PPP Loan Forgiveness Application Issued

Late last week, the U.S. Small Business Administration (“SBA”) and the U.S. Treasury Department released the long-awaited application for loan forgiveness under the highly popular Paycheck Protection Program (“PPP”).  In a press release, Treasury stated that the SBA will soon be issuing regulations and guidance to clarify the responsibilities of borrowers and lenders in the forgiveness process. 

In the interim, however, PPP loan recipients should review the application and its related instructions, which are quite lengthy, to understand more about the loan forgiveness process.  We have summarized some of the major points from the application and the instructions below:

Calculating the 8-Week Covered Period

The instructions remind PPP loan recipients that they are generally eligible for forgiveness for “payroll costs” that are “paid” and “incurred” during the Covered Period (i.e., the 56-day/8-week period beginning with the disbursement date of the loan) or Alternative Payroll Covered Period.  For administrative convenience, PPP loan recipients with a biweekly (or more frequent) payroll period may elect to calculate eligible payroll costs using the 8-week/56-day period that begins on the first day of their first pay period following the PPP loan disbursement – the Alternative Payroll Covered Period.  For example, if an employer received its PPP loan funds on Monday, April 20, and the first day of its pay period following the loan disbursement was Sunday, April 26, the Alternative Payroll Covered Period would begin on April 26.

Notably, if an employer elects to use the Alternative Payroll Covered Period, it can only be used where the application refers to “the Covered Period or the Alternative Payroll Covered Period.”

Eligible Payroll Costs

The instructions also make clear that “payroll costs” that are incurred but not paid during the last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.  Payroll costs are “paid” when paychecks are distributed or direct deposit is initiated.  Payroll costs are “incurred” when the employee earned the pay.

Eligible Non-Payroll Costs

The instructions state that “rent” that can potentially be forgiven as qualified “non-payroll” costs  includes “business rent or lease payments pursuant to lease agreements for real or personal property in force between February 15, 2020.”  This guidance suggests that a business’s lease payments towards items such as copiers can be among the forgivable “non-payroll” costs.

Exemptions to Headcount Reductions

As we previously noted, Treasury had indicated that a PPP loan recipient’s forgiveness will be not be reduced by virtue of a laid-off employee rejecting an offer of re-hire for the same pay and hours so long as the employer: (1) makes a good-faith written offer of re-hire and (2) documents the employee’s rejection of that offer.  In the guidance, loan recipients are notified that this exemption also applies to any employees who, during the Covered Period or the Alternative Payroll Covered Period, were: (1) fired for cause, (2) voluntarily resigned, or (3) voluntarily requested and received a reduction of their hours.

Required Documentation

The instructions indicate that PPP loan recipients must maintain all records relating to the loan, including but not limited to the following documentation, for six (6) years after the loan is forgiven or fully repaid: documentation submitted with its application; documentation supporting the recipient’s certifications as to the necessity of the loan request and eligibility for a loan; documentation necessary to support the loan forgiveness application; and documentation demonstrating the recipient’s material compliance with PPP requirement.

These are only some of the issues addressed in the instructions.  Even more answers are expected in the forthcoming regulations.  For questions about PPP loan forgiveness or any other labor and employment law issue, please do not hesitate to contact the attorneys at Hoffman & Hlavac.  To stay on top of the labor and employment developments that affect your workplace, please subscribe to our blog and follow us on social media.

George Hlavac