PPP Loan Program: How to Restore Payrolls to Pre-Pandemic Levels
In a recent article, I explained the types of expenditures for which the Paycheck Protection Program (PPP) loan proceeds may be used and the conditions under which they are eligible to be forgiven. Here, I’ll discuss how to restore your payroll to pre-pandemic levels so as to ensure maximum forgiveness for these expenses.
Many companies have had to lay off or furlough workers due to lockdown issues at customer sites. A key component of the PPP loan forgiveness is restoring your work force. Be sure to carefully review the instructions included with the application to complete the Schedule A worksheet to determine whether there will be a reduction in the loan forgiveness amount based upon a reduction in the number of full-time equivalent employees (FTEs). If there is any doubt consult your tax accountant early so you can get into compliance.
FTEs are determined based upon a 40-hour work week.
Exceptions for Reduction in FTEs
Identifying exceptions for reduction in FTE is one of the most frequent questions that we receive. The good news is that your loan forgiveness amount will not be reduced for a reduction in the number of FTEs for those employees who (i) rejected a good-faith written offer by the borrower to rehire the employee during the covered period or alternative payroll covered period; or (ii) during the covered period or alternative payroll covered period:
Related: Your Paycheck Protection Program Loan Has Funded. Now What?
were fired for cause;
voluntarily resigned; or
voluntarily requested and received a reduction of their hours.
FTE Reduction Safe Harbor
A borrower is exempt from the reduction in loan forgiveness based on FTE employees if the borrower (i) reduced its FTE employee levels in the period beginning Feb. 15 and ending April 26, and (ii) restored its FTE employee levels by no later than June 30 to its FTE employee levels in the borrower’s pay period that included Feb.15. This is critical; get your employees back to work before June 30.
Other Key Considerations
There are other important considerations to stay abreast, namely around certifications and recordkeeping . The borrower must certify the following on the application:
The dollar amount requested for forgiveness:
was used to pay costs that are eligible for forgiveness;
includes all applicable reductions due to decrease in the number of FTEs and salary/wage reductions;
does not include nonpayroll costs in excess of 25% of the amount requested;
does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.
Acknowledge that if the funds were knowingly used for unauthorized purposes, the federal government may pursue recovery of loan amounts and/or civil or criminal fraud charges.