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SBA Releases PPP Loan Forgiveness Application; Webinar Highlights What You Need to Know

Coincidentally, on the Friday night before the last business day that Paycheck Protection Program (PPP) borrowers could return the funds with no fear of reprisal, the SBA released the PPP Loan Forgiveness Application.  Accountants like me simply love when bombs like this drop on a Friday evening before the first really, really, nice Saturday of the quarantine era.

So while this didn’t answer all of our questions, it did clear up some very vague areas in the CARES Act and subsequent guidance regarding loan forgiveness.  And yes, I am listening to Metallica’s The Unforgiven right now.

This article is not meant to be an all-encompassing summary of the application; it is meant only to cover the new and exciting clarifications that the application provides – almost all of which are favorable. We held a webinar on May 21st where we provided a more detailed summary in addition to talking through the highlights and what you need to know. You can click here to view a recap of that webinar presentation and additional resources offered.

Covered Period

In its first favor of the PPP loan forgiveness era, the SBA gave us an “Alternative Payroll Covered Period.”  At the election of the borrower, if you have a biweekly (or more frequent) payroll schedule, you can elect to calculate eligible payroll costs using the 8-week period that begins on the first day of your first pay period following the loan disbursement date.  By doing this, employers can line up their regular payroll with the measurement period.  This, along with the clarification on “costs incurred and payments made” language that will come next, allow some flexibility which should help you to be sure that all of your eligible payroll costs get included in the covered period without having to run a special payroll.

IMPORTANT NOTE: This applies ONLY to payroll costs.  Other eligible costs (rent, mortgage interest, and utilities) are still covered by the 8-week covered period beginning on the date the loan is funded.

Eligible Payroll Costs

In a very important clarification, the instructions to the application state the following:

  • Employers are generally eligible for forgiveness for the payroll costs paid AND payroll costs incurred during the covered/alternative covered period.
  • Payroll costs are considered PAID on the day that paychecks are distributed, or the date that the employer originates an ACH credit transaction.
  • Payroll costs are considered INCURRED on the day that the employee’s pay is
  • Payroll costs incurred but not paid during the employer’s last pay period of the covered period (regular or alternative) are eligible for forgiveness if paid on or before the NEXT REGULAR PAYROLL DATE.
  • Payroll costs paid and incurred during the period are only counted once (Did they really need to clarify that? Probably so.)

So what does all of this mean?  It means, we truly do have a double rainbow, all the way (with a not so subtle shout out to one of the first YouTube sensations – Yosemitebear62 – who just recently passed away).  You can include the payroll paid during the covered/alternative covered period for wages earned prior to the period, as well as payroll paid after the period for wages earned during the period.  Cancel the special payroll.

Eligible Nonpayroll Costs

In similar fashion, we got a helpful nod to the double for other costs too.  As clarified in the instructions, an eligible nonpayroll cost (mortgage interest, rent, & utilities) must be PAID during the covered period (note the absence of the alternative covered period here) OR incurred during the covered period AND paid on or before the next regular billing date, even if the billing date is after the covered period.  And again, costs that were both paid and incurred are only counted once.

Average FTE Test

Forget the ACA, we’re back to a 40-hour work week.  So for your FTE calculation (one of the hurdles of full loan forgiveness), you’re going to use 40 hours as your denominator.  Plus, the SBA has offered up two options to calculate your FTEs.

Method A: For each employee, take the average number of hours paid per week during the measurement period, divide by 40, and round to the nearest tenth, maxing out at 1.0.  Add all of those up and you have your FTEs.

Method B: Any employee that regularly works more than 40 hours per week equals 1 FTE.  Any employee who regularly works less than 40 hours per week equals 0.5 FTEs.  You’re going to want to run it both ways.  However (and this isn’t anywhere in the text that I could find), we recommend you not flip-flop.  If you use method A for one measurement period, you probably shouldn’t use Method B for another because you like the answer better.

Salary/Hourly Wage Reduction

We were pretty sure of this since the math didn’t make sense otherwise, but we’re happy to get the final answer.  In all of the instructions on how to calculate the results for this test, the term “average annual salary or hourly wage” is used.  So no more guessing on how we’re supposed to pay people the same amount during an 8-week period as we did during a 13-week period.

FTE Reduction Exception

In an expansion of the recent FAQs on the topic, the instructions state that a reduction in FTEs under the following circumstances will not be held against the employer:

  • A written offer of employment at the same pay level was rejected by an employee
  • Firing for cause during the covered/alternative covered period
  • Voluntary resignation
  • Voluntary request for reduction of hours

So there you have it; we will continue to update our guidance as information is provided. If you have any questions, do not hesitate to contact us at and visit our COVID-19 Resource Center at for further updates on all COVID-19 related business matters.

Questions on submitting your PPP loan application or the forgiveness process?

Our team stands ready to assist you through the PPP loan application and forgiveness process. Do not go at it alone. Ensure you are submitting the right information and receiving the highest forgiveness amount possible. Visit our PPP Loan Consulting webpage by clicking here to request assistance or support.

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although McKonly & Asbury has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

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