Paycheck Protection Loan (PPP) Guidance – Now What?

Welcome to your new Paycheck Protection Loan (PPP). Now what? 

We have provided more details below but let us start by highlighting the most important guidelines to follow to ensure you are on track to qualify for forgiveness. 

1. Ensure you have payroll wages of at least 75% of the loan amount over an 8-week period starting when you receive the loan. 
2. Keep in mind that forgiveness will be affected if the total number of full time employees was reduced or if you reduced wages for any individual by more than 25%. 
3. Maintain good records on payments towards mortgage interest, rent payments, utility payments and interest payment on other debt obligations. 

THE DETAILS

Here are more specifics from the guidance we have been provided as of April 28^th. The “as of” is very important as it seems updates to this program are made constantly. 

The federal register released interim final rules on April 15, 2020, open for suggestions and comments by affected parties, that we use to guide our advice in this response. May 15, 2020 is when the comments for the interim final rules close and the treasury will provide updated final guidance shortly after that.

The amount of forgiveness available is up to the full principal amount of the loan and any accrued interest. The loan must be used on permitted costs in order to be forgiven. Those costs include:

• Payroll costs
  • Payroll costs include:
    • Any amounts paid in the form of salary, wages, commissions, or similar compensation;
    • Payment for vacation, parental, family, medical or sick leave;
    • Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement;
    • Payment of state and local taxes assessed on compensation of employees; and for an independent contractor;
    • *only for independent contractors or sole proprietors: wages, commissions, income, or net earnings from self-employment, or similar compensation.
  • Payroll costs expressly EXCLUDE:
    • Compensation of an employee whose residence is outside of the U.S.;
    • Compensation of an individual in excess of an annual salary of $100,000 (only applies to cash amounts, not benefits or state and local taxes);
    • Qualified sick and family leave wages for which a payroll credit is allowed;
    • The employer portion of FICA.
• Payments of interest on mortgage obligations
• Rent payments
• Utility payments
• Payments of interest on debt obligations

However, not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs. If you refinanced an EIDL into your PPP loan, the EIDL amount will be included in the calculation. There will be further guidance on forgiveness. As of now, we believe the following scenarios would result in forgiveness:

1. Employer has a $100,000 PPP loan. Payroll costs (as defined above) over the subsequent 8 weeks are $100,000. The full PPP loan will be forgiven.
2. Employer has a $100,000 PPP loan. Payroll costs (as defined above) over the following 8 weeks are $75,000. Other permitted costs totaled $25,000. The full PPP loan will be forgiven.
3. Employer has a $100,000 PPP loan. Payroll costs (as defined above) over the next 8 weeks are $70,000. Other permitted costs totaled $30,000. Only $95,000 will be forgiven ($70,000 payroll + $25,000 in permitted other costs) and the remaining $5,000 will have to be repaid.
4. Employer has a $100,000 PPP loan. Payroll costs (as defined above) over the subsequent 8 weeks are $75,000. Other permitted costs totaled $10,000. Only $85,000 will be forgiven and the remaining $15,000 will have to be repaid.

Forgiveness will be affected if the total number of full-time equivalent employees was reduced. It will also be affected if wages for any individual were reduced by more than 25%. If you bring the employee count and wage levels back to where they were by Jun 30, 2020, forgiveness will be granted. We are still awaiting further guidance on the exact parameters.