As you follow along here, note that we have copied actual fields and their instructions from the SBA application. Tips in italics below those fields are our comments, based on our understanding of the current guidance.
To fill out the application, we find it easier not to start at the beginning. Instead, it may make sense to skip ahead to the PPP Schedule A Worksheet now on page 4 of the application. You’ll need to calculate information about employees’ hours and wages in order to plug that information back into the application.
• Were employed by the Borrower at any point during the covered period covered period whose principal place of residence is in the United States; and
• Received compensation from the Borrower at an annualized rate of less than or equal to $100,000 for all pay periods in 2019 or were not employed by the Borrower at any point in 2019. (Note: Other employees will be in the next table.)
Enter Cash Compensation: Enter 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.
Important: The application clarifies that: “For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period. For an 8-week Covered Period, that total is $15,385. For a 24-week Covered Period, that total is $46,154.
Average FTE: Earlier we talked about calculating FTE. The application states: “This calculates the average full-time equivalency (FTE) during the Covered Period. For each employee, enter the average number of hours paid per week, payday loan stores in Brownsville divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.”
Do you see the grey box in Table 1 on the application (page 4) that says “FTE Reduction Exceptions?” This is essentially where you identify employees who could not or would not return to work so you (ideally) won’t be penalized with a reduction in forgiveness.
In all of these cases, include these FTEs on this line only if the position was not filled by a new employee.
By way of background, the CARES Act and PPP Flexibility Act provide “safe harbors” that allow employers to avoid a reduction in forgiveness. In other words, reductions in employees and/or wages won’t always result in a reduction in forgiveness if these conditions are met.