Employers who have PPP loans have been eagerly awaiting forgiveness advice for over a month. The Small Business Administration (SBA) gave an overview on Friday by releasing the PPP loan forgiveness request, with helpful tips in the instructions.
One of the most important guiding elements was a welcome relief on the payroll schedule. As we know, borrowers can request forgiveness of certain fees incurred during the 8 week period after loan disbursement including employee salaries. However, it was not clear how the pardon would work if the employer’s payroll did not start and / or end at the start or end of the 8 week period. Do only amounts paid during the 8 week period count? Or can or should we prorate wages to pay periods that overlap with the start or end of the 8 week remission period? The forgiveness app provides two useful pieces of information about this problem:
- If the borrower pays their employees every two weeks, or more frequently, the borrower can adjust the 8 week forgiveness period to begin on the first day of the next full pay period after the loan is disbursed. This would generally avoid having to prorate wages, as the remission period would coincide exactly with the borrowers’ pay periods. This is not available for borrowers who pay less often than every two weeks (such as those who pay twice a month or monthly)
- For all borrowers, the SBA clarified that salary costs include amounts paid during the 8 week period as well as those incurred but not paid during the 8 week period, provided they are paid no more than late on the next regular pay date. As noted below, this helpful clarification will prevent borrowers from having to speed up their regular pay schedule to ensure forgiveness.
For the purposes of point 2 above, the SBA has clarified that “paid” means the day the paychecks are distributed or the employer issues an ACH credit transaction and labor costs are “incurred” on the day the payroll is issued. of the employee is earned. These tips are helpful to employers as follows:
- Employers do not need to prorate their first pay period, which can include days before the loan disbursement date as long as the pay date falls within the 8 week forgiveness period.
- Salaries of employees who were earned but not paid during the last pay cycle that falls within the 8 week remission period, will be eligible for pardon (assuming they are paid on or before the next pay date. normal). Employers do not be required to expedite the disbursement of paychecks to ensure that these salaries are actually paid within the 8 week period to be included in the remittance amount.
The combination of these two clarifications also means that just over 8 weeks of pay could be counted towards the 8 week forgiveness period, which can be useful for employers who are strategizing to maximize forgiveness by increasing costs. wages counted in the 75%. threshold. For more information on what constitutes salary costs, see the Paycheck Protection Program Interim Final Rule released April 2, 2020 (85 FR 20811).
All PPP borrowers should assess their strategy in light of these new directions.