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INSIGHT: Paycheck Protection Program Loan Forgiveness

Aug. 27, 2020, 8:01 AM

Many business owners are confused about whether to apply for paycheck protection program (PPP) loan forgiveness. Many questions and ambiguities related to the forgiveness remain. Despite the release of an 11-page application, complete with definitions and calculations, and the interim final rule on loan forgiveness put out by the Small Business Administration (SBA), uncertainties mount.

Some of the problems and pitfalls with PPP forgiveness include:

  • Calculating a company’s full-time equivalent (FTE) hours for large numbers of employees or in situations with high employee turnover;

  • Understanding how to calculate the FTE for employees who aren’t working for the full duration of the measurement period or covered period—due to state-mandated closures, mid-period employment start or end dates, sick leave, Family and Medical Leave Act (FMLA) leave, etc.;

  • Identifying all applicable FTE reduction exceptions and properly calculating the appropriate FTE to claim these exceptions in Table 1 of the Schedule A worksheet;

  • Properly documenting support for all FTE reduction exceptions being claimed; and

  • FTE worksheet calculation confusion because a business is unable to return to the same level of commercial activity as before Feb. 15, 2020—due to COVID-related social distancing, sanitation and other safety requirements or guidance from the Centers for Disease Control (CDC), Health and Human Services (HHS) or Occupational Safety and Health Administration (OSHA) issued between March 1, 2020, and Dec. 31, 2020.

Congress designed the PPP loans to support organizations facing economic hardships created by the coronavirus pandemic in order to assist them in continuing to pay employee salaries. However, applying for loan forgiveness is still very confusing. It will take a great deal of time and accounting costs to properly prepare the application for forgiveness, which may counteract the PPP program’s original intentions.

Shifting Requirements for PPP Forgiveness

Most taxpayers understood how to spend the loan money. Initially, it was 75% payroll costs and 25% non-payroll costs, including rent and utilities. Those percentages were updated with the second round of PPP to 60% and 40%, respectively. In addition, the original timeframe to spend the PPP money was eight weeks from the date a company received the loan. Now, you can choose either eight weeks or 24 weeks to complete your forgiveness. The foundation keeps shifting.

Meanwhile, as banks are accepting forgiveness applications, a new bill is pending in the Senate that simplifies the forgiveness process for borrowers receiving PPP loans of less than $150,000. The bill proposes that the borrower would only need to submit a one-page form to the lender attesting that the recipient complied with the PPP requirements and is eligible for forgiveness. A decision regarding this bill should be made within the next couple weeks.

Clarifying FTE Guidelines Are Still MIA

The biggest concern for most businesses today is getting reliable answers. “Will my loan be forgiven and did I spend the money in accordance with the program?” There is a lot of uncertainty. The biggest issue with the forgiveness is what qualifies as a full-time employee. This is the primary factor in determining the amount of your loan that will be forgiven. The last SBA guidelines issued on Aug. 4, 2020, stated that they would issue further clarification on what qualifies as a full-time employee.

To date, that clarification has not been issued. Many small businesses are eager to apply with their CPAs and accountants for loan forgiveness, but questions like these make it difficult to accurately apply. When applying for the PPP loan, calculations were based on payroll amounts and number of employees, but not the number of hours worked by these employees.

Post-Covid Restrictions Hamper FTE Calculations

Due to social distancing rules and state regulations on business re-openings, many employers have not been able to rehire the same employees who worked full-time before Covid-19 restrictions. Their business has been reduced by these social distancing rules for both employees and customers.

Small businesses are uncertain if their PPP loans will be forgiven since many were closed due to their state’s mandate. They applied for and received PPP funds, but they were forced to pay their employees while at home since they weren’t allowed to work. So because the businesses paid employees who were home during the time of the shutdown, trying to calculate FTEs has become a very big concern for loan forgiveness.

PPP Loan Forgiveness Uncertainties

Food establishments and restaurants that were recently mandated by their states to maintain 50% capacity are struggling to hire back their full staff since the demand is still not at full capacity. They’re uncertain as to whether they’ll have their loan forgiven for the full amount when they retained only a portion of the employees they had, compared to their original payroll prior to the shutdown. This can be burdensome for many since they weren’t able to re-open immediately and now are limited to 50% capacity.

Many businesses weren’t allowed to open for a long period of time. So these businesses held onto the PPP loan since they weren’t able to re-open. How will loan forgiveness work in this scenario?

Another issue is the difficulty in completing the loan forgiveness worksheet. There are questions regarding what conditions are required in order for 100% of a PPP loan to be forgiven. Forgiving all loans under $150,000 would ease this burden on business owners and accountants.

Businesses are waiting. Final, definitive guidelines on what payroll expenses and additional expenses are eligible for loan forgiveness must be issued. In particular, businesses need guidance on applying for forgiveness for loans issued in excess of $150,000. Without that guidance, even the best CPAs and accountants can’t help their business clients.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Paul Miller of Miller & Co. LLP is a CPA and can be reached at