The Small Business Administration released June 16 revised versions of SBA Form 3508, Paycheck Protection Program Loan Forgiveness Application, and its instructions, which were updated to conform with provisions of the Paycheck Protection Program Flexibility Act (PPPFA).
Each employer that acquires a Paycheck Protection Program loan does not automatically acquire forgiveness of the principal of the loan, and instead must timely submit SBA Form 3508 to the lender from which it acquired the loan so that the lender can determine the percentage of principal for which forgiveness is applicable.
SBA Form 3508 and its instructions previously were available as a unified document, but the revised form and its revised instructions were released as separate documents. Employers seeking forgiveness of a Paycheck Protection Program loan must submit to the lender that provided that loan two parts within SBA Form 3508, the PPP Loan Forgiveness Calculation Form and PPP Schedule A, both of which now accord with the PPPFA, which was enacted June 5.
Changes to the PPP Loan Forgiveness Calculation Form
Line 10 of the PPP Loan Forgiveness Calculation Form was updated to indicate that there now is a “Payroll Cost 60% Requirement,” which overrode the previous version’s indication on Line 10 of a “Payroll Cost 75% Requirement.” This modification reflects the PPPFA provision that with regard to costs covered by a Paycheck Protection Program loan for which an employer is seeking forgiveness, at least 60% of the costs must be payroll costs for the employer to be eligible for full forgiveness of the loan principal, down from the level of 75% in effect before enactment of the PPPFA.
The first certification on the second page of the PPP Loan Forgiveness Calculation Form for which an authorized representative would provide initials also was updated to reflect provisions of the PPPFA.
The third bullet point within the first certification was updated to reflect the decrease in the percentage to 60% from 75% pertaining to covered costs that must be payroll costs for full forgiveness of principal to be available, and accordingly indicates that the employer is certifying that the requested forgiveness amount “includes payroll costs equal to at least 60% of the forgiveness amount,” replacing the previous version’s statement that the amount “does not include nonpayroll costs in excess of 25% of the amount requested.”
The first certification’s language preventing the forgiven amount from including an owner-employee’s applicable prorated annual compensation in excess of $100,000 was updated in accordance with the PPPFA’s provision that increased the maximum length of the covered period for a Paycheck Protection Program loan to 24 weeks, up from eight weeks. The fourth bullet point of the revised form’s first initialed certification reflects the new 24-week standard covered period, with the indicated cap of $20,833 determined by dividing $100,000 by 12 for the number of months in a year and multiplying that monthly amount by the indicated multiplier of 2.5 months. The PPPFA’s option for employers that acquired a loan before enactment of the PPPFA to retain an eight-week covered period is reflected by the the fifth bullet point of the revised form’s first initialed certification, with the indicated cap of $15,385 determined by dividing $100,000 by 52 for the number of weeks in a year and multiplying that weekly amount by the indicated multiplier of eight weeks.
A condition established by the PPPFA, known as full-time equivalency (FTE) reduction safe harbor 1, that limits the degree to which an employer’s loan forgiveness would be diminished because of a reduction in full-time equivalent employees was referenced through a new certification on the PPP Loan Forgiveness Calculation Form’s second page, with its addition increasing the number of certifications on the page to eight from seven. The certification refers to an employer’s use of this safe harbor on PPP Schedule A.
Changes to PPP Schedule A
The Full-Time Equivalency (FTE) Reduction Calculation section of PPP Schedule A was updated to reflect the opportunity for an employer to use FTE reduction safe harbor 1. If FTE reduction safe harbor 1 applies to an employer, the employer would check the box associated with that safe harbor on PPP Schedule A.
Under FTE reduction safe harbor 1, an employer would not be subject to reduced loan forgiveness because of a reduction in workforce if, in good faith, it can document that it is unable to return to at least the level of business activity at which it was operating before Feb. 15, 2020, because it has complied with requirements or guidance issued from March 1 to Dec. 31, 2020, by the Department of Health and Human Services, the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration with regard to maintenance of standards pertaining to sanitation, social distancing, or other worker or customer safety requirements connected with responding to the coronavirus outbreak.
A safe harbor that had been available before enactment of the PPPFA, which through the release of the revised SBA Form 3508 has been renamed FTE reduction safe harbor 2, still can be used to decrease the degree to which an employer’s loan forgiveness would be reduced because of a reduction in workforce. The degree to which an employer can benefit from this safe harbor still is determined using the PPP Schedule A Worksheet, which while not required to be filed with a lender must be retained by an employer as part of its records. PPP Schedule A was revised to now have a box that an employer would check if it is using this safe harbor.
Under FTE reduction safe harbor 2, which despite being numbered subsequent to FTE reduction safe harbor 1 was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted March 27, if the portion of an employer’s loan eligible for forgiveness would be reduced because of a reduction in workforce that occurred from Feb. 15 to April 26, 2020, the employer could avoid the reduced forgiveness if by the applicable due date the employer hires enough employees to such an extent that had the employer had that total number of full-time equivalent employees during the period covered by the loan, there would not have been a reduction in forgiveness eligibility of the loan.
The applicable due date for restoring the number of full-time equivalent employees was changed by the PPPFA to Dec. 31, 2020, replacing the originally applicable due date established by the CARES Act of June 30, 2020. Step 4 within the steps for calculating the applicable degree of this safe harbor on the PPP Schedule A Worksheet was updated to reflect this change.
Simplified Loan Forgiveness Application
The SBA also released simplified versions of SBA Form 3508 and its instructions that a borrower can use if the borrower fulfills specified conditions.
The simplified form, SBA Form 3508EZ, can according to its instructions be used if the borrower did not reduce the annual compensation of any of its employees (other than employees paid at an annualized rate of more than $100,000 during any pay period in 2019) by more than 25% when comparing its period covered by a Paycheck Protection Program loan to the period from Jan. 1 to March 31, 2020, and the borrower also either:
- did not reduce its number of employees and the average paid hours of its employees from Jan. 1, 2020, to the end of the period covered by its loan; or
- fulfilled the conditions of FTE reduction safe harbor 1.
With regard to determining the degrees to which an employer reduced its number of employees or the average paid hours of its employees from Jan. 1, 2020, to the end of its covered period, a borrower’s reductions in these regards would not be counted if they resulted from:
- the borrower not being able to rehire former employees who had worked for the borrower on Feb. 15, 2020, with the borrower unable to hire by Dec. 31, 2020, similarly qualified employees to replace those former employees; or
- an employee of the borrower being offered to have work hours restored but the employee declined to have these work hours restored.
A borrower also could use SBA Form 3508EZ if the borrower is self-employed, an independent contractor, or a sole proprietor and had no employees when it applied for a Paycheck Protection Program loan.
Separately, the SBA released June 12 a slightly revised version of SBA Form 2483, Paycheck Protection Program Borrower Application Form. The form is virtually identical to the version released June 11, with the only change being that the June 12 version is a fillable PDF, while the June 11 version was not formatted as a fillable PDF.
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