The PPP is intended to help business owners keep their employees on the payroll, return those who might have been furloughed, and keep their business open by offering loans that are forgivable for funds used on covered costs.

The Act amended several provisions of the Paycheck Protection Program, including:

• Extending the covered period to up to 24 weeks
• Extending the time a borrower can qualify for the FTE and Salary/Hourly Wage reduction safe harbors
• Modified the 75/25 rule by increasing the amount of non-payroll costs that can be forgiven to 40% (from 25%). If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.

The Act also implemented an FTE reduction exemption, established a minimum loan maturity period of five years (rules apply), extended deferment payments of loan principle, interest, and fees, as well as allows continued deferral of Social Security taxes after loan forgiveness has been approved.

Read this article for more details on the PPP Flexibility Act.

The covered period is the period you can use your loan. It also is the period used to calculate any salary/hourly wage reductions to your loan forgiveness. Your covered period will be 24 weeks (168 days) if you are eligible but you can elect the original eight-week (56 days) period. Only borrowers who received their PPP loan before June 5, 2020 may elect the eight-week period*. In no event will a covered period extend beyond Dec. 31, 2020.

Covered Period. The Covered Period for either the 24-week period or, if elected, the eight-week period begins on the date you receive your loan.

Alternative Covered Period. For administrative convenience, borrowers with a bi-weekly (or more frequent) payroll schedule may elect to use an Alternative Covered Period for either the 24- or, if elected, the eight-week period that begins on the first day of their first pay period following the receipt of their loan. However, borrowers who elect the Alternative Covered Period must apply the Covered Period wherever there is a reference to Covered Period in their loan forgiveness application.

In an Interim Final Rule released June 10, 2020, the SBA determined that the date a loan is made is the date the SBA assigns a loan number to a PPP loan. We await further guidance to clarify whether to use the “received date of the loan amount” or the “loan made date” to determine eligibility to elect the eight-week period.

*The loan forgiveness application released on June 17, 2020 states that a borrower may elect to use the eight-week Covered or Alternative Covered period if they received their loan prior to June 5, 2020. However, the PPP Flexibility Act of 2020 states that the borrower may elect the eight-week period only if their loan was made on or before June 5, 2020.

Eligible payroll and non-payroll costs (business payments for mortgage interest, rent and utilities) paid or incurred during your covered period.

Borrowers are generally eligible for forgiveness for the payroll costs (also referred to in the Loan Forgiveness Application as eligible payroll costs) paid or incurred during their covered period. Payroll costs include:

• Cash compensation (gross salary, wages, tips, commissions, and paid leave, bonuses, hazard pay, etc. incurred during your chosen covered period (total not to exceed an annualized amount of $100,000 for your covered period for each employee)
• Employer paid benefits (group health care coverage such as insurance premiums and retirement contributions)
• Employer assesses state and local taxes

There is an Interim Final Rule providing guidance for independent contractors or sole proprietors. Read more in this article about the PPP program.

Non-payroll costs eligible for forgiveness are:

• Business mortgage interest payments. Payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before Feb. 15, 2020.
• Business rent or lease payments. Business rent or lease payments pursuant to lease agreements for real or personal property in force before Feb. 15, 2020.
• Business utility payments. Business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before Feb. 15, 2020.

An eligible nonpayroll cost must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period. Borrowers must use the covered period that begins on the date they received their loan, even if they elected the Alternative Covered Period. Eligible nonpayroll costs cannot exceed 40% of the loan forgiveness amount. Count nonpayroll costs that were both paid and incurred only once.

The SBA set August 8, 2020 as its deadline for approving a PPP loan, so work with your lender to ensure you submit your application so as to allow the SBA enough time to review it before the deadline. For loans made before June 5, 2020 the loan term remains two years. In an Interim Final Rule on June 10, 2020 the SBA determined that the date that a loan is made is the date that the SBA assigns a loan number to the PPP loan.

Only payroll costs paid or incurred during your covered period are eligible for forgiveness.

Payroll costs paid or incurred for employees on your payroll and not performing work (sometimes referred to as furloughed employees) may be included. However, payroll costs should exclude FFCRA paid leave wages.

Any advance received for the EIDL program under the CARES Act reduces your loan forgiveness by the amount of the advance.

Interest on your PPP Loan is 1% and begins to accrue when you receive your loan. Payments of loan principle, interest and fees are deferred until the date on which the forgiveness amount is remitted to your lender.

