On Friday, May 22, 2020, new regulations were promulgated by the Department of the Treasury and the Small Business Administration (SBA) which adds further guidance to the process for obtaining forgiveness of Paycheck Protection Program (PPP) loans. The new interim final rule supplements earlier rulemaking and can be accessed at here.
PPP Loan Forgiveness
The new interim final rule clarifies some questions in connection with PPP loan forgiveness, specifically:
- Alternative Payroll Covered Period. As an administrative convenience, Borrowers with bi-weekly or weekly payrolls can elect to use an eight week alternative payroll covered period that commences with the first payroll date after the disbursement of loan proceeds and continues for the next eight weeks. Payment of payroll incurred during the alternative payroll covered period must be made before the first payroll date after the end of the eight week alternative payroll covered period.
- Bonus and Hazard Pay Permitted. Acceptable payroll costs include wage or salary payments to furloughed employees, and payments of bonuses or hazard pay so long as all payments to a particular employee do not exceed $15,385 for the covered period or alternative payroll covered period.
- Limits on Owner Compensation. Loan forgiveness for self-employed individuals and owner employees is limited to the lesser of $15,385 or 8/52 of their 2019 compensation, inclusive of retirement and health care contributions.
- Payment of Expenses After Covered Period. Loan proceeds used for specified non-payroll expenses are eligible for forgiveness if they were paid during the covered period, or if they were incurred during the covered period and paid by their next regular billing date after the covered period ends.
- Alternative Calculation of Full and Part Time Employees. Full time employees (FTEs) are specified to be those employees who work 40 hours per week (not 30 hours per week as previously surmised). Given that some employers do not maintain hours worked data, the Borrower now may elect to treat employees working less than 40 hours per week either (a) on the basis of their average recorded number of hours per week, or (b) as one half (0.5) of an FTE.
- Voluntary Terminations, Firing Not Counted for FTE Retention Test. Employees who resigned, voluntarily requested a reduction in hours or were terminated for cause during the covered period or alternative payroll covered period are not counted as reductions in FTEs for the purposes of Borrower’s obligation to maintain FTEs at their prior level.
- Declined Rehire Offers Not Counted for FTE Retention Test. A Borrower’s failure to maintain the level of FTEs does not necessarily result in a reduction of loan forgiveness if, as to an employee that was laid off or subjected to reduced hours, (a) the employee declined in writing a written offer to return to work at the previous level of hours and compensation during the covered period or alternative payroll recovered period, (b) the Borrower retains records documenting the offer and its rejection, and (c) the Borrower notified the state unemployment insurance office of the rejected offer within thirty days of the rejection.
- Declined Rehire Offers Must Be Reported to Unemployment. As stated above, the Borrower must notify the state unemployment insurance office of the rejected rehire offer within thirty days of the rejection.
- Wage Reduction Test Harmonized with FTE Retention Test. A Borrower’s failure to maintain compensation of each employee at not less than 75% of prior wage does not necessarily result in a reduction of loan forgiveness if, as to a specific employee, (a) the compensation is reinstated at not less than 75% of the prior wage on or before June 30, 2020, or (b) the wage reduction is attributable to a reduction in FTEs (e.g., the wage reduction of an employee who went from full time to part time, or who ceased to work for the Borrower at all, would not be counted).
PPP loan forgiveness is further subject to SBA’s review of the lender’s determination of forgiveness and, in some cases, of the Borrower’s need for the loan. Further regulations on the SBA’s review process are promised.
The interim final regulations are more complex than is set forth in this summary and should be reviewed carefully by each Borrower. If you have questions about this alert or your PPP loan, contact Douglas Watson Lubic, Peter Greenbaum or any member of the Wilentz Business Law team.
The postings on this blog were created for general informational purposes only and do not constitute legal advice or a solicitation to provide legal services. Although we attempt to ensure that the postings are complete, accurate, and current as of the date of publication, we assume no responsibility for their completeness, accuracy, or timeliness. The information in this blog is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional legal counsel.
This blog may contain links to independent third party websites and services, including social media. We provide these links for your convenience, and you access them at your own risk. We have no control over and do not monitor the content or policies (including privacy policies) of these third-party websites and have no responsibility for, and no liability with respect to, their content, accuracy, or reliability. Unless expressly stated, we do not endorse any of the linked websites or any product, service, or publication referenced herein or therein. We will remove a link to any site from this blog upon request of the linked entity.
We grant permission to readers to link to this blog so long as this blog is not misrepresented. This site is not sponsored or associated with any other site unless so identified.
If you wish for Wilentz, Goldman & Spitzer, P.A., to consider representing you, please obtain contact information from the Contact Us area of this blog or go to the firm’s website at www.wilentz.com. One of our lawyers will be happy to discuss the possibility of representation with you. However, the authors of Wilentz blogs are licensed only in New Jersey and/or New York and do not wish to represent anyone who viewed this site in a state where the site fails to comply with all laws and ethical rules of that state.