The laws are changing rapidly in the current pandemic/crisis. Therefore, the legal issues discussed here are subject to constant change. It is best to consult with your counsel concerning any specific legal advice you may need.
On May 15th, the SBA issued the PPP loan forgiveness application and related instructions, shedding light on a number of open questions companies have been asking. On May 22nd, the agency released an interim final rule covering the forgiveness process (the “Guidance”).
While much of the Guidance mirrors what is in the PPP loan forgiveness application and instructions, it provides further clarification on some significant items.
First, the term “full time equivalent employee” (“FTE”) is defined. Recall that a reduction in the number of FTEs during the covered period may result in a proportionate reduction in loan forgiveness. The Guidance makes it plain that the SBA will be counting full-time equivalent employees based on a 40-hour workweek.
Other clarifications are made to the FTE analysis. For example, the Guidance confirmed in what instances employee departures during the covered period would not count against a company’s FTE analysis (e.g. resignations). The Guidance reiterates that employees must be reinstated and work enough to be full-time by June 30th at the latest, in order for a company to take advantage of the PPP’s FTE safe harbor provisions.
Also for those who have furloughed employees but continued to compensate them, the Guidance confirms that compensation paid to furloughed employees during the eight weeks is eligible for forgiveness.
Further clarity is also offered on the timing of the payroll costs. The instructions have established that, under certain circumstances, employers can adjust when their eight-week period (for determining the forgiveness amount) runs after receiving the PPP loan, i.e. “the alternative payroll covered period,” so it is consistent with their existing payroll periods.
Lastly, the Guidance indicated that non-payroll costs can be forgiven if “paid during the covered period; or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.” In other words, non-payroll costs which accrue prior to the eight- week forgiveness period or which accrue during the period but are paid after, can be included in the amount of the loan a lender seeks to have forgiven.
Companies seeking to maximize their loan forgiveness amounts should review their loan application and instructions in tandem with the Guidance and speak with their advisers now to ensure they have a plan on how to approach the loan forgiveness process.