We're In This Together / PPP: How to Ensure 100% Loan Forgiveness

Update - 5/26/2020


Paycheck Protection Program (PPP) Loan Forgiveness Application Released

All issues related to the CARES Act and the PPP remain exceedingly fluid, and the details/analysis may change depending on future Congressional intervention and agency guidance/regulations.


In consultation with the Department of the Treasury, the Small Business Administration (SBA) released the PPP Loan Forgiveness Application and detailed instructions for the process of applying for forgiveness under the CARES Act.

The SBA announced that they will soon serve guidance and regulations to assist PPP borrowers while they complete their applications, and issue lenders with guidance on their responsibilities.

Under these new procedures, you must request the forgiveness of PPP loan proceeds by filing SBA Form 3508. This application contains four components:

  1. PPP Loan Forgiveness Calculation Form
  2. PPP Schedule A
  3. PPP Schedule A Worksheet
  4. PPP Borrower Demographic Information Form

*As a borrower, you are required to submit items (1) and (2) to your lender.

This document will help you and your small business seek forgiveness upon the conclusion of the eight week covered period under the CARES Act, which begins upon distribution of the loan.

With the changing nature of the rules and requirements surrounding this program, we highly recommend you work with your accountant or legal counsel to ensure maximum forgiveness.

How do you achieve 100% forgiveness of your Paycheck Protection Program (PPP) loan?

If you have employees, the safest way to ensure 100% forgiveness of your Paycheck Protection Program (PPP) loan is to spend 100% of the funds you receive on “payroll”, as defined below.  The requirements state that you must spend at least 75% of the funds you receive on payroll, and up to 25% on other approved expenditures, as spelled out below. As long as you spend along these guidelines, and document everything properly, your loan should be completely forgiven. If you are uncertain on how to maintain this allocation, the safest step to take is to spend it 100% on “payroll”.

For sole proprietors and S-Corporations with no employees, the SBA has limited the amount of forgiveness you can receive based on your own payroll costs, and in some cases have made it impossible to receive 100% forgiveness, although you should be able to come very close if you have enough non-payroll costs.

Every business, and especially If you are a business with employees (in addition to yourself), should be consulting with your accountant or legal counsel to ensure that you are in compliance with the requirements that provide 100% forgiveness.


The general criteria that must be met in order to qualify for PPP loan forgiveness –
  1. At least 75% of the total PPP funds you receive must be spent on “payroll” costs
  2. You cannot pay any employee less than 75% of the equivalent of what they were paid during the previous quarter ( January 1, 2020 to March 31, 2020)
  3. Generally speaking, you must maintain at least the same number of FTEs (Full-Time Equivalent) employees that you had during the previous quarter (specifically how many you had on February 15, 2020)
  4. All the funds must be spent in their entirety over the eight (8) week period following receipt of the funds (there is the possibility of “alternative covered period” explained below
  5. All the funds must be spent on costs allowed by the program
  6. The most that can be paid to any individual (owner or employee) is the annual equivalent of $100,000 ($100,000/52 weeks X 8 weeks =$15,385)
How are we allowed to spend Paycheck Protection Program (PPP) loan money?

The loan money can be used for:

  • Payroll costs
  • Mortgage obligations: payments of interest (not including any prepayment or payment of principal) on anybusiness mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgageinterest payments”);
  • Rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”)
  • Utility payments: business payments for a service for the distribution of electricity, gas, water,transportation, telephone, or internet access for which service began before February 15, 2020 (“business utilitypayments”).

75% of the loan amount must be used for payroll costs.

PPP funds can NOT be used to pay contractors (i.e. anyone to whom you would issue a 1099)

Payroll costs are defined as:

  • The same way as used to calculate your eligible loan amount in the application process
    • Salary, wages, commissions and tips(up to the annual equivalent of $100,000 per employee)
    • Net income (for sole proprietors) (up to the annual equivalent of $100,000)
    • Payment for vacation, parental, family, medical, or sick leave time (for employees of your business)
    • Group health care benefits (for business owners, see below)
    • Retirement benefits (for business owners, see below)
    • State or local tax assessed on the compensation of employees.
Payroll costs for business owners

Owners compensation calculations

The PPP loan forgiveness application capped the amount that can be counted towards loan forgiveness for business owners. The maximum that can be claimed is the eight-week equivalent of 2019 compensation, which is the net income for sole proprietors and LLCs that file Schedule C, and W-2 salary for S-Corporation owners. Both are limited to the equivalent of $100,000 compensation in 2019, which equates to a maximum forgiveness amount of $15,385 from payroll costs.

Schedule C filers are limited to including 2019 net income as reported on line 31. S-Corporations can include 2019 salary, health insurance, and retirement contributions in their forgiveness calculation (see below).

