4 steps to calculating your PPP loan forgiveness

Step 1 – Track costs

To calculate your PPP loan forgiveness track eligible costs incurred and paid during the 8-week period following loan funding. What the heck does this mean? 

The 8-week period starts the day you received your loan funding.  Grab a calendar and count out 8 weeks from the date you received the loan funds in your bank.  If your loan funds were deposited in your bank account on April 27th, the 8-week period runs from April 27 to June 21, 2020. 

Incurred means that the costs are real – either employees earned their wages (no prepayment of wages allowed) or you owed your landlord the rent. 

Paid means that you actually paid for the wages, rent and  other eligible expenses.

Eligible costs include:

  1. Payroll costs must make up 75% of the total loan forgiveness amount. These costs include:
    • Salary, wages, commissions or equivalent (capped at $100,000 per year per employee)
    • Cash tips or equivalent
    • Payment for leave
    • Allowance for separation or dismissal (severance pay)
    • Housing allowance or stipend
    • Payments for group health care benefits
    • Payment of state and local taxes assessed on the compensation of employees
  2. All other costs cannot be more than 25% of total loan forgiveness
  • Mortgage interest on real personal property for mortgages in effect prior to 2/15/2020
  • Rent under a lease agreement for agreements in effect prior to 2/15/2020
  • Utilities for services established prior to 2/15/2020 including electricity, gas, water, transportation, telephone and internet access.

Step 2 – Calculate payroll costs for forgiveness floor

75% of eligible costs are to be used for payroll.  If payroll costs are less than 75% the total loan amount, the forgiveness is reduced by that amount. 

Step 3 – Calculate any decrease in full-time equivalents (FTEs)

Your forgiveness also depends maintaining your employee’s hours and wages.  Make a list of all your employees and the hours they worked during one of the following base periods:  

  • February 15 through June 30, 2019 or
  • January 1 through February 29, 2020
  • Seasonal business will use February 15 to June 30, 2019

Calculate the FTE’s from the base period.  If your employees all work full-time this is an easy calculation since each employee is 1 FTE. If employees earn wages on an hourly basis or work part-time then you will need to do some math. Compare your FTE’s during the 8-week covered period to the FTE’s in the base period.  

If your FTE’s are lower during the 8-week covered period than during the base period, then you need to reduce the payroll loan forgiveness.  The good news is,  if you laid employees off or reduced their hours between February 15, 2020 and April 26, 2020 and rehire them or an equivalent number by June 30, 2020, they can be included in your FTE count for the 8-week covered period.

Step 4 – Calculate any reduction in payroll that is >25% per employee

Make a list of the wages each employee earned during the first quarter of 2020 (January 1 to March 31). Calculate the average weekly wages/salary for each employee and multiply by 8 weeks (base period). Total the wages/salary for each employee during the 8-week covered period.  Compare the two lists. 

If anyone’s salary is reduced by more than 25%, your loan forgiveness is reduced by the amount that is greater than 25% per employee.  For example during the base period Julia earned $1,000.  During the 8-week covered period Julia earned $500 (a 50% reduction).  The loan forgiveness is reduced by $250.  

More good news, if you restore Julia’s wages to what she earned during the base period, the forgiveness amount will not be impacted. Even if Julia decides she doesn’t want to work the increased hours, and you made the offer in writing,  the wage reduction will not impact the loan forgiveness.