Prepare for Forgiveness of Your Paycheck Protection Program Loan
The Paycheck Protection Program provides borrowers with the option to apply for forgiveness of their loan up to the full principal amount as well as any accrued interest. In order to ensure you receive the highest amount of forgiveness possible, please follow the guidelines outlined below. Failure to do so may reduce the amount of forgiveness you will receive.
During the eight weeks following your receipt of the loan you must ensure funds are used according to the following guidelines:
Other factors may reduce your forgiveness. See “Avoid Workforce Reduction or Wage Reduction” section below for additional information
What Qualifies as Payroll Costs?
Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of
The purpose of the Paycheck Protection Program is to encourage companies to hire their employees back at comparable wages. The amount of your loan forgiveness may decrease if you reduce your workforce during the eight-week period or reduce their salary by more than 25% of their total salary during the most recent full quarter they were employed. Follow the guidelines below:
Workforce Reduction Calculation
The amount of the loan forgiveness is reduced by the quotient of the following: Monthly average full-time equivalent (FTE) employees during the Covered Period divided by the monthly average FTE employees of either of the following periods: February 15, 2019 - June 30, 2019 or January 1, 2020 - February 29, 2020.
For seasonal employers, the measurement period is February 15, 2019 - June 30, 2019
Example: XYZ Company receives a $1,000,000 loan which it spends on qualifying expenses during the covered period. However, its average number of FTEs from February 15, 2019 to June 30, 2019 is 100 and the average number of employees during the Covered Period is 75. The forgiveness portion would be 75% (75/100) of $1,000,000 or $750,000. The remaining portion would need to be repaid.
Wage Reduction Calculation
The intent of the CARES Act is to ensure that companies hire back employees at comparable wages. Accordingly, the amount of loan forgiveness is decreased by any reduction in salary or wages of specified employees that is in excess of 25% of their total salary during the most recent full quarter they were employed. Only employees earning less than an annualized rate of $100,000 during 2019 are included in this calculation.
Example: XYZ Company receives a PPP loan. After the Covered Period, XYZ Company performs a workforce reduction calculation and determines that its potential loan forgiveness amount is $750,000. Employee A worked for XYZ Company last year. Employee A has a salary of $80,000. During the first quarter of 2020, Employee A is paid $20,000. If XYZ Company reduces Employee A's salary by more than $5,000 a quarter (more than 25% based on most recent full quarter salary calculated), the amount in excess of $5,000 must reduce the loan forgiveness.
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