PPP Loan Forgiveness Criteria

As you spend PPP funds, remember that payroll expenses, including hourly wages, cash tips, employee vacation, group health insurance premiums, and paid parental, family, medical and sick leave (excluding credits for qualified sick and family leave wages allowed under the Families First Coronavirus Response Act) must constitute at least 75 percent of the total PPP loan you want forgiven The balance may be used for rent, utility payments, and mortgage obligations as defined in the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act. Loan Forgiveness Factors Two factors may reduce your total PPP loan forgiveness – reduced employee headcount and reduced salaries and wages, calculated as follows: Headcount Calculation To determine the impact of headcount changes on PPP loan forgiveness, use this formula: Multiply the total dollars used for specific expenses identified in the CARES Act incurred and spent during the eight weeks following receipt of your PPP loan by the average number of full-time equivalent (FTE) employees per month during the eight-week period. (Calculate average FTEs by averaging the number of FTE employees for each pay period within a month). Divide that product by the average number of FTEs per month from February 15, 2019, to June 30, 2019. Alternatively, the borrower may elect to use this formula: As above, multiply the total dollars used for specific expenses identified in the CARES Act incurred and spent during the eight weeks following receipt of your PPP loan by the average number of full-time equivalent (FTE) employees per month during the eight-week period. Divide that figure by the average number of FTEs per month from January 1, 2020, to February 29, 2020. For seasonal employers, use the average number of FTEs per month for the period beginning February 15, 2019, and ending June 30, 2019.

Salaries and Wages Calculation The PPP loan forgiveness amount will be decreased by any reduction in total salary or wages of any employee during the eight-week period that exceeds 25% of the total salary or wages of that employee during the most recent full quarter you employed the worker before the eight-week PPP loan period. Note that the reduction is for salary and wages and not payroll; payroll includes a much broader range of compensation. This calculation does not include any reduction of salary or wages for one or more employees whose wages exceed $100,000. For example, for an employee whose wages or salary is reduced from $160,000 to $110,000, although the $50,000 decrease is greater than 25%, it will not impact the forgiveness calculation. The “Backstop” Exemption for Rehired Employees or Restored Wages Although we are waiting for guidance, the CARES Act appears to provide that neither a reduction in the number of employees nor a 25 percent or greater reduction in salary for one or more employees will affect the PPP loan forgiveness in the following circumstances: If your business laid off employees between February 15, 2020, and April 26, 2020, you fail to eliminate the layoffs during the eight-week period of your PPP loan, but you restore your FTE workforce count to your February 15, 2020 level not later than June 30, 2020, or If your business reduced the salary and wages of one or more employees between February 15, 2020, and April 26, 2020, you did not eliminate the salary or wage reductions during the eight-week period of your PPP loan, but by June 30, 2020, you restore those salaries and wages to the same amounts the employees received prior to February 15, 2020. You both lay off or furlough workers and reduce wages during the February 15, 2020, to April 26, 2020 time period and fail to cure those layoffs and reduced wages during the eight-week period of your PPP loan, but by not later than June 30, 2020, you both rehire workers and restore salaries and wages to levels existing on February 15, 2020. Summary To maximize your loan forgiveness, you must spend the PPP loan proceeds on allowable expenses in the eight-week period immediately following receipt of the loan proceeds, and you must:

Maintain FTEs and not reduce wages by more than 25 percent for any employee (compared to the most recent full quarter prior to receipt of the PPP loan) during the eight weeks following your receipt of the PPP loan; or

Eliminate FTE and/or wage reductions by June 30, 2020.

Keep in mind that regardless of the exceptions for rehired FTEs or restored wages, the maximum amount that may be forgiven is still the amount incurred or spent on allowable expenses within the eight-week period. Also, the 75% minimum payroll expenditure (up to 25% non-payroll) rule applies universally.