This blog was updated on June 18, 2020 –

New Form 3508 EZ Loan Application

  • You can apply for forgiveness of your PPP loan using the SBA Form 3508EZ if you can qualify for one of the three situations below:
    1. The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).
    2. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020, and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND
      1. The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020, and the end of the Covered Period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also, ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused. See 85 FR 33004, 33007 (June 1, 2020) for more details.
      2. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020, and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND
    3. The Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19

General

  • There are two periods to consider for the application: the Covered Period and the Alternative Payroll Covered Period.
    • The Covered Period is the 24-week (168-day) period that your Paycheck Protection Program covers. The first day of the covered period is the day you received the funds from your loan. For example, if you received for loan proceeds on Monday, April 20, the first day of your Covered Period would be Monday, April 20 and the last day of the Covered Period would be Sunday, October 4.
    • The Alternative Payroll Covered Period was established for administrative convenience. For borrowers with a payroll schedule of biweekly, you can elect to calculate eligible payroll costs using the eight-week period that begins on the first day of their first pay period following their PPP Loan Disbursement Date. For example, if the borrower receives its PPP loan proceeds on Monday, April 20 and the first day of its first pay period following the loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is Sunday, April 26 and the last day of the period is Saturday, October 10.
    • If the loan was received prior to June 5, an election can be made to make the covered period eight-weeks (56-days) instead of the 24-weeks.

Payroll Related Costs

  • Eligible payroll costs for forgiveness include payroll costs paid and incurred during the 24-week period.
  • Payroll costs are considered paid on the day that paychecks are distributed or the ACH credit transaction is initiated.
  • Costs are considered incurred on the day that the employee’s pay is earned.
  • Payroll costs that are incurred but not paid during the borrower’s 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. Otherwise, all payroll costs must be paid during the applicable period.
  • Eligible payroll costs forgiveness includes:
    • The sum of gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical or sick leave, not including leave covered by the Families First Coronavirus Response Act), and allowances for dismissal or separation paid or incurred during the Covered Period or the Alternative Payroll Covered Period. Individual employees cannot exceed $46,154 for the 24-week period ($100,000 annualized). If the eight-week period is elected the individual employees cannot exceed $15,385 for the eight-week period.
    • Owner’s Compensation Replacement and compensation for S-Corporation owner-employees if allowed for 2.5 months’ worth of 2019 net profit or compensation. The maximum amount for the 24-week period is $20,833 which is 2.5 months of the $100,000 cap.
    • The amounts paid for employer contributions for employee health insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after-tax contributions by employees.
    • Amount paid by the borrower for employer contributions to employee retirement plans, excluding any pre-tax or after-tax contribution by employees.
    • Amount paid by the borrower for employer state and local taxes assess on employee compensation. For example, state unemployment insurance tax would count but taxes withheld for employees do not count.
  • At least 60% must be spent on payroll costs.

FTE Calculation

  • When calculating the Full-Time Equivalents, you will want to take the average number of hours paid per week and divide it by 40. The FTE is based on a 40-hour workweek.

FTE Reduction Exemptions

  • Reductions to FTES for the following reasons will not reduce the borrower’s loan forgiveness:
    • Any position for which the borrower made in good-faith, written offer to rehire an employee who was n employee on February 15, 2020, and the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
    • Any position for which the borrower made a good-faith, written offer to restore any reduction in hours, at the same salary or wages, during the Covered Period or Alternative Payroll Covered Period and the employee rejected the offer.
    • Any employee who during the Covered Period or Alternative Payroll Covered Period was fired for cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours.

FTE Reduction Safe Harbor

  • The borrower is exempt from the reduction in loan forgiveness based on FTE employees if they meet two conditions:
    • The borrower was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidances issued between March 1, 2020, and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control or Prevention, or the Occupational Safety and Health Administration related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
    • The borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020, and
      • the borrower then restored its FTE employee levels by not later than December 31, 2020, to its FTE employee levels in the borrower’s pay period that included February 15, 2020.

Nonpayroll Related Costs

  • Costs that are eligible for forgiveness include:
    • Covered mortgage obligations (business mortgage interest payments): payments of interest (not including any prepayments or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020.
    • Covered rent obligations (business rent or lease payments): business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020.
    • Covered utility payments (business utility payments): business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which services began before February 15, 2020.
  • Eligible nonpayroll related costs cannot exceed 40% of loan forgiveness.
  • Documentation to verify obligations were in place prior to February 15, 2020, will be required to be submitted.

Documentation – Both Applications

  • Payroll documentation:
    • Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
    • Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period and the Alternative Payroll Covered Period:
      • Payroll tax filings reported, or that will be reported to the IRS (typically, Form 941) and
      • State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
    • Payment receipts, canceled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount.
  • Nonpayroll documentation:
    • Business mortgage interest payments: copy of lender amortization schedule and receipts or canceled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
    • Business rent or lease payments: copy of lender amortization schedule and receipts or canceled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
    • Business utility payments; Copy of invoices from February 2020 and those paid during the Covered Period and receipts, canceled checks, or account statements verifying those eligible payments. Documentation verifying the existence of the obligations/services prior to February 15, 2020, and eligible payments from the Covered Period.

Documentation – Form EZ Application

  • Payroll documentation:
    • If you checked only the second box on the checklist on page 1 of these instructions, the average number of full-time equivalent employees on payroll employed by the borrower on January 1, 2020, and at the end of the Covered Period.

Documentation – Loan Forgiveness Application

  • FTE – at the election of the borrower documentation showing,
    • The average number of FTE employees on payroll per month employed by the borrower between February 15, 2019, and June 30, 2019.
    • The average number of FTE employees on payroll per month employed by the borrower between January 1, 2020, and February 29, 2020.
    • In the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the borrower between February 15, 2019, and June 30, 2019; between January 1, 2020, and February 29, 2020; or any consecutive twelve-week period between May 1, 2019, and September 15, 2019.

Documents Each Borrower Must Maintain But Not Required to Submit – Both Applications

  • All records relating to the Borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the Borrower’s loan forgiveness application, and documentation demonstrating the Borrower’s material compliance with PPP requirements. The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.

Documents Each Borrower Must Maintain But Not Required to Submit – Form EZ Application

  • Documentation supporting the certification that annual salaries or hourly wages were not reduced by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period relative to the period between January 1, 2020, and March 31, 2020. This documentation must include payroll records that separately list each employee and show the amounts paid to each employee during the period between January 1, 2020, and March 31, 2020, and the amounts paid to each employee during the Covered Period or Alternative Payroll Covered Period.
  • Documentation regarding any employee job offers and refusals, refusals to accept the restoration of reductions in hours, firings for cause, voluntary resignations, written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
  • Documentation supporting the certification, if applicable, that the borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020, and the end of the Covered Period (other than any reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020). This documentation must include payroll records that separately list each employee and show the amounts paid to each employee between January 1, 2020, and the end of the Covered Period.
  • Documentation supporting the certification, if applicable, that the borrower was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.

Documents Each Borrower Must Maintain But Not Required to Submit – Loan Forgiveness Application

  • PPP Schedule A Worksheet or its equivalent and the following:
    • Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
    • Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
    • Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
    • Documentation supporting the certification, if applicable, that the borrower was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.
    • Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor 2.”
  • You can find the loan forgiveness application Form EZ here.
  • You can find the loan forgiveness application Form EZ instructions here.
  • You can find the revised loan forgiveness application here.
  • You can find the revised loan forgiveness application instructions here.

If you have any questions, please reach out to your personal Sciarabba Walker contact or email us at info@swcllp.com.