Top Revelations About the PPP Forgiveness, Part Two
Heads up! SBA and U.S. Treasury policy changes have been frequent (and frequently unpredictable). The information below may have changed since it posted. For the most up-to-date information, call us at 800-447-8233 or email us at firstname.lastname@example.org.
More good news for business owners in Part Two of our Top Revelations About Forgiveness series! Read on to gain more clarity on wishy-washy concepts and reduction exceptions.
All Is Forgiven... IF you follow the rules
Borrowers must spend PPP loan funds on specific costs to qualify for forgiveness. Because of these rules, borrowers are carefully spending loan funds on eligible costs.
But despite care, those costs are not all automatically forgiven. Say that a borrower neglects FTE rules and reduces employee count or wages. Less loan forgiveness could be the result. Even more, vague early guidance on forgiveness left borrowers guessing at best practices.
But good news! The new guidance spells out the details, which are much more manageable. Exhale and relax a moment before reading on.
In original forgiveness guidance, the phrase “total salary or wages" created a problem.
That guidance told borrowers they must maintain “total salary or wages" comparable to the first quarter of 2020. Borrowers with employees on commission were unfairly affected: If sales are down, commissions are down, at no fault of the borrower.
However, the new guidance redefines “total salary or wages” as “salary or hourly wages." This refers to a rate instead of a total amount, which removes the problem with commissions. There is also a $100,000 cap per employee for salary and wages.
New guidance also allows borrowers to reduce wage rates by 25% before a penalty kicks in. That’s a huge wage reduction. We recommend you reinstate wage cuts to 25% or less during the 8-week forgiveness period if you cut wages by 25% or more. (See Safe Harbor under More FTE Reduction Exceptions, below.)
We can also put an end to speculation that forgiveness guidance might follow the Affordable Care Act’s definition of a 30-hour work week as full time. FTE remains calculated on the basis of a 40-hour work week.
Borrowers can choose between two alternatives when calculating FTE:
Based on average hours paid per week per employee rounded to nearest 10th of an hour. Include paid time (vacation, etc.). Cannot be higher than 1.0.
Enter 0.5 for employees who work fewer than 40 hours per week.
More FTE Reduction Exceptions
Borrowers can exclude employees from the FTE calculation if
The borrower made a good-faith, written offer to rehire a laid-off employee and the employee rejected that offer, or
If an employee was fired for cause, voluntarily resigned, or voluntarily requested and received a reduction in hours.
BE AWARE: Prepare to show documentation for the above.
The new guidance includes an FTE Reduction Safe Harbor. Borrowers are exempt from forgiveness reduction based on FTE employee levels if certain conditions occur. If borrowers have reduced FTE between February 15 and April 26, 2020, they must restore it to the same level as the pay period including February 15, 2020 by no later than June 30, 2020 (or December 31, 2020 if opting for the 24-week forgiveness period).
More Clarification on the Horizon
We’re expecting more guidance from the SBA in light of the changes from the PPP Flexibility Act. Stay tuned for updates.
Equals More Forgiveness for Employers
In Part One, we discussed new choices for the 8-week forgiveness period and capturing costs when incurred. Considering the SBA’s other helpful changes, we’re breathing a little easier. We hope you are too.
Allevity Is Here to Help
The greatest takeaway about PPP forgiveness ultimately is that it’s quite unclear—you surely will have more questions and your own unique circumstances. We’re ready to guide you through them! Give us a call and we’ll talk it out.
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