The Loan Forgiveness Estimator on SurePayroll.com has been updated to the reflect the latest guidance available.

In the coming weeks, customers will have access to the loan forgiveness estimator and a forgiveness application worksheet directly within the SurePayroll product. The in-product estimator will use payroll information from SurePayroll along with non-payroll information you enter to provide you both current and projected loan forgiveness. The report will be populated with details needed to support your loan forgiveness application based on the information from the estimator.

To apply for forgiveness of your PPP loan, you need to complete the PPP Loan Forgiveness Application (LFA) or the PPP Loan Forgiveness Application Form 380 EZ (PPP EZ Form) and submit it to your lender that issued or is servicing your loan to obtain forgiveness. Some lenders may allow you to prepare and submit the application electronically so be sure to check with your lender.

The PPP EZ Form can only be used on any size loan that fits in one of three categories:

• self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application
• borrowers who did not reduce salaries or wages of employees by more than 25% and did not reduce the number or average paid hours of employees (with some exceptions)
• borrowers who did not reduce salaries or wages of employees by more than 25% and experienced reductions in business activity as a result of COVID-19 related health directives.

If you do not fall within one of these three categories, you must use the PPP Loan Forgiveness Application.

Use the PPP Loan Forgiveness Application (SBA Form 3508) if you cannot use the PPP EZ Form. The PPP Loan Forgiveness Application has the following components: (1) the PPP Loan Forgiveness Calculation Form; (2) PPP Schedule A; (3) the PPP Schedule A Worksheet; and (4) the (optional) PPP Borrower Demographic Information Form. All Borrowers must submit (1) and (2) to their lender.

You will also need to provide support for your payroll and non-payroll costs, full time equivalent (FTE) employee counts. See Loan Forgiveness Application instructions for complete details on how to complete the Loan Forgiveness Application along with what you will need to submit.

A request can be made to the lender that issued or is servicing the loan.

Any amount of the loan that is not forgiven must be repaid at 1% interest rate over five years (for loans that were made after June 5, 2020) or two years (for loans made before June 4, 2020, unless you renegotiated the maturity term with your lender). Borrowers who received their loan prior to June 5, 2020, may contact their lender to discuss extending maturity date to five years. There are no prepayment penalties.

Your loan forgiveness amount may also be further reduced if you (1) fail to maintain the same number of full-time equivalent (FTE) employees during the covered period compared to a defined look-back period (the FTE Reduction adjustment); and/or (2) decrease wages in your covered period for employees earning less than $100,000 (annualized) by more than 25% when compared to the employee’s average weekly wages during the 1st Quarter 2020 (the Salary/Hourly Wage Reduction Adjustment.

If you restore FTEs or wages by Dec. 31, 2020 you may be eligible for the FTE and/or Salary/Hourly Wage Reduction Safe Harbors. Your loan forgiveness amount may be further reduced if you do not use 60% of your loan amount on payroll costs. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs. No more than 40% of the loan forgiveness amount can be attributable to non-payroll costs.

We would not recommend changing your normal payroll schedule. You are still required to follow wage and hour laws in your state. Without final guidance, this may not result in the desired outcome.

The full principal amount and any accrued interest can be forgiven for funds used to pay for covered costs during an eight-week period following loan disbursement.

Bonuses and hazard pay are included in cash compensation. There is no guidance available on if paying advances will be allowed for forgiveness. Normal payroll procedures should be followed; all loan forgiveness could be subject to an audit.

Forgiveness is based on the employer maintaining or re-hiring employees and maintaining wages paid. The sooner you return your employees to work and restore wages during your covered period the less your loan may be reduced based on FTE or wage reduction. Employees must be returned to work and wages restored not later Dec. 31, 2020 to qualify for either the FTE or salary/hourly wage reduction safe harbors.

Yes. Based on current guidance, only eligible payroll costs earned during your covered period are eligible for forgiveness. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.

The PPP does not require you to seek forgiveness by a certain date. However, you will be required to begin payments on your loan and interest if you do not apply for loan forgiveness within 10 months of the end of your covered period.

Payments of loan principal, interest, and fees may be deferred until the date on which the forgiveness amount is remitted to your lender. Interest (1%) begins immediately. You can prepay your loan amount without penalty.

