New Guidance Clarifies the PPP Forgiveness Period
The SBA and Treasury Department have now released the forgiveness application for PPP loans, and we have good news! Many wishy-washy elements of forgiveness have been clearly defined—and most favor borrowers. Here are our Top Revelations upon analyzing the document.
The most important revelation is that there is unexpected flexibility in the application that will help businesses capture all of their costs within the 8-week (56-day) forgiveness period. Read on!
A Choice of Forgiveness Periods
There are alternatives when stating a timeframe for the forgiveness period. Borrowers can choose either the “Covered Period” or the “Alternative Payroll Covered Period.” In this document, we refer to both periods as the “8-Week Period”.
Day one is the PPP Loan Disbursement Date. If loan proceeds are received Wednesday, April 22, day one is April 22 and the last day of the Covered Period is Tuesday, June 16.
BE AWARE: We’ve seen several businesses inadvertently count 57 days instead of 56. If your proceeds are received on a Monday, then the last day of the 8-week Period is a Sunday.
ALTERNATE PAYROLL COVERED PERIOD
(For bi-weekly and weekly payroll scheduled only)Definition:
For better alignment with pay periods and ease in tying to reports, day one is the first day of the pay period following loan disbursement. If loan proceeds are received Wednesday, April 22, and the first day of the next pay period is Monday, April 27, day one is April 27, and day 56 is Sunday, June 21.
BE AWARE: This alternate period is for payroll-related expenses ONLY. Occupancy expenses still follow the Covered Period.
IMPORTANT: This choice applies to bi-weekly/weekly payroll schedules only. Semi-monthly and monthly payroll schedules cannot use this alternate period.
So which period should you choose? There’s no one answer. We recommend that borrowers run the numbers on each scenario and compare. Be sure to consider the information we talk about next.
Paid Versus Incurred
Initially, it was unclear whether borrowers would be eligible for forgiveness for the payroll costs paid OR payroll costs incurred during the 8-Week Period. The new guidance makes it clear that borrowers are eligible for both payroll costs paid AND payroll costs incurred during the 8-Week Period.
BE AWARE: Payroll Costs both paid and incurred in the 8-Week Period can only be claimed once.
Paid costs are determined by the employee paycheck date or the ACH date if using a payroll provider such as Allevity.
Incurred costs are determined by the date an employee's pay is earned. They are eligible for forgiveness if paid within the 8-Week Period or on or before the next regular payroll date after the end of the 8-Week Period. This is fantastic because it means most borrowers won't need to add or move a pay date to correctly capture their payroll costs.
Between the two choices for the 8-Week Period and the ability to capture costs when incurred, we’re reassured borrowers will have the flexibility to capture their 8-week payroll costs.
Other Noteworthy Items
Salary cap: Per employee, the total amount of cash compensation eligible for forgiveness can’t exceed $15,385 (or, an annual salary of $100,000, prorated for the 8-Week Period). This cap is for compensation only and does not apply to eligible benefits and taxes.
Occupancy costs can be captured as incurred as long as they are paid before the next regular billing date. For example, a utility bill from within the 8-Week Period paid after the 8-Week Period and before the next billing cycle can be included.
This brief analysis encompasses only part of the forgiveness application. More good news coming soon about how to decrease your loan forgiveness reduction.
Allevity Is Here to Help
Many of us have more questions than answers these days. Allevity is committed to helping you weather the uncertain employer climate. Don’t hesitate to reach out with any questions. We’re here to help.