How to Maximize Forgiveness of Your PPP Loan

A step-by-step primer helps contractors maximize forgiveness of their PPP loan.

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So you received your funds from the Paycheck Protection Program, now what?  The next step is to make sure you spend the funds in a way that maximizes the forgiveness of the loan.  That will take some planning on the front end and monitoring of regulatory guidance during the next eight weeks.  Here is a step-by-step primer on what you need to do.

Treasury Confirms Paycheck Protection Loans Under $2M are in “Good Faith”

STEP ONE:  Calculate Your Anticipated Forgiveness Amount

To be forgivable, your loan proceeds must be spent during the eight-week Forgiveness Period.  The Forgiveness Period begins on the date you receive your loan proceeds and ends eight weeks later.  To get 100 percent forgiveness, that means you must spend 2.5 times the amount of your average monthly payroll in 2019 in two months or less.  Here is how you set up your plan to maximize forgiveness:

  1. Calculate your estimated eight-week payroll costs. To be forgiven completely, 75 percent of the loan proceeds must be spent on payroll.  In other words: if you received a loan of $100,000, you must spend $75,000 on payroll costs in the eight-week Forgiveness Period.
  2. So what are payroll costs? 

(1)  Any amount of salary, wage, commission, or similar compensation that does not exceed the annualized amount for $100,000. [$4,166.67 on a bi-monthly payroll]

(2)   payment of cash tip or equivalent [estimated based on past tips];

(3)  payment for vacation, parental, family, medical, or sick leave [mandatory paid sick leave under the Families First Coronavirus Response Act is excluded];

(4)  allowance for dismissal or separation;

(5)  payment required for the provisions of group health care benefits, including insurance premiums;

(6)  payment of any retirement benefit; or

(7)  payment of State or local tax assessed on the compensation of employees.

  • Calculate your forgivable non-payroll costs.  Payments of rent from a lease, mortgage interest, or utility on agreements or services in force before February 15, 2020. 

STEP TWO: Avoid Reductions In Forgiveness

Forgiveness can be reduced in two ways: a headcount reduction and a salary-basis reduction.  To avoid a headcount reduction, you must have the same or more full-time employees (FT) or full-time equivalent employees (FTE) than you did during either of the two periods: February 15, 2019 to June 30, 2019 or January 1, 2020 to February 29, 2020.  To avoid reduction based on salary, you should maintain current pay levels.

  • So how do I count FTs and FTEs? The PPP statute doesn’t say.  And the SBA hasn’t said either.  The SBA likely will, and we expect it to embrace the counting method used under the Affordable Care Act—i.e. 30 hours per week is a FT and any combination of part-time employees that add up to 30 hours per week is a FTE.  But the SBA might not go this route.  So you should closely monitor the guidance the SBA issues at
  • What if I had to layoff, furlough, reduce pay? No problem. The PPP gives you until June 30, 2020 to restore your employment levels and pay to avoid reductions in forgiveness.

STEP THREE: Ask For Forgiveness

To apply, submit an application to your lender.  It will need to contain documentation that will enable the reviewer to determine headcounts and pay levels for the relevant time periods, including payroll tax filings to the IRS and state authorities.  You will also need to include all documentation of what you spent the forgiveness amount on.  Lastly, you must certify in good faith that the documents are true and correct and the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments.

Justin Boron is a partner in Freeman Mathis & Gary’s Philadelphia office.  He is a member of the firm’s Labor and Employment national practice group.   He regularly advises employers on employee policy issues and defends them in employment discrimination claims, wage and hour claims, FMLA and ADA claims, and disputes over the enforcement of  non-compete, non-solicitation, and confidentiality agreements. He can be contacted at [email protected].