PPP Salary Limitation Clarification and Revised Application

As expected, since the passage of the PPP Flexibility Act, the Small Business Administration continues to release additional guidance. On June 17, 2020, guidance was provided relating to payroll cost limitations due to changes to the covered period. In addition to this new guidance, the SBA published revised application forms to be used by borrowers to apply for loan forgiveness.

 

Calculation of Salary Cap: Owners vs. Non-Owners

Similar to the previous guidance under the eight-week covered period, payroll costs including salary, wages, and tips up to $100,000 of annualized pay per employee will be calculated based on a pro rata formula using the number of weeks under the covered period over 52 weeks. However, under the new guidance, there will be a different limitation for owner-employees versus non-owner employees.

For employees who are not owners, the maximum amount of forgivable payroll cost per individual is $46,154 for the 24-week covered period ($100,000*24/52). This limitation does not include covered benefits including health care expenses, retirement contributions and state taxes imposed on employee payroll paid by the employer (i.e. unemployment insurance premiums); thus, forgivable payroll costs plus benefits for non-owners can exceed $46,154.

The limits are different for owners. For borrowers choosing the 24-week covered period, the maximum amount of owner’s compensation is limited to 2.5 months of 2019 compensation (up to $20,833) or in the case of a sole proprietor, 2.5 months’ worth of 2019 net profits (up to $20,833). While the guidance does not define “owner-employee,” the new loan forgiveness application requires the authorized representative to certify that forgiveness requested for the 24-week period does not exceed 2.5 months’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $20,833 per individual. Unlike non-owners, this limitation does include all covered benefits.

 

Loan Forgiveness Applications

The loan forgiveness application was revised on June 16, 2020. The new loan forgiveness application gives the borrower the option of using the original eight-week covered period (if the loan was made before June 5, 2020) or the extended 24-week covered period under the new law. Additionally, the application incorporates the revised rule that 60% of the loan proceeds must be used for payroll.

The SBA is also providing a new “EZ version” of the forgiveness application that applies to borrowers who:

1. Are self-employed and have no employees; or

2. Did not reduce the salaries or wages of their employees by more than 25%, and didn’t reduce the number or hours of their employees; or

3. Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.

View the latest applications and instructions in the links featured below:

Application
EZ Instructions
EZ Application
 
We’re keeping our pulse on PPP changes and will keep you updated as the situation continues to evolve.