Managing the Small Business Association’s

Paycheck Protection Program Loan Forgiveness Application

May 22, 2020|Featured Article


This briefing provides:

  • An introduction and overview of the new Paycheck Protection Program Loan Forgiveness Application
  • Helpful planning tips to maximize your benefits


Introduction and Overview:

Friday evening, May 15, the Small Business Association (SBA) issued the included press release announcing the rollout of the Paycheck Protection Program (PPP) Loan Forgiveness Application (Application).  The accompanying PPP Loan Forgiveness Calculation Form (Form) is to be used by the Borrower, to document all of their PPP loan costs eligible for forgiveness (i.e. during the 8-week eligibility period; allowable expense types; and not to exceed caps).  The Borrower is to submit the Form, along with the Application and supporting information, to the Lender who will then review the calculations, and detailed support required, in accordance with the SBA standards for the Lender review.

The Form also provides clarification with respect to the calculations for the pro-rata reduction amount that would otherwise be eligible as a result of reductions in either (1) the number of Full Time Equivalent (FTE) staff, or (2) as a result of reduced pay to employees.  It includes a number of certifications by the Borrower; identifies required backup which must be included with the Application submitted to the Lender; and mandates a 6-year retention by the Borrower of the Application, submitted backup, and backup which was not submitted, but used in the completion of the Form.

  • The Application offers guidance on the FTE calculations for determining whether the otherwise eligible loan forgiveness amount would need to be reduced by defining:
    • How to measure an FTE. This is new – how an FTE was determined had not been previously defined by the SBA.   FTE is now defined as a percentage of a 40-hour work week.  The calculation for each employee takes the average number of hours worked during the 8-week eligibility period and divides it by 40, rounded to the nearest tenth.
    • The Application allows for an optional simplified method which assigns a 1.0 FTE value for employees who work 40 hours or more per week, and 0.5 for employees who work fewer hours (i.e. less than 40). (This is a significant planning opportunity, please see below.)
  • The Statutory Safe Harbor Exemption is allowed for any reduction to the loan forgiveness amount from FTE changes.  It states, that if the Borrower BOTH (1) reduced FTEs from 2/15/20 to 4/26/20, and (2) restored the FTE level for the pay period covering 2/15/20, no later than 6/30/20, then the Borrower is exempted from any forgiveness reduction based on FTE employee levels.
  • FTE credit is provided for those employees where (1) a written offerto return to work was made and the employer can document that the employee chose to not return to their position, or (2) the employee was fired for cause or voluntarily resigned, ONLY if the position was not filled by a new employee.
  • A new optional “Alternative Covered Payroll Period” for administrative convenience has been introduced to align the Borrower’s payroll cycle dates with the start of the 8-week eligibility period.  Basically, the Borrower has the option of starting the Covered Payroll Period on the first day of the next pay period following receipt of the PPP Loans.  Note that the non-payroll costs, like rent and utilities, are still covered under the 8-week eligibility period from receipt of loan proceeds.
  • Guidance has been offered on the reductions required if employee pay has been reduced by more than the threshold amount (i.e. 25%) during a base pay period from 1/1/20 to 3/31/20.
  • Eligible nonpayroll costs are defined per 2. (b) and includes “business rent or lease payments pursuant to lease agreements for real or personal property in force before 2/15/20.”
  • The Borrower is required to “enter the amount paid” and “payments”, so actually paying the eligible expense during the 8-week eligibility period (or if payroll by the next regularly scheduled payroll) will be very important.
  • The Borrowers should anticipate that there will likely be additional guidance and clarifications issued through FAQs.


Planning Tips to Consider Now:

 Avoiding/minimizing the FTE and Salary/Wage Reduction “haircuts”

Perhaps the most important item to consider is the base time period to use which optimizes the FTE calculation methodology to avoid, or at least minimize, the reduction in what your otherwise allowable loan forgiveness amounts would be based on your payroll actions during the 8-week eligible period.