You can but you may want to wait because even if your covered period has ended you may still qualify for either the FTE or Salary/Hourly Wage Reduction safe harbor if you fully restore FTE and/or wage levels by Dec. 31, 2020.

The full principal amount and any accrued interest can be forgiven for funds used to pay for covered costs during the covered period.

The amount of your loan can only be forgiven up to the sum of the eligible covered expenses (listed above) during your covered period. Loans will not automatically be forgiven. There is a loan forgiveness application process you must complete before your loan can be forgiven in whole or in part.

Generally, there are three areas that may lead to a reduction in your forgiveness amount. First, your loan forgiveness amount will be adjusted if you reduced FTEs or wages during your covered period and you did not restore those FTEs or wages by Dec. 31, 2020.

Secondly, your loan forgiveness amount may be further reduced if you do not use 60% of your loan amount on payroll costs. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs. No more than 40% of the loan forgiveness amount can be attributable to non-payroll costs.

Finally, if you received an EIDL Advance, the SBA will reduce your loan forgiveness by the amount of the advance.

• Payroll costs (including employer paid benefits and employer assessed state and local taxes);
• Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
• Non-Payroll Costs
• Interest payments on any covered mortgage obligation incurred before Feb. 15, 2020
• Payment of rent under a lease in force prior to Feb. 15, 2020
• Utility payments for which service began before Feb. 15, 2020
• Interest payments on any other debt obligations that were incurred before Feb. 15, 2020
• Refinancing an SBA EIDL loan between Jan. 31, 2020 and April 3, 2020. If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan

Your payroll costs are the sum of the compensation, employer paid benefits, and employer assessed state and local taxes during your covered period. To calculate your payroll costs for PPP loan forgiveness during your covered period you must follow the steps below:

• Calculate the eligible compensation (capped at $100,000 per year annualized); for 24 weeks, a maximum of $46,154 per individual, or for eight weeks, a maximum of $15,385 per individual) for your employees during the covered period. Compensation includes salary, vacation, leave (sick, parental, family, and medical), severance pay, wages, commissions or similar compensation, bonuses, hazard pay and cash tips
• Apply the $100,000 salary limitation for employees and sole proprietors
• Add employer paid benefit costs. Include payment for: Group health care benefits, including insurance premiums, and retirement contributions during the covered period
• Add employer assessed state and local taxes on the eligible compensation
• Add the total amount paid to owner-employees/self-employed individuals/general partners. The SBA has determined that for individuals with self-employment income who file a Schedule C, PPP self-employment loan forgiveness is limited to a proportionate eight-week share (8/52) of 2019 net profit (up to $15,385) for an eight-week covered period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period, as reflected in the individual's 2019 Form 1040 Schedule C

The Federal Unemployment Tax (FUTA) is not included in the PPP loan calculation.

Your non-payroll costs are the sum of the

• Interest payments on any covered mortgage obligation in force before Feb. 15, 2020
• Payment of rent under a lease in force prior to Feb. 15, 2020
• Utility payments for which service began before Feb. 15, 2020

Non-Payroll Costs are costs paid or incurred during the Covered Period (the 24-week or 8-week period, if applicable) beginning on the date you received your loan, even if you elected the Alternative Covered Period.

Employees who made $100,000 or more (annualized) for any pay period in 2019 are removed from the loan forgiveness salary/hourly wage reduction calculation. Further, for each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period.

SurePayroll will use information from payrolls we processed as well as the historical data provided at onboarding. However, we still need the customer to verify the information.

Hazard pay is included in the 60% payroll costs calculation and is subject to all the same wage rules.

Bonus pay is included in the 60% payroll costs calculation and is subject to all the same wage rules.

There is no guidance available on if paying retroactive wages will be allowed for forgiveness. Normal payroll procedures should be followed; all loan forgiveness could be subject to an audit.

No. Payroll costs must be paid or incurred during your covered period. If incurred during the last period of your covered period, the payroll costs must be paid on or before the next regularly scheduled payroll date.

Based on guidance the wages that can be included in payroll costs must be incurred during your covered period.

YYes. Your loan forgiveness amount will also be further reduced if you (1) fail to maintain the same number of full-time equivalent (FTE) employees during the covered period compared to a defined look-back period (the FTE Reduction Adjustment); and/or (2) decrease wages in your covered period for employees earning less than $100,000 (annualized per pay period in 2019) by more than 25% when compared to the employee’s average weekly wages during the 1st Quarter 2020 (the salary/hourly wage reduction adjustment.

