SBA Issues Guidance on PPP Safe Harbor and Loan Forgiveness Calculation

The Small Business Administration (SBA), in consultation with the Department of the Treasury, on May 19 released guidance in the form of a Paycheck Protection Program (PPP) Loans FAQ document and the first draft of the PPP loan forgiveness application, which explains the calculation for forgivable amounts under the PPP program.

The guidance and form are the governing rules for qualification and verification for funding, forgiveness and payback under the program.

As I have been advising friends and clients in the pest control industry, the program was passed and implemented in haste, leading to many challenges in execution. Luckily, there is a safe harbor provision that assumes borrowers who received less than $2 million under the program made the loan request in good faith and meet the certification for “economic uncertainty.”

For several weeks there was uncertainty on this issue, but now it appears that most pest management professionals will fall under the safe harbor.

At issue now is how much of the PPP funds received will be forgiven. The PPP loan forgiveness application and its related instructions provide answers to several outstanding questions to assist borrowers when planning the spending related to their PPP loan proceeds during the 56-day (eight-week) covered period.

The following items are considered eligible payroll costs, non-payroll costs and loan forgiveness reductions required by the loan forgiveness application:

Payroll costs incurred and paid during the 56-day period beginning the day funds are received:

• Wages – the maximum wage amount for each employee is $100,000 annualized or $15,385 during the 56-day measurement period. Special caveat for employee-owners, the maximum is eight weeks’ worth (8/52)of 2019 compensation capped at $15,385.·
• Health insurance – paid by the company.· Retirement benefits – paid by the company.· Employer level state taxes – only state payroll taxes, not federal payroll taxes.

Nonpayroll costs, which cannot exceed 25 percent of the total amount to be forgiven:·

• Rent – payments on leases – both real property and vehicles and equipment in force prior to Feb. 15, 2020.·
• Mortgage interest – interest on obligations on both real property and vehicles and equipment in force prior to Feb. 15, 2020.·
• Utilities- including electricity,gas, water, telephone, internet and transportation costs where service began before Feb. 15, 2020. There is still no guidance regarding what costs are included as “transportation,” other than gas for business vehicles, which was indicated in previous guidance.

Loan forgiveness reductions – the amount forgiven will be reduced by the following:·

• Full Time Equivalents (FTEs) – To calculate if FTEs during the eight-week covered period was reduced, the borrower will need to compare FTEs to the look-back period chosen by the borrower (either Jan. 1-Feb. 29, 2020, or Feb. 15 – June 30, 2019). Any reduction in FTEs during the eight-week period will decrease the loan forgiveness proportionately, with a few exceptions.

• • FTE is not reduced for any employee who:

• • • Receives a good faith written offer of employment that’s rejected.
    • Was terminated for cause.
    • Voluntarily resigned.
    • Voluntarily requested a reduction of hours.

• • Additionally, there is a safe harbor calculation that includes several measurement dates and payroll amounts; readers should consult the forgiveness form and related instructions.·

• Wage reductions – Forgiveness will be reduced if employees were forced to take a wage reduction for the 56-day period by more than 25 percent of their annualized wages.

• • The wage reduction calculation is computed on an employee-by-employee basis.
  • There is a safe harbor calculation that includes several measurement dates and payroll amounts; readers should consult the forgiveness form and related instructions.

There is a lot to unpack in the details above, but the key to ending up with maximum forgiveness is to make sure you do accurate payroll projections and keep good records. If you need assistance, please contact PCO Bookkeepers.