Home Health & Hospice Week

Watch out: Change in FTE calculations may hurt.

Long-awaited details about how borrowers can obtain Paycheck Protection Program loan forgiveness are out, along with the application for forgiveness.

The Small Business Administration “re-leased the Paycheck Protection Program (PPP) Loan Forgiveness Application and detailed instructions for the application” on May 15, the agency says in a release. “The form and instructions inform borrowers how to apply for forgiveness of their PPP loans, consistent with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).”

The new document “will help small businesses seek forgiveness at the conclusion of the eight week covered period, which begins with the disbursement of their loans,” SBA continues.

The 11-page application and detailed instructions give borrowers “a better understanding of the documentation needed to apply for PPP loan forgiveness and what the procedure will require,” observes law firm Holland & Knight in online analysis.

The new document and instructions clarify these important points:

• New payroll schedule. The application specifies an “Alternative Payroll Covered Period,” if borrowers want to use it. Under PPP, borrowers may obtain forgiveness for eligible payroll, rent, mortgage interest, and utilities costs they make within an eight-week period. But providers haven’t been sure how exactly to count payroll.

“For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date,” SBA explains in the application. “For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.”

The Health Group is “pleased that the application has provided an Alternative Payroll Covered Period,” the consulting firm says.

“This is welcome news to many, as it simplifies the tracking of loan spending and assures borrowers they will get the full benefit of eight weeks’ worth of payroll,” notes Emir Hodzic with VonLehman & Co. in online analysis.

The clarification “may enable borrowers to have more of their loan amount be forgivable due to timing,” says law firm Cooley in online analysis.

• Incurred or paid are OK. When calculating costs for forgiveness, original guidance indicated the costs had to be incurred and paid during the covered period, Holland & Knight notes. The forgiveness application instructions now make clear that they can be incurred or paid.

“This clarifies earlier questions about whether borrowers might consider accelerating payroll dates to fall within the ... covered period,” Cooley says. “This would be ill-advised given the new clarity that ‘incurred’ but not yet paid payroll costs count.”

Pointer: According to the application, “pay-roll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned.”

• Payroll ratio sticks. The application and instructions confirm that payroll costs must account for at least 75 percent of the loan forgiveness amount.

Rumors had circulated “that perhaps new rules would relax the 75/25 split,” Cooley observes.

“Many businesses have expressed concerns over their ability to spend their loan monies on at least 75 percent payroll cost while still incurring occupancy and other expenses,” Hodzic notes. But “the SBA has doubled down on the requirement. Therefore, any other eligible costs will not be considered for forgiveness unless the 75 percent threshold is met, despite no such language being a part of the actual CARES Act.”

• $100K salary cap. Salary amounts, including for owners, are capped at $100,000. For forgiveness calculation purposes, “this amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compen­sation in 2019, whichever is lower,” the form notes.

However: “That exclusion does not apply to non-cash benefits (e.g., retirement plan contri­butions, healthcare benefits, insurance premiums, and state and local taxes),” point out attorneys Andrew Budreika, Shah Nizami, and Benjamin Stango with Morgan Lewis in online analysis.

• 40-hour FTE. To calculate full-time equivalents for forgiveness purposes, the form instructs users to use a 40-hour standard. “For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth,” the form says. “The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.”

“The application does not use SBA’s prior 30-hour full-time metric for calculating [FTEs],” point out Budreika, Nizami, and Stango.

“Prior to this, many borrowers and their advisors were using the 30-hour threshold set by the Affordable Care Act,” observes Hodzic.

• $2 million checkbox. Borrowers must check a checkbox on the form if they received loans in excess of $2 million. SBA recently announced in a Frequently Asked Question set that businesses receiving $2 million or less wouldn’t have to undergo review of their certification that “current economic uncertainty makes this loan request necessary to support … ongoing operations” (see Eli’s HCW, Vol. XXIX, No. 18).

The checkbox will presumably make it easier for SBA to track who will require extra scrutiny and who won’t, observers note.

Don’t miss: Borrowers must include their affiliates in the calculation, the form instructs.

While SBA answered many questions with the new form and instructions, significant questions remain. For example, borrowers need to know whether bonuses count in compensation, if there’s a deadline to submit the forgiveness application, and what exactly qualifies as a utility — especially when it comes to internet services, Holland & Knight offers.

Stay tuned: More answers are coming, SBA has promised. “SBA will … soon issue regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities,” it says in the May 15 release.

Note: Download the application and instructions at www.sba.gov/document/sba-form--pay check-protection-program-loan-forgiveness-application. For advice on when to apply for PPP Loan Forgiveness, see a future issue of Eli’s HCW.