By Mary Ellen Schill, Amy E. Ebeling, and Benjamin E. Streckert of Ruder Ware
Published June 17, 2020
On June 16 the SBA issued a revised Paycheck Protection Program (PPP) Loan Forgiveness Application along with updated instructions. The update in large part reflects the changes made to PPP by the Paycheck Protection Program Flexibility Act of 2020, enacted on June 5. The new form can be found here, and the new instructions can be found here.
The updated form accommodates both borrowers who are sticking to the original eight week covered period, as well as those who are “flexing” to the 24-week covered period. It also includes some updated representations with respect to the available FTE reduction safe harbors. Since the issuance of the initial application form, and with the passage of the PPP Flexibility Act, borrowers have some additional ways to maximize loan forgiveness even if FTE counts during the covered period (whether eight weeks or 24) have decreased.
And for something totally new, we now have an “EZ” application (and instructions) which is available to any PPP borrower seeking forgiveness who can certify as to any one of three requirements. It appears that the EZ application is for borrowers who are eligible for 100% forgiveness of their otherwise forgivable amounts (that is, there is no reduction in forgiveness due to FTE reductions or salary/wage reductions, or, a safe harbor applies that negates those reductions). A borrower is able to use the EZ application if it satisfies one of the following:
- The borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the borrower’s PPP loan application form.
- The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the covered period or the alternative payroll covered period compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); and, the borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the covered period. For this representation the borrower can ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. The borrower can also ignore reductions in an employee’s hours that the borrower offered to restore and the employee refused.
- The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the covered period or the alternative payroll covered period compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); and, the borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
The revised forgiveness application form and the new EZ form appear to be effective immediately. What form to use is dependent in large part on the borrower’s FTE counts during the covered period, and whether there were any reductions in salary/wages during the covered period. The focus on FTE counts (and salary/wage levels) highlights an important factor in the decision to “flex” to a 24-week covered period. Borrowers are not allowed to shorten the covered period once all PPP funds are spent on forgivable purposes. If the 24-week covered period is used, then the FTE counts and salary/wage levels are measured during that entire 24-week period, even if the PPP funds are no longer being used because they were exhausted. So, a borrower anticipating 100% forgiveness of its PPP loan because 100% of the PPP loan was spent on forgivable expenses during the first 10 weeks, could lose some of that forgiveness if FTE levels or salary/wage levels drop during the remainder of the 24 weeks (thus lowering the average FTE count or salary/wage levels during the covered period).
Mary Ellen Schill is an Attorney with Ruder Ware. Her employee benefits law practice involves the representation of both public and private sector employers in their sponsorship of all forms of employee benefit plans as well as compensation planning. She can be reached at meschill@ruderware.com or 715.845.4336.
Amy E. Ebeling is an Attorney with Ruder Ware. She advises individuals and businesses on a variety of business and tax matters, including corporate governance and tax compliance issues, business and farm succession planning, and the negotiation of various commercial transactions. She can be reached at aebeling@ruderware.com or 715.845.4336.
Benjamin E. Streckert is an Attorney with Ruder Ware. He counsels family-owned and closely held businesses in entity formation, corporate governance, commercial contracts, and other day-to-day matters. He can be reached at bstreckert@ruderware.com or 715.845.4336.