DWH has worked successfully to qualify clients to receive Paycheck Protection Program Loans from the SBA.  Now that many have received the loan proceeds, we asked Jeremy Reidy (https://www.btlaw.com/en/people/offices/fort-wayne/jeremy-reidy) with Barnes and Thornburg to address the most frequent follow-up questions about the PPP he is receiving from clients. 

PPP Loans & Payroll Considerations

Q: When does the 8-week period for determining the amount eligible for forgiveness begin?

A: The 8-week period starts on the date of the first disbursement of funds. 

Q: What is the formula for determining the amount of any reduction in the amount of forgiveness based on a reduction in the workforce?

A: The numbers of full-time equivalent (“FTE”) employees are to be calculated by pay period. A salaried employee would count for the pay period in which he/she was hired. If the salaried employee was hired on the first day of the pay period, you could divide one by the number of days in the period and count that employee as that pro-rated amount. If there are two pay periods in a month, the average for each pay period is added together to arrive at the average number of FTE employees for the month. Then the months’ averages are added together to come up with the monthly average for the applicable period.

Q: What if we rehire employees after the 8-week period, but before June 30, 2020?

A: Here is an example of how the amount of forgiveness would be determined with respect to employees rehired after the 8-week period has begun (for purposes of the example assume we averaged 96 FTE employees from 1/1/2020 to 2/29/2020 and we average 71 FTE employees during the 8-week period):

[Actual amount of payroll costs incurred and rent, utilities, and mortgage interest paid during 8-week period post-loan (“Eligible Amount”)] multiplied by 71/96.

Or to put another way: Eligible Amount multiplied by 74%

Then to the extent that you rehire any of the differences between 96 and 71 before June 30, 2020, the amount of reduction will be disregarded. So if you rehire 5 FTEs between the end of the 8-week period and June 30, your forgiveness would then be determined by multiplying the Eligible Amount times 76/96.

Q: If we do not use 75% of the proceeds for payroll costs during the 8-week period, do we lose the possibility of any forgiveness?

A: No. The 75% standard is not an all or nothing proposition. Rather, only 25% of the loan forgiveness amount may be attributable to non-payroll costs. The amount eligible to be forgiven is determined by adding the actual payroll costs incurred, and utilities, rent, and mortgage interest paid during the 8-week period. The amount of eligible forgiveness will be reduced until the forgiven amount has not more than 25% attributable to other allowable costs. For example, if you spent $100,000 during the 8-week period, but only $50,000 was spent on payroll costs, then only about $67,000 would be forgiven.

Q: Does the PPP impose any restrictions on a PPP recipient’s ability to reduce its workforce or employee compensation?

A: No. Reductions in workforce and compensation may result in a reduction of the amount forgiven, but there are no restrictions on the ability to reduce workforce or compensation.

Q: My business has received a PPP loan, but still has a significant cash burn in the coming months. What payroll reduction options do we have, and what are the trade-offs between these options? Will we maintain loan forgiveness eligibility?

A: If you still need to mitigate cash burn, you have several options that will keep you eligible for at least some PPP loan forgiveness:

To the extent you reduce the workforce through a temporary layoff, furlough, or reduced hours, the amount you will be eligible to have forgiven will decrease. Remember, the amount you will be eligible to have forgiven is determined by your actual costs incurred and paid during the 8-week period beginning on the date funds are received. The amount of forgiveness will also be reduced to the extent your workforce during the 8-week period is lower than your workforce during either the period from 2/15/2019 through 6/30/2019 or from 1/1/2020 through 2/29/2020. With respect to reduced compensation, the amount of forgiveness will be reduced by the amount that any employee’s compensation was reduced in excess of 25% from the first quarter of 2020 to the 8-week period. If an employee is laid off, the employee can collect unemployment. The employer can continue to pay its portion of health insurance premiums and other benefits, all of which can be counted as “payroll costs” for purposes of calculating the amount eligible for forgiveness.

Q: If I have excess PPP loan funds available, how do I best utilize these funds to maximize loan forgiveness?

A: If your intent is to maximize loan forgiveness, you may pay bonuses, increase the workforce, or increase compensation in order to take full advantage of forgiveness. One possibility is to provide incentive pay for workers to come back while there is still some risk caused by the pandemic. The incentive pay would be forgivable. The amount eligible to be forgiven is determined by adding your actual payroll costs, utilities, rent, and mortgage interest during the eight weeks beginning on the date of the first disbursement of funds. The forgivable amount can be reduced by a reduction in wages under certain circumstances, but there is nothing the prohibits or penalizes you for wage increases.

Q: Do we still qualify, and can we get forgiveness if we laid off all of our hourly employees even if they are currently collecting unemployment benefits and waiting to be called back to work. 

A: You do not have to be paying all of your employee’s wages in order to qualify for the loan. One of the main purposes of the loan, though, is to encourage businesses to put their employees back to work. The number of employees you bring back will affect the amount you are entitled to have forgiven.

Q: We do not know what our production volumes will look like as things slowly return to normal. How can I be most effective in rehiring labor through the volatility?

A: Bring back your workforce in stages. You can start to bring some employees back on the date you receive funds, then see how things progress before bringing more back. Remember, the terms of the unforgiven portion of the loan are incredible: two years, 1%, unsecured, and with no personal guarantees.


Please note, a free PPP Loan Forgiveness Calculator can be found “HERE” through the DWH website.

These Q&As are provided for informational purposes only and are not intended to provide legal advice; please consult with legal counsel for advice related to your specific circumstances.

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