New law, SBA rule make substantial changes to PPP loan forgiveness

June 6, 2020

On May 22, 2020, the SBA released its Interim Final Rule on Paycheck Protection Program Loan Forgiveness (“IFR”).  On June 5, 2020, the President signed the “Paycheck Protection Program Flexibility Act of 2020.” Both made substantial changes to the PPP.  This is an update to our article titled “Navigating the SBA PPP loan forgiveness application” posted on May 20, 2020.

Step 1: Gather your records

A.  Payroll costs

1. There are two new “Covered Periods.”  For employers with bi-weekly or more frequent payrolls, it is the 56-day period starting on the first day of the pay period commencing after loan origination.  The counting protocol for 56-day periods is to count the first day and the last day.  For all employers, it is the 24-week period after the date of origination.  Employers with loans before June 5, 2020, get to choose either the 8-week period or the 24-week period after origination.

2. Payroll costs now need to make up only 60% of the loan amount, down from 75%, but, 60% must be spent on payroll costs or there is no forgiveness of any amount.  It is unclear how this will work since many employers were managing to get to the 75/25 split believing that they could convert to a loan.  If 60% must be spent or no forgiveness, many employers will be forced to use the 24-week period.  This means the FTE and 75% salary limits would apply for the entire 24-week period except as described below for the safe harbor exemptions.  We look for SBA guidance on the subject.

B. Non-payroll costs now may make up 40% of the forgiveness amount.

Step 2: Calculate your “Cash Compensation” for each applicable period for each employee.

A. “Payroll costs” are capped at $15,385 for owner/employees and the self-employed.  With the possibility of a 24-week calculation period, this number should be $46,155, but we will have to wait for guidance from the SBA to be sure.

B. Bonuses and hazard pay and payroll paid to furloughed employees are eligible for loan forgiveness.

Step 4: Calculate reductions in eligible forgiveness amount.


1. The requirements for not counting fired, furloughed or departed employees have changed.  Now there is also an exemption where  the employer, in good faith—

a. is able to document—

i. an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and

ii. an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or

b. is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the U.S. Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

c. The exemptions for voluntary reductions and “fired for cause” employees are not included in the Act, but should remain.  We are looking for guidance on that.


a. Full-time employees (salaried or who worked more than 40 hours per week) are “1” FTE.

b. The Full Time Equivalency of part-time employees can be calculated in two ways:

i. By dividing the average number of hours paid for each employee per week by 40, taking the quotient and rounding to the nearest 10th; or

ii. By counting each as .5.

B. There is no duplication of reductions for salary and FTE.  There is no reduction in salary which occurs because of a reduction in FTEs.