Yesterday, May 18, 2020, the SBA released a new Paycheck Protection Program (PPP) Loan Forgiveness Application (Application), which you can find here. In it, the SBA provides several pieces of guidance including how to calculate and apply for loan forgiveness under the PPP. The Application includes a tutorial to assist in filling it out, as well as several clarifications regarding how to determine a borrower’s forgiveness amount. Of particular note is a provision that allows borrowers to select an alternative payroll period when calculating the 8-week period for their payroll costs. This allows a borrower to begin their 8-week period on the first day of the pay period after the funds are disbursed, rather than on the date that funds are dispersed. This provides flexibility that may better align with the actual payroll practices of borrowers, especially for borrowers who have bi-weekly or shorter payroll cycles.
The SBA also states that borrowers are generally eligible for forgiveness for the payroll costs that are paid, and those that are incurred during the 8-week period. This guidance clarifies that payroll costs may include payments to employees that are paid after the end of the 8-week period, as long as they were incurred during the 8-week period and paid to the employee on or before the next regular payroll date.
Importantly, the SBA has included a safe harbor for a reduction in forgiveness for failing to maintain full time equivalent employees (FTEs). A borrower is exempt from this reduction in loan forgiveness if both of the following conditions are met: (1) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (2) the Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020. This provision allows a borrower that is having difficulty rehiring previously laid-off employees, and getting their FTE count back to pre-COVID levels, to avoid the non-forgiveness penalty if they can get their FTE count up to the number they had on February 15, 2020 by June 30, 2020.
Today, when testifying in the Senate about laid-off workers who do not want to return to work because of generous unemployment benefits, Treasury Secretary Mnuchin stated "If you offer back a worker and they don't take that job, you will be required to notify the local unemployment insurance agency because that person will no longer be eligible for unemployment." This is the first time that we have heard of such an affirmative responsibility on the part of the employer to act in this situation.