If you were unable to operate between Feb. 15, 2020, and the end of the Covered Period at the same level of business activity as before Feb. 15, 2020, due to compliance with COVID-19 related guidance or requirements (FTE Safe Harbor 1) or you restore FTEs by Dec. 31, 2020 (FTE Safe Harbor 2) you may be eligible for the FTE Reduction safe harbors. If you restore salary/hourly wages by Dec. 31, 2020 you may be eligible for the Salary/Hourly Wage Reduction safe harbors. Further guidance from the SBA is expected as to whether you can use a date other than Dec. 31, 2020 to determine if FTE and/or salary/hourly wages were restored.

Additionally, your loan forgiveness may be reduced further if you do not use 60% of your loan amount on payroll costs.

To maximize forgiveness, you must use at least 60% of the loan amount for payroll costs and fully restore FTE and salary/hourly wages by Dec.31, 2020 to the FTEs and salary/hourly wage rates in place on Feb. 15, 2020.

Yes. Your loan forgiveness amount may be impacted based on a comparison of the average number of FTEs during the covered period with one of two comparison periods. If you reduced your FTEs, your loan forgiveness amount may be reduced. If you restore FTEs not later than Dec. 31, 2020 you may qualify for the FTE Reduction Safe Harbor.

Yes. Your loan forgiveness amount may be impacted based on a comparison of the salary/hourly wage rates during your covered period with the salary/hourly wages paid between Jan. 1, 2020 and March 31, 2020. If you reduced salary and/or wages on eligible employees by more than 25% your loan forgiveness amount may be reduced. If you restore salary and hourly wage rates not later than Dec. 31, 2020 you may qualify for the Salary/Hourly Wage Reduction safe harbor.

First, determine your Average FTEs during your chosen covered period and the defined look-back period (referred to in the Loan Forgiveness Application as the chosen reference period). Your look-back period, is, at your election, either (i) Feb. 15, 2019 to June 30, 2019; (ii) Jan. 1, 2020 to Feb. 29, 2020; or (iii) in the case of seasonal employers, either of the preceding periods or a consecutive 12-week period between May 1, 2019 and Sept. 15, 2019.

Next, sum the aggregate total of FTE employees for both the look-back and your chosen covered period, by adding all employee-level FTE employee calculations. You then divide the average FTE employees during your chosen covered period by the average FTE employees during your look-back period, the result is the FTE Reduction Quotient. You may be exempt from this reduction if you restore FTEs by Dec. 31, 2020.

Borrowers must divide the average number of hours paid for each employee per week by 40, capping this quotient at 1.0. For employees who were paid for less than 40 hours per week, borrowers may choose to calculate the full-time equivalency in one of two ways.

• First, the borrower may calculate the average number of hours a part-time employee was paid per week during the covered period. For example, if an employee was paid for 30 hours per week on average during the covered period, the employee is an FTE employee of 0.75. Similarly, if an employee was paid for 10 hours per week on average during the covered period, the employee is an FTE employee of 0.25.
• Second, for administrative convenience, borrowers may elect to use a full-time equivalency of 0.5 for each part-time employee.

Borrowers may select only one of these two methods and must apply that method consistently to all their part-time employees for the covered period or the alternative payroll covered period and the selected reference period.

If an employer reduces the number of FTEs during the covered period, then the amount of loan forgiveness eligibility will be reduced proportionately. The following formulas will be used based on reductions in the number of FTEs:

• Average number of FTEs per month* employed by the borrower during the covered period divided by either the:
• Average number of FTEs per month employed by the borrower from Feb. 15, 2019 to June 30, 2019, or
• Average number of FTEs per month employed by the borrower from Jan. 1, 2020 to February 29, 2020.

*The average number of FTEs is determined by calculating the average number of FTEs for each pay period falling within a month.

Two separate safe harbors may exempt borrowers from any loan forgiveness reduction based on a reduction in FTE employee levels:

FTE Reduction Safe Harbor 1. The borrower is exempt from the reduction in loan forgiveness based on a reduction in FTE employees described above if the borrower, in good faith, is able to document that it was unable to operate between Feb. 15, 2020, and the end of the Covered Period at the same level of business activity as before Feb. 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and Dec. 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

FTE Reduction Safe Harbor 2. The borrower is exempt from the reduction in loan forgiveness based on FTE employees described above if both of the following conditions are met: (1) the borrower reduced its FTE employee levels in the period beginning Feb. 15, 2020, and ending April 26, 2020; and (2) the Borrower then restored its FTE employee levels by not later than Dec. 31, 2020, to its FTE employee levels in the Borrower’s pay period that included Feb. 15, 2020.

