Over the weekend, the SBA finally issued guidelines on how the loan forgiveness calculation will work.  The Paycheck Protection Program Loan Forgiveness Application is available at: https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf

Let’s start with the bad news.  Looks like there will not be much flexibility with the 8-week coverage period.  According to the instructions of the SBA Form 3508, you have the choice of only two coverage periods:

  • Covered Period: Enter the eight-week (56-day) Covered Period of your PPP loan. The first day of the Covered Period must be the same as the PPP Loan Disbursement Date. For example, if the Borrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, June 14.
  • Alternative Payroll Covered Period: For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).

There is some good news to share, however.  The SBA included a “safe-harbor” that states if you rehire and replace your staff so as of 6/30/20 you have the same number of FTEs as you did on 2/15/20 and are also paying your staff as much in wages as you paid them on 2/15/20, you will not be penalized with any further reduction in the PPP loan forgiveness even though you were not able to maintain your full staff for all 8 weeks of the coverage period.

This SAFE-HARBOR is very important to understand for any practice that was closed for the past few months.  To maximize the PPP Loan forgiveness, a practice has until 6/30/20 to staff their office to 2/15/20 levels in terms of hours worked and wages paid. If you are either an hour short with FTEs or $1 short with wages paid, you won’t be eligible for that safe harbor.

That being said, the portion of the PPP that will ultimately be forgiven is primarily a function of the hours worked and cash wages paid to your staff during the coverage period.  Please consider rehiring or replacing your staff soon if you haven’t already done to be able to get the most benefit from the PPP loan forgiveness, especially if you will be re-opening your practice soon.

Other eligible payroll costs, according to the instructions of the SBA Form 3508, are as follows:

  • The total amount paid by the Borrower for employer contributions for employee health insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after-tax contributions by employees.
  • The total amount paid by the Borrower for employer contributions to employee retirement plans, excluding any pre-tax or after-tax contributions by employees.
  • The total amount paid by the Borrower for employer state and local taxes assessed on employee compensation (e.g., state unemployment insurance tax); do not list any taxes withheld from employee earnings.

Plus, you can also spend up to one-third of your payroll costs on rent and utilities. The instructions explain the timing for non-payroll costs as follows, “An eligible nonpayroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.” This means you can count costs paid during the 8-week coverage period AND can also include costs that accrued during the coverage period as long as those costs were paid on time later on.

We have prepared a very user friendly Excel Spreadsheet to help you figure out how much of your PPP loan will be forgiven. You can download that spreadsheet at: https://www.schwartzaccountants.com/wp-content/uploads/2020/05/PPP-Forgiveness-Calculation.xlsx