As an example, a business has a 2019 Schedule C line 31 amount of $30,000. The original PPP loan that this business received is based on taking that $30,000, dividing it by 12, and multiplying by 2.5. This gave the business two and a half months worth of their 2019 income; in this example, that comes out to be $6,250. This amount is what they received from their bank as their PPP loan funding.

Eight weeks of 2019 equivalent pay is calculated by taking the $30,000 net profit in 2019, dividing it by 52 weeks in a year, and multiplying it by eight weeks. In this example, the amount that counts toward forgiveness of the PPP loan is $4,615.

See the PPA webinar, "How-to File for PPP Loan Forgiveness With No Employees" for step-by-step instructions on filing for PPP loan forgiveness and further explanation of the calculations.


Business owners' health insurance and retirement contributions.

On May 22nd, The SBA issued a new interim final rule that clarified the ability of business owners to count their health insurance and retirement contributions towards PPP loan forgiveness. 

This is the relevant section of the release –

c.     Are there caps on the amount of loan forgiveness available for owner-employees and self-employed individuals' own payroll compensation?

Yes, the amount of loan forgiveness requested for owner-employees and self-employed individuals' payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses. See 85 FR 21747, 21750. 

In particular, owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf.

Schedule C filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit. 

General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.

No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.


This confirms that the SBA has removed the ability for both schedule C filers and general partnerships to count any health insurance or retirement contributions for themselves as owners towards PPP loan forgiveness.


This is an important, and disappointing, clarification by the SBA. Many sole proprietors received PPP funding that included their 2019 health insurance and retirement contribution payments; however, the SBA's position now seems to be saying that whether you were funded for these costs or not, you as a sole proprietor, or a partnership, are not allowed to include them in the forgiveness application. This pronouncement will cause many self-employed businesses to have to pay back significantly more of their PPP loan funds than expected.


However, unlike sole proprietors, the interim rule confirmed that S-Corporations CAN count the health insurance and retirement benefits paid on behalf of the owner in 2019 towards loan forgiveness, subject to the 8/52 week rule and the $15,385 maximum compensation. In other words, S-Corporations can add up salary, health care contributions and retirement contributions paid to and for the owner in 2019, divide by 52 weeks, multiply by 8 weeks, and include this amount on Line 9 of Schedule A, but only up to the $15, 385 maximum.

During what time period can the loan funds be used?

PPP loan funds may be used in the eight-week period following receipt of the PPP loan funds.


When does the eight-week period start?


The eight-week period begins on the date that the lender makes the first disbursement of the PPP loan to the borrower. The PPP Loan Forgiveness application released May 15th provides for an “Alternative Payroll Covered Period” for companies that have payroll. This begins on the first day of their first pay period following their PPP Loan Disbursement Date.

What if we can’t spend all of the money within the eight-week period?

If money is not spent during the eight-week period, it can be returned or paid back over two years at an interest rate of 1% interest with a six-month payment deferral.

What if we spend PPP loan funds on debts or other items not expressly identified in the program?

If the funds are not used for the enumerated purposes, you will be directed to repay the misused amounts, with those amounts not being forgiven. If the funds are knowingly misused, you may be liable for criminal liability, including possible charges for fraud. It is important that you partner with counsel and/or an accountant to ensure that you are spending the PPP funds in an appropriate manner to maximize your forgiveness eligibility.

What can I do with money left over at the end of the 8 week period?

You may either return the money or spend it on allowable expenses. However, if you spend it on allowable expenses after the eight (8) week period is over, you will need to repay that money under the terms of your loan.

What is included in “rent”?

“Rent” includes rent obligations incurred prior to February 15, 2020. For eligible non-payroll costs such as rent, these must be paid during the eight-week Covered Period beginning on the date the loan is disbursed, 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. This means that borrowers can include more rental, utility, and interest payments, including (those payments that have accumulated and remained unpaid due to due the pandemic), so long as it is not a prepayment and it does not exceed the 25% threshold. The SBA has not yet issued any guidance as to whether Common Area Maintenance (CAM), property fees, or other ancillary rental charges may be included in the “rent” calculation.


What is included in “transportation”?

Transportation is treated as a permissible utility payment as part of services that began before February 15, 2020. The SBA also has not issued any guidance as to what “transportation” means, or what is included. Under the Internal Revenue Code (26 U.S.C. § 162), traveling expenses have been interpreted to include fuel expenses going between one business location to another, and the SBA may adopt that same interpretation.


If our company remains required to remain closed due to a government order, may we pay our employees to not work?

Yes. The purpose and spirit of the CARES Act and the PPP is to maintain your payroll. Depending on your business, it may not be practical or feasible for your employees to “work” during the eight-week period. Consult with your accountant or legal counsel to determine the best way to compensate your employees during the eight-week period to enhance your workforce and ensure maximum forgiveness.


