Last week most people were applauding the decision of the SBA to deem all PPP loans under $2 million dollars as automatically meeting the certification requirements that the loan was necessary due to "economic uncertainty" from Coronavirus.
Then came Friday night, when the SBA issued its official loan forgiveness application form. Without warning, the SBA dropped two huge rule changes within the application itself.
First, buried in the middle of page 7 of the application, you will find that the SBA nonchalantly dictated a 40 hour workweek to determine whether an employee is an FTE. This was surprising, considering that under the Affordable Care Act, the only other federal law where FTE numbers are extremely important, uses a 30 hour workweek.
The significance of this rule change is that an employer only needed to staff an employee for 30 hours to count as an FTE under the previous understanding of the rule. Now, if an employee works 30 hours per week, they are counted as 3/4 of an employee under the rule. The bottom line is that the employer must staff additional hours to meet the "Maintain FTEs Rule" for PPP loan forgiveness. The good news is that the safe harbor of reaching the FTE number by June 30 remains. And there is still no rule that requires that the FTE level is maintained beyond June 30. Thus, the best advice to maximize forgiveness (and be able to afford the hours required), is to save money towards the end of the period and demonstrate that you have reached the FTE number in the last documented pay period that is part of your covered 8 week period.
Second, the SBA application now puts rules around how much business owners can pay themselves. Specifically, if a business owner receives PPP payroll money, it is limited to what they were paid in 2019 during an 8 week period. So, my prior advice to pay the remainder to yourself as an owner once you meet the FTE requirements is now bad advice. Do not pay any money to yourself as owner through PPP payroll unless you made at least the same amount in 2019.
This is a big blow to many small employers who were relying on the PPP money to pay themselves. For example, if a restaurant opened in October 2019 and the owner decided to go without pay for the first three months and began paying himself in January 2020, that restaurant owner would not be permitted to receive any forgivable pay through PPP payroll. This cannot be what Congress intended. Still, with some thoughtful planning in advance, there is no reason that your PPP loan cannot be fully forgivable (that is, unless you have already ended your covered 8 week period and did not follow the rules because they weren't issued).
For an updated video version of this blog, see below: