By: Todd Schanel, CFA, CPA, CFP®
on May 20, 2020

paycheck protection program-CPA-Small business SBA-JupiterFL

The SBA’s Paycheck Protection Program Loan Forgiveness Application has been released by the SBA.  It is eleven pages long and includes an Application Form, a Schedule A, a Schedule A Worksheet, and five pages of instructions.  Below are some highlights.

Alternative Payroll Covered Period

The Covered Period is the eight-week period immediately following the PPP Loan Disbursement Date during which certain expenditures are eligible for loan forgiveness. The application allows for an Alternative Payroll Covered Period which is defined as the eight-week period that begins on the first day of the first pay period following the PPP Loan Disbursement Date.

Note that the Alternative Payroll Covered Period is only available to Borrowers with a biweekly (or more frequent) payroll schedule, which excludes semi-monthly payors! Also, a Borrower who chooses the Alternative Payroll Covered Period still must use the Covered Period for non-payroll costs.

Payroll Costs Eligible for Forgiveness

The instructions regarding payroll costs state that to be eligible for forgiveness, the costs must be paid AND incurred. However, the instructions also state that payroll costs incurred but not paid for the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness as long as they are paid on or before the next regular payroll date. In other words, payroll costs are eligible for forgiveness if they are paid and incurred, but the last payroll payment can be outside of the eight-week period provided the payment is made in a timely manner. [UPDATE (5/21/2020):  After speaking to a tax attorney, he suggested that eligible costs include payroll costs paid, and separately, payroll costs incurred.  This effectively means that the eligible payroll costs include costs that are paid OR incurred.]

In addition:

  • The instructions state that payroll costs are considered incurred on the day the employee’s pay is earned. Generally, we would consider pay to be earned upon completion of the workday. If this interpretation is correct, then any earnings prior to the Covered Period but paid for during the Covered Period are not eligible for forgiveness, only the pay that was earned. This would prevent a borrower from claiming forgiveness for more than eight weeks of pay.[UPDATE:  Based on the update above where payroll costs paid are eligible for forgiveness regardless of when they are incurred, then it is possible to receive forgiveness for more than 56 days of earnings.]
  • The instructions do not explicitly address the possibility of there being two payroll dates that occur after the Covered Period that include covered payroll costs. For example, a semi-monthly payor has a Covered Period ending on June 17th.  The June 1-June 15th payroll is paid on June 20th, and the June 16th-June 30th payroll is paid on July 5th.  Both payrolls include payroll costs incurred during the Covered period, and both payroll payment dates are after the Covered Period.  Hopefully, this issue will be addressed.
Non-Payroll Costs Incurred OR Paid Are Eligible for Forgiveness

While payroll costs must be incurred AND paid to be eligible for forgiveness, non-payroll costs only need to be paid OR incurred. This implies that bills paid after the Covered Period but incurred during the Covered Period are eligible for forgiveness provided the bill is paid on time.  And it also suggests that rent and utility costs that were incurred prior to the Covered Period but paid during the Covered period are eligible for forgiveness.

One reason there may be more latitude when it comes to non-payroll costs is because in all cases, non-payroll costs are limited to 25% of the total forgiveness amount.

Salary/Hourly Wage Based Forgiveness Reduction

The application instructions clarify how loan forgiveness will be reduced due to a reduction in pay of more than 75% for any specific employee.

  • For purposes of determining if there is a reduction, the application identifies the relevant comparison period as of January 1, 2020-March 31, 2020. In other words, the average salary/wage during the Covered Period (or Alternative Payroll Covered Period) is compared to the average salary/wage from January 1, 2020-March 31, 2020. Note that this is different than the FTE comparison period and the Safe Harbor comparison dates.
  • The dollar amount of the loan forgiveness is calculated by subtracting the average salary/hourly wage during the comparison period to the average salary/hourly wage during the Covered Period, and then converting that amount to an eight-week equivalent.
  • Note that this reduction is made at the employee level. Therefore, any reduction in loan forgiveness does not impact the allowable loan forgiveness for any other employee’s payroll costs or any non-payroll costs.
  • In addition, based on the way the application is organized, this reduction only applies to employees that were employed prior to March 31 AND during the Covered Period. New employees and employees that were laid off are not considered because there is no way to make a comparison.
Full-Time Equivalent (FTE) Based Forgiveness Reduction

The PPP requires that Borrowers maintain the same number of employees or the amount of loan forgiveness may be subject to a reduction.  For this purpose, the law provides for two comparison periods, February 15, 2019-June 20, 2019, or January 1, 2020-February 29, 2020.  The application provides further detail on how the headcount reduction will be evaluated and calculated.

  • FTEs are to be calculated based on a 40-hour workweek with a maximum FTE of 1. In other words, someone working 30 hours per week counts as 0.75 FTE.  A simplified method is also available that assigns an FTE of 1 to any employee who works 40 hours or more, and 0.5 to any employee who works less than 40 hours per week.  The method used must be consistent across calculations.
  • Note that FTE based reductions are applied to all eligible costs, including non-payroll costs and salaries or wages that have already been reduced due to the Salary/Hourly Wage reduction formula. Therefore, not restoring FTEs to previous levels has a significant impact on loan forgiveness.
Safe Harbor Provisions

The PPP law includes a provision for a waiver of any reduction in loan forgiveness if salaries/wages and/or FTEs are restored to their pre-pandemic levels by June 30, 2020.  The application provides some clarity as to how this provision will work.

  • Salary/Hourly Wage Reduction Safe Harbor: If there was a reduction in wages or salaries during the period February 15th – April 26th (yet another comparison period!), but those pay levels are restored to 100% of what they were on February 15th by June 30th, then there is no Salary/Wage Reduction for that employee.  Note that this calculation is performed at the employee level.
  • FTE Reduction Safe Harbor: If there was a reduction in FTEs that occurred in the period beginning February 15, 2020, and ending April 26, 2020, and the Borrower then restores its FTE count to February 15th levels by June 30, 2020, then the FTE reduction is waived in its entirety.

Please note that these highlights are based on my interpretation of the application and the relevant instructions. Ultimately, it will be up to the lender and the SBA to evaluate each loan forgiveness application.  Please stay tuned for further updates.

If you need assistance with the loan forgiveness process, we are offering PPP loan forgiveness consulting services. Please email for more information.


Schanel & Associates is a CPA firm specializing in accounting, tax, business valuation and litigation support serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118.
Todd Schanel has been a principal at Schanel & Associates since 2004, where he specializes in financial planning, tax planning and consulting services. He also serves as Founding Principal and Director of Investment Advisory Services at Core Wealth Management, our sister company, where he leads an accomplished professional team offering independent and objective financial advice to help clients achieve their financial goals. Todd has been a CFA Charterholder since 2005, and in 2007 he earned his Certified Financial Planner® designation and became a licensed CPA. In 2015, he earned the Certified Valuation Analyst (CVA) designation.