Now is the time to run the FTE and Base Salary/Wage rate calculations.  These will provide the information you need to determine the payroll actions necessary during the 8-week eligibility period to maximize your benefits.  There is a potential planning opportunity offered in the Friday (May 18, 2020) introduction on page 7 on how to calculate FTE’s.  The SBA Form says “A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and a 0.5 for employees who work fewer hours may be used at the election of the Borrower.”  With no other SBA guidance, this may suggest that ANY employee hired, and paid, during ANY of the 8-week period would count as a 0.5 FTE because they would have worked some hours during the 8-week eligibility period (i.e. “and 0.5 for employees who work fewer hours”).  Thus, hiring an employee for 3 hours a week, as written, would imply they can be counted as a 0.5 FTE.  This can help minimize the FTE reduction on PPP Schedule A on page 6 of the Form.

There is another potential reduction which may result in additional loan forgiveness for the Borrower – the reduction based on the Salary/Hourly Wage Reduction.  As noted above, if the employee, during the 8-week period, didn’t work an average of 75% or more during the base period for Salary/Hourly Wage Reduction from 1/1/20 to 3/31/20, they don’t count towards the FTE calculation.  However, if the Borrower hires back a terminated employee who was employed during the base period that they select, the Borrower might be subject to the reduction of FTEs as a result of the Salary/Hourly Wage Reduction criteria.  The planning opportunity here is to consider hiring new employees for new positions to get the FTE count back up to where it was during the base period.  Consideration could be given to the hiring of interns which may not need to work for the full 8-week eligibility period and may not need to work a full 40 hours per week.

To obtain credit for an employee who does not come back to work, remember that the offer needs to be made in writing.  Consider sending an email to their email address of record or a certified letter, and the employer must document that the employee chose to decline the offer of re-employment.  Ideally, the employee sends a reply email or letter back to the employer declining the rehire offer, but as some employees may feel that such a document could complicate their continued use of unemployment benefits, they may not.  In that scenario, the employer might consider sending a documented letter stating that unless the employee returns to work on X date, their action will constitute a rejection of the offer of re-employment.  At a bare minimum, the employer could consider making a contemporaneous note of what the employee said, if the employee communicated by phone that they choose not to return to work.  Initial and date that contemporaneous note, and maintain it as part of the Borrower’s PPP Application backup file.

Other Tips and Observations:

While likely less significant than avoiding the FTE and Salary/Hourly Wage Reductions, there are several other planning items to consider:

  • Pay special attention to the start and end dates of your 8-week eligibility period and be mindful that you are cutting checks/transfers for the eligible expenses during the eligibility period.
  • Leases for Personal Property – The Application on p. 2, section 2 (b) includes the forgiveness of leases in place as of 2/15/20 for “personal property” which might include payments on equipment leases such as vehicles and office equipment.  Section 1106 of the CARES Act isn’t clear on this.  Additional guidance from SBA may be issued.
  • As one respected accounting firm’s blog observed, the Application is less clear on whether employer contributions for employer-provided health insurance and retirement contributions are forgivable through the formatting of PPP Schedule A.  The CARES Act in Section 1102 (a) (vii) definition of “payroll costs” does not appear to call out such an exclusion for an employer who was an employee, and states “any retirement benefit”.  Likely, this will be clarified in the future since the SBA has wide latitude in defining the program rules.
  • Given the company and personal exposure, the Entrepreneur should budget the time necessary to ensure that the Borrower has an accurate and well-documented file to support the loan forgiveness calculations and ensure there is a backup copy of the file and all supporting documentation kept for at least 6 years after the loan has been forgiven or paid off (i.e. 2 + 6 = 8 years total).


We hope you find this information helpful.

SBA PPP Loan Forgiveness Application Form:

SBA PPP CARES Act Summary Landing Page:

Resource for additional articles on the SBA PPP program:


BLBB does not provide tax advice nor practice law.  Please see your licensed tax or legal professional who can advise you based on your particular facts and circumstances. 


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