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Changes RE: PPP Forgiveness Application & NEW EZ Forgiveness Application

Jun

19

Changes RE: PPP Forgiveness Application & NEW EZ Forgiveness Application

As promised earlier this week in our announcement regarding the Department of the Treasury and Small Business Administration’s (SBA) revisions to the PPP Forgiveness Application processes, we have provided you a summary of changes below:

EZ PPP Forgiveness Application (Form 3508EZ)

  • To qualify in the use of this form, borrower must meet one of the following scenarios:
    1. Self-employed, independent contractor, or sole proprietor AND had no employees at the time of the PPP loan application.
    2. Borrower did not reduce annual salary or hourly wage of any employee by more than 25% (i.e. the previous wage metric) AND did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the 8-week/24-week Covered Period.
    3. Borrower did not reduce annual salary or hourly wage of any employee by more than 25% (i.e. the previous wage metric) AND was unable to operate during the 8-week/24-week Covered Period at the same level* of business activity as before February 15, 2020, due to compliance with requirements and guidance issues between March 1, 2020 and December 31, 2020 related to standards of sanitation, social distancing or any other work or customer safety requirements related to COVID-19.

*A definition of “level” as it pertains to this option is not available.  We expect the SBA to elaborate upon this in future FAQs.

  • Borrowers filing the EZ application no longer need to prepare Schedule A or Schedule A Worksheet that would otherwise compute the allowable payroll expense number and respective limitations to forgiveness.
  • Incorporation of language from the PPP Flexibility Act:
    • Permissibility to use up to 40% of PPP loan proceeds to non-payroll expenses
    • Expansion of the Covered Period to 24 weeks
    • If PPP loan was received prior to June 5, 2020, borrower may elect to use an 8-week Covered Period
  • Modifications to non-cash compensation/payroll costs:
    • Employer contributions for employee health insurance excludes contributions made on behalf of self-employed individual, general partners, or owner-employees of an S-corporation
    • Employer contributions to employee retirement plans excludes contributions made on behalf of a self-employed individual or general partners
  • Maximum cash compensation to employees for forgiveness:
    • 8-Week Covered Period = $15,385 (unchanged from previous guidance)
    • 24-Week Covered Period = $46,154
  • Maximum cash compensation to owners (owner-employees, self-employed individual, or general partners):
    • 8-Week Covered Period = Lower of 8/52 of 2019 compensation or $15,385
    • 24-Week Covered Period = Lower of 5/24 of 2019 compensation or $20,833
  • Currently, this EZ form is available to all borrowers who are eligible to file it under one of the above scenarios.

PPP Forgiveness Application (Form 3508)

  • Incorporation of language from the PPP Flexibility Act:
    • Permissibility to use up to 40% of PPP loan proceeds to non-payroll expenses
    • Expansion of the Covered Period to 24 weeks
    • If PPP loan was received prior to June 5, 2020, borrower may elect to use an 8-week Covered Period
  • Modifications to non-cash compensation/payroll costs:
    • Employer contributions for employee health insurance excludes contributions made on behalf of self-employed individual, general partners, or owner-employees of an S-corporation
    • Employer contributions to employee retirement plans excludes contributions made on behalf of a self-employed individual or general partners
  • Maximum cash compensation to employees for forgiveness:
    • 8-Week Covered Period = $15,385 (unchanged from previous guidance)
    • 24-Week Covered Period = $46,154
  • Maximum cash compensation to owners (owner-employees, self-employed individual, or general partners):
    • 8-Week Covered Period = Lower of 8/52 of 2019 compensation or $15,385
    • 24-Week Covered Period = Lower of 5/24 of 2019 compensation or $20,833
  • FTE Reduction Exemption can be claimed on the below scenarios, only if the position was not filled by a new employee:
    • Any positions where the borrower made a good-faith, written offer for rehire to an individual who was an employee on February 15, 2020, AND unable to hire a similarly qualified employee for unfilled position on or before December 31, 2020
    • Any positions where the borrower made a good-faith, written offer to restore any reduction in hours at the same salary or wages, during the Covered Period AND the employee rejected the offer
    • Any employee who:
      • Was fired for cause
      • Voluntarily resigned
      • Voluntarily requested and received a reduction of their hours
    • Two FTE Reduction Safe Harbor options:
  1. Borrower, in good faith, is able to document that it was unable to operate during the 8-week/24-week Covered Period at the same level* of business activity as before February 15, 2020, due to compliance with requirements and guidance issues between March 1, 2020 and December 31, 2020 related to standards of sanitation, social distancing or any other work or customer safety requirements related to COVID-19.

*A definition of “level” as it pertains to this option is not available.  We expect the SBA to elaborate upon this in future FAQs.

  1. If both of the following conditions are met:
    • Borrower reduced its FTE employee levels during the period February 15, 2020 thru April 26, 2020
    • Borrower restored its FTE employee levels by December 31, 2020 to the same level for the pay period inclusive of February 15, 2020

Though these new applications provide answers to many important questions, others (i.e. the inclusion of employer expense for cell phone expenses and a definition of transportation costs) remain unanswered.  We expect answers to these questions, as well as others, in an updated version of the SBA’s FAQ document within the next week or two.

While the PPP program has been fraught with uncertainty and modifications, we realize many PPP borrowers want to file their forgiveness application and be done.  We can appreciate those concerns and will work diligently with you to meet those goals.  However, keep in mind that the application for forgiveness is not due until 10 months after the end of the Covered Period (either the 8-week period or 24-week period), so you have plenty of time.  Your first step should be to understand your lender’s process.  Will they accept a filled-out PDF version of the forgiveness application?  Will they require you to complete everything in their portal/application?  Understanding your lender’s process will allow you to understand what documentation is needed and the format of that calculation so that you are not spending time gathering information that may not be needed.

We are continuing to offer our agreed-upon procedures engagement to assist clients in the preparation of a forgiveness calculation or reviewing their self-prepared forgiveness calculation prior to the submission of the forgiveness application to their respective lender.  Please reach out to us if you would like to learn more.

As always, please contact us with any questions.