What if the employees I want to pay under such a circumstance are collecting unemployment?

According to the SBA’s Loan Forgiveness Application released on May 15, 2020, the employer will not be penalized for a reduction in FTEs in any of the following circumstances:

Employer makes a good-faith written offer to return to work, but employee refuses;

Employee voluntarily quits;

Employee is terminated for cause; or

Employee voluntarily takes a reduction in hours.

This new guidance alleviates the need for an employer to backfill positions that were vacated due to no fault of the employer. If you have laid off an employee (between February 15 and April 26, 2020), you can hire them back and not be penalized. As long as you cure any previous reduction in staff by June 30, 2020 (to the levels that existed as of February 15, 2020), you will qualify for full loan forgiveness.


What do we need to keep in mind in terms of rehiring if we want to ensure our loan is forgiven? Do we have to rehire the same people?

No. Because the CARES Act refers to “full-time” employees and not specific employees, you do not have to rehire the same people. To the extent that you can rehire your workers, it is recommended. However, it is likely not practical that you can rehire the exact same people due to circumstances beyond your control, such as the employee found a new job, the employee does not want to return to work, the employee moves out of state, etc.


What is a full-time equivalent employee and how do we calculate it?

This has been answered in the PPP Loan Forgiveness application released May 15th –

Average FTE: This calculates the average full-time equivalency (FTE) during the Covered Period or the Alternative Payroll Covered  Period. For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth.

The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more  per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.


Do we have to bring everyone back by June 30 that we laid off since February 15? Do we have to restore all wages too? Are both required?

There is a safe harbor for both reduction in wages and reduction in FTEs. To determine if the safe harbor applies for the reduction in wages, you must first look at what the employee was earning as of February 15, 2020, and then determine what the employee earned on average from February 15 through April 26, 2020.  If the amount the employee earned on average between February 15 and April 26, 2020 is less than what the employee earned as of February 15, 2020, you then look to the employee’s average wage as of June 30, 2020. If the employee earned, on average, the same, or more on June 30, 2020, compared to what the employee earned as of February 15, 2020, the safe harbor applies. This means that for forgiveness purposes, a salary reduction during the eight-week period will not count against PPP loan forgiveness, so long as that salary is restored by June 30, 2020.

Like the safe harbor for wage reductions, the safe harbor for FTEs looks at two points in time – FTEs for the pay period including February 15, 2020 and the average FTEs from February 15, 2020 through April 26, 2020. If an employer had more FTEs on February 15, 2020 than the average FTEs between February 15, 2020 and April 26, 2020, so long as you restore the FTE count to what is was as of February 15, 2020, the safe harbor is met and you will avoid a reduction in forgiveness based on FTEs within the eight-week period.


If we bring someone back to work, is there specific onboarding paperwork recommended to maximize the chances of loan forgiveness?

You will want to document the restoration or rehiring of employees by providing employees with a written acknowledgment that they were returned to the same the position/level of pay held before staffing reductions occurred in response to COVID-19 conditions, and that your previous policies remain in force as those in place immediately before the reduction in force when the employee was employed previously.


How do we apply for loan forgiveness?

The PPP Loan Forgiveness application has been released May 15th  This may not be the final version of the application. Here is a link to the application –

Loan Forgiveness Application


There is presently no deadline for submitting a loan application, but based on the instructions in the application, it is prudent to wait until at least June 30, 2020 to submit your forgiveness application to ensure maximum forgiveness. The SBA’s Interim Final Rules provide that after employers submit applications for forgiveness, lenders are required to respond within 60 days.

The lender, however, does not need to conduct any verification if borrowers submit documentation supporting requests for loan forgiveness and attest to accurately verifying the payments for eligible costs. Lenders can rely on borrowers’ required documents and attestation necessary and appropriate in light of section 1106(h) of the Act, without the fear of enforcement actions or imposition of penalties if the lender has received a borrower attestation.

Generally, these are the required documents you need to provide to substantiate loan forgiveness, but lenders may have additional requirements:

For payroll costs, which must be populated onto the PPP Schedule A Worksheet to the Paycheck Protection Program Loan Forgiveness Application:

Payroll reports documenting the cash compensation paid to employees;

Payroll tax filings (Form 941);

State income, payroll, and unemployment insurance filings;

Verification of retirement and health insurance contributions;

Documents verifying the number and pay rate of full-time equivalent employees on payroll for the applicable loan forgiveness dates.

For non-payroll costs:

Documents (account statements, cancelled checks, etc.) verifying payment of qualified interest (amortization schedule), rent (lease agreements), and/or utility payment invoices.


Much of this content has been provided courtesy of Fisher & Philips, an Employer Labor law firm that represents companies across the country. If you would like to reach out to them concerning your business, please contact –

Patrick Dennison


Fisher & Philips LLP


(412) 822-6627