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Understanding the Paycheck Protection Program Loan Forgiveness

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Editor’s note: As of May 5 2021, the Paycheck Protection Program is out of funding.  Please visit the U.S. Small Business Administration for more information. 


On this April 16, 2021 episode of the Sage Thought Leadership Podcast Susan Markey shares the latest updates on the PPP.

Susan Markey represents clients in general corporate, taxation, and nonprofit matters. She draws from a diverse background in government, accounting, and law to serve as a holistic business advisor, and believes that legal advice should be both easy to understand and practical. Susan assists clients with a wide array of tax issues, including tax controversies, audits, appeals, planning, and structuring, as well as researching tax law, drafting legal appeals, and memoranda.

If you would like hear more from Susan, you can view her April 21, 2021 Wednesday Wisdom webinar: CARES Act Update webinar on-demand. 

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As part of our COVID-19 webinar series back in 2020, attorney Susan J. Markey shared the latest guidance on the PPP forgiveness process. Guidance around PPP is constantly changing, the information contained herein is for general guidance purposes only and does not constitute legal advice.  The content is provided “as is;” no representations are made that this content is error-free.  You can view the complete on-demand library of Susan’s webinars here

The SBA released a sample Paycheck Protection Plan (“PPP”) loan forgiveness application on May 16, 2020 (the “Application”).

The Application clarified several key issues, including the calculation of: the 8-week period; owner compensation; FTE calculation; and Loan Forgiveness. On June 3, 2020 Congress made PPP loans more flexible for borrowers by extending the PPP loan covered period from eight weeks to 24 weeks (or until December 31, 2020, which ever is earlier).

8-Week Period:

The CARES Act indicates that costs “incurred and paid” during the 8-week covered period were eligible for forgiveness. This created confusion about which expenses were eligible, particularly related to payroll calculations, as most businesses pay payroll in arrears.

The Application indicates that two different periods may be used for calculating payroll expenses. All Applicants may use the “Covered Period”, which is the 56-day period beginning on the loan disbursement date.

Applicants who use a biweekly or more frequent payroll schedule may choose to begin the 56-day period on the first day of the first period following the loan disbursement date.

The Application clarifies that payroll costs are deemed to be paid on the date that paychecks are distributed or the day the Applicant initiates an ACH credit transaction. Payroll costs are deemed to be incurred on the day that the Employee’s pay is earned.

Finally, payroll costs incurred but not paid during the last pay period are eligible for forgiveness if they are paid on or prior to the next regular pay date.  All other payroll costs must be paid during the 8-week period.

24-Week Period:

The Flexibility Act, passed on June 3, extends the PPP loan covered period from eight weeks to 24 weeks. Borrowers that already received a PPP loan before enactment of the Act can elect an eight-week covered period, which helps PPP borrowers that are approaching the end of their original covered period and have spent the majority of funds.

Borrowers have up to 10 months from the date of their covered period ends to apply for loan forgiveness.

Owner Compensation:

The Application clarifies that amounts paid to owner-employees, self-employed individuals, or general partners during the period is limited to the lesser of i) $15,385 for individuals earning $100,000 or more, or ii) 8-weeks of their 2019 compensation.

Nonpayroll Costs:

All eligible expenses other than payroll must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is not within the Covered Period. Eligible nonpayroll costs cannot exceed 25% of the total amount eligible for forgiveness (i.e. the expenditure on eligible expenses during the 8-week period).

Forgiveness Reduction:

Forgiveness is subject to limitation where the Applicant either reduces its number of full-time equivalent employees (“FTE”) or if pay to an employee earning less than $100,000 on an annualized basis is reduced by more than 25% for any employee during the 8-week period in comparison to the reference period. The reference period for a non-seasonal applicant is either at the Applicant’s election, i) February 15, 2019 – June 30, 2019; or ii) January 1, 2020 – February 29, 2020. The reference period for a seasonal employer is either of the previous periods or any consecutive 12-week period between May 1, 2019 – September 15, 2019.

This reduction is waived if the business brings its FTEs to the same number of FTEs during the reference period or increases salaries to the amount paid during the reference period by June 30, 2020.

FTE Calculation:

The Application clarifies that there are two ways to calculate FTEs.  One method is use the average hours paid per week for each employee, divide by forty, and round the total to the nearest tenth, using a maximum of 1 per employee.  The other method is to use 1 for each employee working forty hours or more per week and .5 for employees working fewer hours.

The Application also clarifies forgiveness is not reduced for reduction in FTEs during the 8-week period if: i) the Applicant made a good-faith, written offer to rehire an employee during the 8-week period; ii) an employee was fired for cause; iii) an employee voluntarily resigned; or iv) an employee voluntarily requested and received a reduction of their hours.

Loan Forgiveness Amount:

Finally, the Application gave the formula for calculating the total amount of loan forgiveness. The loan forgiveness amount is limited to smaller of:

  1. Total Payroll costs plus eligible Nonpayroll Costs, minus Reductions in FTEs or Salary;
  2. PPP Loan amount; or
  3. Payroll costs divided by .75

Download the Sessions Q&A’s

CARES Act Paycheck Protection Program: SBA Regulations and New Legislation – Session Q&A

Paycheck Protection Program Forgiveness Guidance – Session Q&A

What is the FFCRA and How Does it Impact Your Business – Session Q&A

CARES Act Update Regarding the Additional PPP Funding – Session Q&A

CARES Act Deep Dive – Session Q&A

COVID-19: Resources, Regulations and the Road Ahead – Session Q&A


Disclaimer: These comments are not intended to and do not constitute legal advice; instead, all information, content, and slides are provided for general informational purposes only.  This information may not constitute the most up-to-date legal or other information.

Sage customers should contact their attorney to obtain advice with respect to any particular legal matter.  No user should act or refrain from acting on the basis of these comments without first seeking legal advice from counsel in the relevant jurisdiction.  Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.  Reviewing these materials does not create an attorney-client relationship between the user and author, and their respective employers. 

The views expressed at, are those of the individual author writing in her individual capacities only – not those of her employer.  All liability with respect to actions taken or not taken based on the contents are hereby expressly disclaimed.  The content is provided “as is;” no representations are made that this content is error-free.


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