The Paycheck Protection Program started with a simple idea: give employers the money to keep their trained workforce on payroll so when the economy re-opened, the workforce would still be in place.  However, the lack of clarity from the SBA and the fact that the program details have literally been changing day by day, have made this program anything but simple.

On Friday May 15th, the SBA issued the Loan Forgiveness Application, along with a whole host of additional clarity and guidance.  While those 11 pages provided much needed insight, it has still left room for ambiguity and leaves a lot unanswered.

The first thing the loan application did was offer an Alternate Covered Payroll Period.  Instead of the 8 weeks starting on the date of loan funding, a Borrower can elect to use an 8 week period that begins on the first day of their pay period immediately following their PPP loan disbursement date.

Similarly, Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.  This provides a lot of relief from having to move payroll periods to better align with the 8 weeks.


The law states you use costs “Incurred and paid” during the 8-week period starting on the loan funding date or the Alternate Payroll Covered Period.  Below are the basic expenses eligible for both use of loan proceeds and forgiveness:

  1. Gross wages paid, limited to $100,000 annual salary per employee, or $15,385 for the covered period.
    1. Further guidance was just issued stating compensation for any owner-employee or self-employed individual/general partner, does not exceed eight weeks’ worth of 2019 compensation and is capped at $15,385 per individual.  What this means, is the owner is not allowed to bonus themselves during the 8 week covered period.
  2. State unemployment taxes.
  3. Employer costs related to employee health insurance premiums.
  4. Employer SEP/SIMPLE/401k match/Profit sharing/pension contributions.
  5. Partners in a partnership and members of an LLC get to use their self-employment earnings, prorated for 8 weeks, from Form 1065 Sch K-1, box 14A of their 2019 partnership tax return as the owner wages since the owner does not draw wages on a W-2.
  6. Self-employed business owners get to use Form 1040 Sch C line 31 or Sch F line 34 of their 2019 individual tax return, prorated for 8 weeks, as their wages.
  7. Business lease payments paid on leases in effect 2-15-20.
  8. Business utilities. (Electricity, gas, water, telephone, internet, etc.)
  9. Interest on business loans in effect 2-15-20.

Be careful as eligible non-payroll costs (Items 7, 8 & 9 combined) cannot exceed 25% of the total forgiveness amount, NOT 25% of the total PPP loan amount.  Let that sink in.  Forgiveness for non-payroll costs are dependent upon spending PPP funds on payroll.


Remember the purpose of the law is to help business owners keep employees on payroll. Therefore, the forgiveness of the loan is reduced if the employer pays less in wages or has less employees during the 8-week covered period compared to your choice of two look back periods.


  1. REDUCTION IN LOAN FORGIVENESS BASED ON FTE – The Borrower must calculate their average weekly full-time equivalency (FTE) for several different timeframes:
    1. You must compute the average FTE for the 8-week covered period.
    2. Compute the average FTE for either Feb 15, 2019 -> June 30, 2019 or Jan 1, 2020 -> Feb 29, 2020. The employer gets to choose which period is most beneficial.
    3. Compute FTE Feb 15, 2020 -> April 27, 2020.
    4. Compute FTE on Feb 15, 2020.
    5. Compute FTE from date of loan deposit to June 30, 2020.

If FTE for the covered period is less than the chosen reference period, the Borrower’s loan forgiveness amount will be reduced in relation to the reduction in FTE.   However, the SBA just issued additional guidance on May 15, 2020 that states there is no reduction in loan forgiveness if the borrower made a good-faith, written offer to rehire an employee during the covered period; and for (a) an employee was fired for cause, (b) voluntarily resigned or (c) you laid off an employee, offered to rehire the same employee, but the employee declined the offer.

Most importantly, the SBA also issued a Safe Harbor clause that states the borrower is exempt from the reduction in loan forgiveness if they restored its FTE levels no later than June 30, 2020, to its FTE levels in a pay period that includes February 15, 2020.

  1. REDUCTION IN LOAN FORGIVENESS BASED ON SALARY/HOURLY WAGE REDUCTION –The amount of loan forgiveness the Borrower will receive will be reduced if the salary or hourly wages of certain employees during the Covered Period or the Alternative Payroll Covered Period was reduced by more than 25% from wages paid from January 1, 2020 -> March 31, 2020.  If the Borrower restored salary/hourly wage levels, the Borrower may be eligible for elimination of the Salary/Hourly Wage Reduction amount.

Essentially, what these 2 items mean, is if you do not hire back or offer to hire back your entire staff at their normal and regular rate of pay, by June 30, 2020 at the latest, you risk having the amount of forgiveness greatly reduced.


  • PPP guidance has literally been changing day by day. What else is going to change?
  • Currently, the House has presented a $3 Trillion stimulus bill, which includes even more changes to the PPP, however, we have no idea if it will actually pass and if it does, what changes will be in the final bill.
  • While the FTE and Salary/Wage calculations seem cut and dry, they are incredibly complex when applied to each client’s individual situation and is where the need for detail specific guidance is needed.
  • Is the salary/hourly wage reduction based upon total pay for a given employee during the covered period versus the prior reference period, or is it based simply upon hourly wage rate or salary amount?


  1. Document every dollar spent. The banks will require documentation verifying the funds were in fact paid. Required documentation will include third-party payroll reports, quarterly payroll tax filings, lease statements, loan statements, receipts, copies of cleared checks and utility bills.
  2. Retain and follow all directions as provided by your lender. Just as we have seen Lenders apply their own guidelines to the loan application process, lenders are providing their own guidelines as to the forgiveness calculation and required documentation.
  3. Track down copies of loan and lease documents. Since the rules for leases and loans refer to leases and loans that were in effect on 2-15-20, we recommend having these documents available if the lessor otherwise does not provide monthly statements showing rent paid.
  4. Evaluate the timing of company retirement contributions. If you normally wait until the end of the year to make retirement contributions, you should switch to paying these costs on a pay period basis so they are paid during the covered period.
  5. Self-employed health insurance for 2% or greater S-corporation shareholders. If you normally wait until the end of the year to record these payments, you should switch to paying/reimbursing these costs on a pay period basis.
  6. Evaluate accepting rent deferrals. Accepting rent deferrals until after the 8-week period could reduce the amount of paid rent that can be included in the forgiveness calculation.

Hurst & Hurst CPAs is proud to have assisted in securing more than $3.1MM in PPP funds!  Everyone is well aware of how disastrous the loan application process was and we anticipate the forgiveness process being even worse.  Please contact us if you are not subscribing to our COVID-19 Response Plan and would like us to assist you with the loan forgiveness calculations. Our goal is to help you to maximize the benefits from the PPP program.  We are still drafting a checklist of required documents, but are waiting until final guidance is issued so we understand the full scope of work and can be sure we can allocate the necessary resources to the narrow forgiveness period.

Stay Safe!