The SBA issues FAQs Regarding Loan Forgiveness

On Tuesday the Small Business Administration released a sheet of FAQs regarding PPP Loan Forgiveness. The FAQs are very detailed and provide much needed clarification on a host of topics including calculating owner’s compensation, payroll costs, group health benefits, and loan forgiveness reductions.   The SBA also includes specific calculation examples and scenarios to help illustrate and explain their interpretations.   You can review all of the FAQs by clicking this Link.  

A word of caution: with the impending decision on a second stimulus expected in the coming days or weeks, some aspects of the PPP Loan Forgiveness process could change, yet again. We are being advised that many lenders have not started accepting applications for forgiveness at this time despite being given the greenlight because of the potential changes to the PPP Loan forgiveness process. As such, we will continue to keep you informed regarding the impending legislative changes that may impact loan forgiveness.

Here are some key highlights from the ten pages of Loan Forgiveness FAQs:

  • Determining which pay cycles are included in PPP Loan Forgiveness- The FAQs provide several examples about when payroll costs count toward loan forgiveness based on specific pay period start and end dates and pay dates.  
  • Calculating employee compensation (i.e. payroll costs)- The SBA clarified that employers should use the gross amount before deductions for taxes, employee benefits, and similar payments. It also stated that tips, commission, bonuses, and hazard pay can be included.
  • Calculating forgivable amounts for owners’ compensation- SBA FAQ No. 8 provides examples for how to calculate C-Corporation, S-Corporation, Self-employed, general partner, and LLC owners’ compensation eligible for loan forgiveness. It also defines an owner-employee as someone who is both an owner and an employee of a C-Corporation which was not defined in the PPP loan forgiveness application.
  • Group Health and Retirement Benefits- Group health care benefits paid by the employer are considered payroll costs that may be forgiven. The SBA also clarifies special rules for how to handle employer contributions for health and retirement contributions for owner-employees which differ depending on the type of business. See FAQ 8.
  • Clarification on calculation of non-payroll costs: Covered expenses for rent, mortgages, and utilities and interest on loans incurred prior to the covered period but paid during the period are eligible for forgiveness.   If the expenses are incurred during the covered period but the payment date is after, they are also forgivable.   The Cares Act also mentioned “transportation” as an allowable forgivable expense but it was never defined.   The SBA stated that it is “transportation utility fees” assessed by state and local governments and provides the following link as an explanation. https://www.fhwa.dot.gov/ipd/value_capture/defined/transportation_utility_fees.aspx.
  • Clarification on the calculation of reductions in FTEs or wages: The SBA FAQs provide some specific examples including calculations for both salaried and hourly employee wage reductions that are helpful in clearing up ongoing confusion regarding the calculations.   The FAQs also lay out the documentation requirements of an employer choosing to exclude employees who they attempted to rehire but would not return.

We will continue to keep you updated on any further developments related PPP loan forgiveness.

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