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April 7, 2020 | Covid-19 | Posted by Bob Greene, Senior HR Industry Analyst at Ascentis

Paycheck Protection Program Loans: The Key Facts

Updated: 4/8/2020

The Paycheck Protection Program (PPP) was established by the CARES Act, is funded up to $349 billion and is available until June 30, 2020. With a limit of $10 million available to each eligible employer, this provision can benefit at least 35,000 companies in the US. The most attractive feature of the PPP? 100% of the loan is forgivable, provided the proceeds are used for eligible expenses.

Here we cover everything you need to know about the PPP loan and application process.

Who’s eligible to secure a loan under the PPP?:

  • Business must have been in operation on February 15, 2020
  • Small businesses, Sec. 501(c)(3) non-profits, Sec. 501(c)(19) veteran’s organizations and tribal businesses, with fewer than 500 employees
  • Sole proprietorships, independent contractors or the self-employed
  • Accommodation and food services (NAICS Sector 72) employers totaling more than 500 employees but with fewer than 500 employees per location

Calculating eligible loan amounts:

  • Start: Determine the applicable period for your base average monthly payroll
    • For stable headcount (non-seasonal) employers that have been in existence for all of 2019, use the 12 months ending on the last pay period prior to the loan application date, or at the employer’s preference, headcount over the 12 months of calendar year 2019.
    • For stable headcount (non-seasonal) employers that have NOT been in existence for 52 weeks prior to loan application date, average the period 1/1/2020 through 2/29/2020.
    • For seasonal employers average the period 2/15/2019 through 5/15/2019 OR the period 3/1/2019 through 5/31/2019.
  • Next: Include the following amounts:
    • Wages under $100,000, per employee, on an annualized basis
    • Employer contributions toward employee health insurance (but exclude any employee contributions, whether pre-tax or post-tax)
  • After that: Double check and remove the following exclusions:
    • Compensation attributable to a single employee which exceeds $100,000 on an annualized basis
    • Any employee withheld taxes, such as FITW, FICA-OASDI and Medicare
    • Compensation paid to an employee residing outside the United States
    • Any Emergency Paid Sick Leave or Paid Health Emergency Leave paid to an employee pursuant to the FFCRA
  • Then: Multiply the average monthly payroll amount calculated above by 2.5 and add in any outstanding loan amount under the SBA’s Economic Injury Disaster Loan Program made between January 31, 2020 and the new loan application date. In no event can the amount calculated per the guidelines above exceed $10 million.

Once a PPP loan is approved, proceeds may be used to fund:

  • Payroll costs (all costs included in the above definition)
  • Costs related to group health care benefits during periods of paid sick, medical, or family leave and employer health insurance premiums
  • Payment of interest on any business property mortgage (but not payment or prepayment of principal)
  • Rent
  • Utilities
  • Interest on any other debt obligations that were incurred prior to February 15, 2020

Important loan terms:

  • Up to 2-year term to repay the portion of the loan not forgiven
  • 6 months up-front deferred payments
  • Fixed 1% interest rate, NO loan origination fee, NO pre-payment fees
  • Loan is made by the employer’s bank, guaranteed by the SBA
  • Applications began being accepted by banks on Friday, April 3.
  • Loans are available until June 30, 2020 or when all available funds under the program have been distributed, whichever comes first

Calculating loan forgiveness:

Two calculations are required:

  • The workforce reductions forgiveness factor is calculated as follows:
    • The “covered period” is defined as the eight-week period beginning on the date of loan origination.
    • Calculate the average number of FTEs per month during the covered period, DIVIDED BY
    • The average number of FTEs per month between (a.) 2/15/19 through 6/30/19 - OR - between (b.) 1/1/20 through 2/29/20. Note that seasonal employers may only use (a.) as the denominator of their fraction.
  • The compensation reductions forgiveness factor is calculated as follows:
    • For any employee who was paid $100,000 or less on an annualized basis in any pay period of 2019, the amount of any salary reduction exceeding 25% of total salary, in the most recent full quarter.
Note that the forgiveness reduction factor for workforce reductions is a percentage, and the forgiveness reduction factor for compensation reductions is a money amount. Both are applied to the expected forgiveness amount to yield net forgiveness amount.


Gamma Inc. had 250 employees on January 1, 2020. On April 15, they borrow $4 million from their local bank, guaranteed by the SBA under the PPP program.

  • They calculate their preliminary forgiveness amount, based on eligible expenses of payroll, rent and utilities, as of June 15, 2020, as $3.25 million.
  • For their workforce reduction factor, they use January-February 2020 as the comparison period.
  • Their average active FTEs from 4/15/2020-6/15/2020 totaled 185.
  • Their average active FTEs from 1/1/2020-2/29/2020 totaled 225.
  • Their workforce retention factor is therefore 82.2%, meaning that 17.8% of their forgiveness amount (or $578,000) must be excluded.
  • Additionally, counting only employees earning less than $100,000 on an annualized basis, and exempting the first 25% of salary reductions for each of the remaining employees, Gamma cut total salaries by $223,000.
Final Outcome: Gamma’s total forgiveness reduction = $578,000 plus $223,000, for a total of $801,000, leaving $2.449 million as the allowable forgiveness amount

Restoring forgiveness amounts:

Forgiveness amounts that would be excluded per the calculations detailed in our example can be restored by reinstating staff and restoring salaries as follows:

  • Employers seeking forgiveness can restore their full forgiveness amounts if, by June 30, 2020:
    • They reinstate employees to the previous employment levels, and
    • For applicable employees, they restore employee pay to levels not less than 75% of the compensation levels at March 31, 2020 (the end of the most recent full quarter).

Bob Greene currently serves as Senior HR Industry Analyst at Ascentis. Bob’s 40 years in the human capital management industry have been spent in practitioner, consultant and vendor/partner roles. As practitioner, he managed payroll for a 5,000-person bank in New Jersey. As consultant, he spent 8 years advising customers in HRMS, and payroll and benefits system design as well as acquisition strategies. Bob also built a strategic HCM advisory practice for Xcelicor (later acquired by Deloitte Consulting.)