Problems and Pitfalls with PPP Forgiveness

Now that the U.S. Treasury and Small Business Administration (SBA) have released the Paycheck Protection Program (PPP) Forgiveness Application, we finally have some clarity on the rules around loan forgiveness. Many questions and ambiguities related to forgiveness remain, even with the release of the 11-page Application with definitions and calculations, along with the SBA’s Interim Final Rule on Loan Forgiveness. While the recent passage of the PPP Flexibility Act of 2020 provides additional flexibility and extensions of deadlines for use of funds, it does not remove the requirements for borrowers to perform complicated and sometimes confusing calculations in order to obtain full or partial forgiveness. Some of the problems and pitfalls with PPP forgiveness are described below.

Full-Time Equivalent (FTE) Reduction Calculation:

  • Calculating average weekly FTE over several different time periods including:
    • February 15, 2019 – June 30, 2019
    • January 1, 2020 – February 29, 2020
    • Pay period inclusive of February 15, 2020
    • Pay period inclusive of December 31, 2020
    • Covered Period or Alternative Payroll Covered Period (APCP)
  • Calculating FTE for large numbers of employees or in situations with high employee turnover
  • Identifying when it is beneficial to use the simplified method for calculating FTE
  • Understanding how to calculate FTE for employees who are not working for the full duration of the measurement periods and/or Covered Period (e.g. employees who start or end their employment mid-period, employees on sick/FMLA leave, etc.)
  • Identifying all applicable FTE reduction “exceptions” and properly calculating the appropriate FTE to claim for these exceptions in Table 1 of Schedule A Worksheet
  • Adjusting FTE calculations during other measurement periods for any exceptions claimed
  • Properly documenting support for all FTE reduction “exceptions” being claimed

Exemption Based on Employee Availability

  • Assessment of eligibility for exemptions from FTE reductions including:
    • Inability to rehire individuals who were employees on February 15, 2020;
    • Inability to hire a similarly qualified replacement for unfilled positions by December 31, 2020; and
    • Inability to return to the same level of business activity as prior to February 15, 2020 due to COVID-related social distancing, sanitation, and other safety requirements or guidance from the Centers for Disease Control, Health and Human Services, or Occupational Safety and Health Administration issued between March 1, 2020, and December 31, 2020.

Covered Period

  • Determining whether to use the original eight week Covered Period or revised 24 week Covered Period

Salary / Wage Reduction Calculation:

  • Properly considering compensation other than salary and hourly wages, e.g. commissions, tips, over-time, piecework, bonuses, etc.
  • Understanding which employees are excluded from this calculation to avoid unnecessary reduction in the forgiveness amount (this includes correctly completing Tables 1 and 2 of Schedule A Worksheet)

Safe Harbors:

  • Properly applying the safe harbor calculations for restoration of FTE and/or salary and wage reductions by no later than December 31, 2020 – are you required to maintain these levels AS OF December 31?
  • Understanding how to apply the safe harbor to borrowers whose Covered Period ends prior to December 31, 2020

Payroll Costs / 60% rule

  • Identifying when it is beneficial to use the APCP and whether APCP is applicable (e.g. different payroll frequencies for different employees and/or income types)
  • Identifying ways to maximize eligible payroll costs during the Covered Period or APCP including both cash compensation and benefits
  • Determining eligibility of benefits as payroll costs depending on whether the borrower is a C corporation, S corporation, partnership, sole proprietorship, etc.

Affiliation Rules

  • Determining whether the borrower properly applied the affiliation rules for eligibility purposes and adequate documentation of the same
  • Determining whether the borrower, together with its affiliates, received PPP loans with an original principal amount in excess of $2 million, and adequate documentation of the same

Need Certification

  • Properly considering the necessity of the loan and access to alternative sources of liquidity at the time of submitting the PPP loan application, and adequate documentation of the same

Non-Payroll Costs

  • Understanding what all the qualifying utilities expenses are (e.g. transportation)
  • Tracking non-payroll costs based on a different Covered Period when utilizing APCP for payroll costs
  • Understanding when payments related to gas cards for employees, gas reimbursements or telephone/internet are included in payroll costs vs. utilities

Weaver’s Resilience & Recovery team is helping borrowers navigate through the forgiveness process. Our services related to the PPP are outlined below. We welcome you to contact us for more information.

Forgiveness Services

© 2020

Webinar: PPP Loan Forgiveness: What Borrowers Should Know About the Forgiveness Application


Sean Muller

Sean Muller

National Practice Leader, Tax Services


Sean Muller, CPA, has almost 30 years of experience providing tax and consulting services for publicly traded corporations…

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