PPP Frequently Asked Questions

by Megan Hiles
Photo of a magnifying glass over text that says Frequently asked Questions

We’re still receiving many questions regarding the Paycheck Protection Program (PPP). As we continue to await further guidance, here’s what we know:

What are the three measurement areas related to loan forgiveness?

  1. At least 75% of the loan amount must be used for payroll costs;
  2. Employee Full Time Equivalents (FTE) count must be maintained during the 8-week period consistent with your comparable period FTE count;
  3. Employee wages during the 8-week period must not decrease by more than 25% for employees with earnings less than $100,000 annualized in 2019.

When does the 8-week period for determining loan forgiveness begin?

  • Currently the period begins on the date of the loan disbursement.  However, the AICPA recommended to the SBA on April 29th that this period be flexible since some businesses have been unable to reopen due to state restrictions.

How do self-employed individuals receive PPP loan forgiveness?

  • The amount of loan forgiveness during the 8-week period is determined by Owner Compensation Replacement (generally 8/52 of 2019 Schedule C net profit), and payments for mortgage interest, rent and utilities that would be deductible on Schedule C.

What is included in utilities?

  • The CARES Act defines utilities in Sec.1106(a)(5) as electricity, gas, water, transportation, telephone or internet access for service which began prior to February 15, 2020. Further guidance released added gas used when driving a business vehicle.  Other common utilities such as garbage collection or security monitoring may also be classified as a utility, but a business should confirm with the lending institution.

What about if the business had employees who left for their own reasons? Or need to be fired due to performance issues? Is the loan forgiveness still reduced for those employees?

  • More guidance is needed on this issue. As the statute is written in the CARES Act, the forgiveness is tied to employee count comparisons and also specific employees and whether their pay was substantially reduced.
  • FAQ #40 addresses the situation where a business lays off an employee, offers to rehire the same employee and the employee declines the offer. SBA and Treasury intend to issue an interim final rule that excludes laid-off employees that the business offers to rehire from the forgiveness calculation. The business must make a good faith, written offer to rehire and the rejection of the offer must be documented. It was also noted that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

On April 29th, the AICPA issued a series of recommendations it would like to see the SBA adopt and issue as guidance for small businesses to use in calculating loan forgiveness under the PPP.

The AICPA urges that:

  • The eight-week covered period under PPP should align with the beginning of a pay period, not the date loan proceeds are received.
  • The eight-week period should be flexible, with businesses able to choose to commence it once stay-at-home restrictions are lifted instead of when loan proceeds are received.
  • Full-time equivalents (FTEs) should be calculated using a simple wage-based proxy when hours worked are not tracked by the employer (e.g., for salaried workers or those paid by piece).
  • Payroll reduction calculations should be based on an employee’s average payroll per week in the eight-week period compared to the prior quarter, rather than comparing total compensation in the periods. Loan forgiveness is reduced if an employee’s compensation decreases by more than 25% but an eight-week period will naturally have 33% less payroll than a 12-week quarter.

We will continue to update you as we know more and as more guidance is issued. In the meantime, please continue to reach out to Coronavirus Crisis Team with any questions.