1. Alternative Payroll Covered Period. The Application allows borrowers to rely on an “Alternative Payroll Covered Period” for purposes of calculating eligible payroll costs. The Alternative Payroll Covered Period allows borrowers with biweekly or more frequent payroll schedules to calculate eligible payroll costs beginning on the first day of their first pay period following their receipt of the PPP loan proceeds. This is an alternative to the applicable covered period defined in the CARES Act, which begins the day the borrower receives the PPP loan proceeds. As by the covered period outlined in the statute, the Alternative Payroll Covered Period is an eight-week (56-day) period.
2. Loans in excess of $2 million. The Application requires a borrower to check a box if it received a loan in excess of $2 million. This is consistent with recent guidance indicating that the SBA and Treasury Department will review borrowers whose loans exceed $2 million. For more information, see the SBA’s and Treasury Department’s FAQs.
3. Required documentation to be submitted with the application. The Application contains a list of documents that each borrower is required to submit together with its Application.
4. Payroll costs are forgivable if they are either incurred or paid during the covered period. The Application instructions provide that both payroll costs paid and payroll costs incurred during the eight-week covered period (or during the Alternative Payroll Covered Period) may be eligible for forgiveness. Payroll costs are considered to have been paid on the day that paychecks are distributed or on the day that the borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Additionally, payroll costs incurred but not paid during the borrower’s last pay period during the covered period (or the Alternative Payroll Covered Period) are eligible for forgiveness if they are paid on or before the next regular payroll date (otherwise, they must be paid during the covered period or the Alternative Payroll Covered Period). These instructions shed light on a previously ambiguous aspect of PPP loan forgiveness. Until now, it was unclear whether payroll costs needed to be both incurred and paid during the covered period or either incurred or paid during the covered period. The Application instructions clarified that (1) certain payroll costs incurred prior to the covered period may be paid during the covered period, and (2) certain payroll expenses incurred during the covered period may be paid after the covered period. What remains unclear is just how far back payroll costs incurred prior to the covered period may be paid back in arrears.
5. Non-payroll costs can be either incurred or paid during the covered period. The Application instructions also provide that eligible non-payroll costs must be paid 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). The Alternative Payroll Covered Period mentioned above does not apply to non-payroll expenses.
6. Partial forgiveness based on a borrower’s allocation of loan proceeds. The Application instructions provide that PPP loan proceeds may be forgiven in whole or in part depending on how the borrower allocates its loan proceeds. Prior to these instructions, there remained some ambiguity as to whether forgiveness was a matter of all or nothing when it pertained to a borrower’s allocation of its loan proceeds. The SBA’s April 2, 2020, interim final rule requires borrowers to spend at least 75 percent of their PPP loans on payroll costs in order to be eligible for full forgiveness. However, it remained unclear as to whether a borrower would be eligible for partial forgiveness if it spent less than 75 percent of its loan proceeds on payroll costs. The Application instructions resolve this ambiguity by providing a method for calculating the impact of a borrower’s allocation of loan proceeds on its potential for forgiveness. According to the Application instructions, a borrower is not required to report non-payroll payments that it does not want to include in its forgiveness amount. The Application is designed in such a way that a borrower that has spent less than 75 percent of its PPP loan proceeds on payroll expenses can still receive full forgiveness for the amount it has spent on payroll expenses and for a portion of its non-payroll expenses.
7. Calculating FTEs. The Application instructions provide extensive guidance regarding how to calculate full-time equivalent (FTE) employees. The complete guidance can be found in the instructions to the PPP Schedule A Worksheet. To calculate a borrower’s average FTE during the covered period (or during the alternative payroll covered period), a borrower must enter the average number of hours paid per week for each employee, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1. Additionally, the worksheet instructions allow a borrower to use a simplified method assigning a 1 for employees who work 40 hours or more per week and a .5 for employees who work fewer than 40 hours per week. After calculating its average FTE, a borrower must complete the remaining steps outlined in the Application to determine whether its loan forgiveness amount will be reduced because of a reduction in its number of FTE employees. For further assistance in calculating forgiveness amounts, please contact a member of Reed Smith’s CARES Act task force.
8.  Final forgiveness amount. The Application provides that the final amount of PPP loan forgiveness is the lesser of: (1) the total PPP loan amount, (2) a borrower’s payroll costs divided by .75, or (3) a modified sum that takes into account a reduction in FTE employees or a reduction in employee compensation (the Application provides extensive detail describing how to arrive at this modified number). For further assistance in calculating forgiveness amounts, please contact a member of Reed Smith’s CARES Act task force.

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