On May 15, 2020, the Small Business Administration released the form of application that borrowers under the Paycheck Protection Program must use to apply for loan forgiveness.
The application consists of four parts:
(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 as well as detailed instructions for each component.
Borrowers are likely to begin with the Schedule A Worksheet, which lists all employees, each employee’s compensation, the employee’s FTE calculations as set forth below and any reductions in salary or wages. While the application largely conforms to the existing SBA guidance, the application does provide clarification and new perspectives on several points.
Average FTE – The application provides that the number of full-time equivalent employees shall be calculated by entering the average number of hours paid for each employee per week, divided by 40, and rounding the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the borrower.
FTE Reduction Exceptions – Any positions for which (1) the borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee or (2) any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours are exempted from the reductions in loan forgiveness based on FTE headcount. However, if the subject positions are filled by a new employee those positions are not included in the calculation of the exception.
Salary/Hourly Wage Reduction – The application clarifies that loan forgiveness is reduced by the aggregate amount of any salary reductions in excess of 25% as well as detailed instructions for related calculations including the effect of salary restoration by June 30, 2020.
Compensation to Owners – The application also separates compensation paid to owners (including owner-employees, a self-employed individual, or general partners) as a distinct portion of total payroll costs during the covered period. Importantly, this amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.
Many borrowers will require assistance from their accountants and/or payroll services in order to compile the necessary data. Once the Schedule A Worksheet is completed, borrowers should then follow the instructions to input the date into Schedule A and the Forgiveness Calculation Form.
The application also advises borrowers that they are required to maintain the following documents:
- PPP Schedule A Worksheet or its equivalent and the following:
- Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
- Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
- Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule.
- Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor.”
- All records relating to the borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the borrower’s loan forgiveness application, and documentation demonstrating the borrower’s material compliance with PPP requirements. The borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.