Yes. A borrower is eligible for an FTE Reduction Exceptions for:

(1) any positions for which the borrower made a good-faith, written offer to rehire an individual who was an employee on February 15, 2020 and the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020;

(2) any positions for which the borrower made a good-faith, written offer to restore any reduction in hours, at the same salary or wages, during the borrower’s covered period and the employee rejected the offer, and

(3) any employees who during the borrower’s covered period who were:

• were fired for cause,
• voluntarily resigned, or
• voluntarily requested and received a reduction of their hours.

In each of these cases the borrower will list the FTE on the FTE Reduction Exception line on Tables 1 or 2 in the Loan Forgiveness Application, Schedule A Worksheet only if the position was not filled by a new employee. Any FTE reductions in these cases do not reduce the Borrower's loan forgiveness. It is important that borrowers maintain documentation supporting the exceptions.

You will be eligible for an FTE Reduction Exception and your forgiveness amount will not be reduced if you laid-off or reduced the hours of an employee, then offered to rehire the same employee for the same salary and same number of hours, or restore the reduction in hours, but the employee declined the offer.

Specifically, in calculating the loan forgiveness amount, you may exclude any reduction in full-time equivalent employee headcount that is attributable to an individual employee if:

• You made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;
• the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;
• the offer was rejected by such employee;
• you have maintained records documenting the offer and its rejection; and
• you have informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.

Your forgiveness may be reduced proportionately to your Full-time Equivalent (FTE) reduction, unless you are eligible for an FTE Reduction Exception or FTE Reduction Exemption.

Your loan forgiveness amount may be less, depending on whether the salary or hourly wages of certain employees during your covered period as compared to the period from Jan. 1, 2020 to March 31, 2020. For employees whose wages or pay decreases by more than 25%, if the change is solely due to a decrease in the employee’s FTE status, an employer may not have to take the wage reduction on this employee. For example: An hourly wage employee had been working 40 hours per week during the borrower selected reference period (FTE employee of 1.0) and the borrower reduced the employee’s hours to 20 hours per week during the covered period (FTE employee of 0.5). There was no change to the employee’s hourly wage during the covered period. Because the hourly wage did not change, the reduction in the employee’s total wages is entirely attributable to the FTE employee reduction and the borrower is not required to conduct a salary/wage reduction calculation for that employee.

You may be exempt from this reduction if you fully restore salary and the hourly wage rate by Dec. 31, 2020.

To calculate whether a salary/hourly wage reduction is required you will calculate the average salary or hourly wage rate reduction for each FTE employed during the covered period who either was hired in 2020 OR received less than $100,000 on an annualized basis during any pay period in 2019 as compared to a defined look-back period (first quarter 2020).

If a borrower restores reductions made to employee salaries and wages or FTE employees by not later than Dec. 31, 2020 the borrower can avoid a reduction in its loan forgiveness amount. If certain employee salaries and wages were reduced between Feb. 15, 2020 and April 26, 2020 (the safe harbor period) but the borrower eliminates those reductions by Dec. 31, 2020 or earlier, the borrower may be exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in salaries and wages under section 1106(d)(3) of the CARES Act.

There is no penalty for early repayment. Interest will begin when you receive your loan amount however you can defer payments of your loan principle, interest and fees until the date on which the forgiveness amount is remitted to your lender. Any amount not forgiven must be paid back at 1% interest over a five year-term (for loans made on or after the effective date of the PPP Flexibility Act) or two years if made before, and not renegotiated with your lender.

Any amounts not forgiven must be paid back over a five-year term (for loans made on or after the effective date of the PPP Flexibility Act) or two years if made before, and not renegotiated with your lender. The interest on your loan is capped at 1% and payments of loan principle, interest and fees may be deferred until the date on which the forgiveness amount is remitted too your lender. Interest will begin to accrue when you receive your loan.

Payroll Journals and Cash Requirements can assist with the payroll costs entered on the Loan Forgiveness Estimator.