As businesses begin to receive funds from the Paycheck Protection Program (PPP), understanding the forgiveness portion of the program is essential. The key to loan forgiveness will be spending the funds on the proper expenses in the eight weeks immediately following the advance of the loan. Additional guidance is expected from the U.S. Treasury, but here is what we know so far:

  1. PPP purpose – The types of expenses that will be forgiven under the PPP rules include:
    1. Payroll wages, retirement plan contributions, and health benefits.
    2. Mortgage interest (incurred before February 15, 2020), rent (for leases in effect before February 15, 2020), and utilities (in service before February 15, 2020).
  2. Eight-week period – Only costs incurred and payments made for forgivable expenses during the eight week period beginning on the date of the PPP loan advance will result in forgiveness. Businesses may want to consider the timing of their payroll schedule to accommodate as many payroll cycles as possible during the eight-week period.
  3. 75% payroll cost minimum – As defined by the U.S. Treasury, at least 75% of the loan proceeds must be used for payroll costs. Payments to independent contractors do not count.
  4. Staffing levels – Forgiveness will be decreased for those businesses that reduce headcount. This will be calculated by comparing the headcount during the eight-week period following the PPP disbursement and either February 15-June 30, 2019, or January 1- February 29, 2020. The percent of decreased headcount will translate to the decrease in the percent of the loan forgiven. For instance, if headcount decreases 5%, loan forgiveness is also decreased by 5%.
  5. Pay requirements – For individuals earning less than $100,000 per year, at least 75% of total salary must be maintained. If an individual’s earnings over the 8 weeks is less than 75% of the amount previously earned, forgiveness will be reduced by the difference between current wages and 75% of the original wages.
  6. Rehire grace period – As an incentive to encourage companies to rehire laid off or furloughed workers, the staffing level and pay requirement reductions discussed above may be avoided by rehiring any furloughed or laid off staff and reinstating wage levels that have decreased by more than 25% by June 30, 2020.
  7. Recordkeeping – Applications for forgiveness will be processed by the lender. It will be important to provide the lender with the following:
    1. Documents confirming the number of full-time-equivalent employees and pay rates. These documents could include reports from a payroll provider, payroll tax filings, and documents confirming retirement/health insurance contributions.
    2. Documents confirming eligible rent, interest, and utility payments such as canceled checks, payment receipts, and account statements.

There are certain to be more updates and changes. You can always click here for more COVID-19 resources relating to the above information as we will do our best to keep it updated with information we think is useful.