrative convenience, borrowers may elect to use a full-time equivalency of 0.5 for each part-time employee.” Borrowers must employ the same method for all employees.
- For purposes of calculating any reduction in loan forgiveness, the salary/wage reduction provision only applies to a portion of an employee’s salary/wage reduction that is not attributable to an FTE reduction. This prevents application of a double penalty for reductions in employee hours during the covered period. Keep in mind that the 25% salary/wage reduction allowable without a loan forgiveness penalty does not apply to FTE reductions. Either an FTE reduction or a salary/wage reduction of more than 25% can be cured by June 20, 2020, to avoid the loan forgiveness penalty.
- Employees who are fired for cause, who voluntarily resign, or who voluntarily request a reduced schedule during the covered period shall be counted at the same FTE level as before their change in hours/wages.