Treasury and the SBA have been quite busy since the passage of H.R. 7010. They have issued an updated Loan Forgiveness application, a new “EZ” application, instructions for both, and three more Interim Final Rules.
The Good News
With the extension of the covered period to 24-weeks, the cash compensation eligible for loan forgiveness is now capped at $46,153 per employee. This is significant because many borrowers will now be able to approach full loan forgiveness without having met one of the FTE Safe Harbors.
More Good News
The new, lower, 60% payroll cost standard is not an all or nothing proposition. If you fall short of the 60% goal, your loan forgiveness will be reduced proportionately, just as it was under the old 75% standard.
Even with the lower payroll cost standard, there has been no adjustment to the paid or incurred rules. You still can’t prepay interest. And, it appears that you may still prepay rent, up to the 40% non payroll cost limit.
The Bad News
There is a new requirement for both of the Rehire Safe Harbors. If you have a reduction in either pay rates or FTEs and later eliminate those reductions, you must maintain the restored pay rates and FTEs through the earlier of 12/31/2020 or the date that you apply for loan forgiveness. This makes the Safe Harbors much more difficult to satisfy.
H.R. 7010 created new safe harbors. One safe harbor, the inability to rehire or replace employees by 12/31/2020, is apparently only available if you use the “EZ” version of the loan forgiveness application. Use of this “EZ” version also requires that you did not reduce pay rates by more than 25%.
Oh, What a Surprise. Not!
Owners and owner-employees continue to be disfavored when calculating loan forgiveness. If you elect an 8-week covered period, the $15,385 limit still applies to each owner or owner-employee. And, if you elect a 24-week covered period, you are limited to the amount included in the original loan amount for each owner or owner-employee. This is likely to be $20,833, which is annual compensation of $100,000 over 2.5 months. This is less than half of the amount that you can include in your loan forgiveness calculations for a non-owner employee.
While the 24-week covered period will probably result in greater loan forgiveness, it requires you to plan carefully and also comes with the cost of additional data gathering and reporting. If you would like assistance, please contact one of your team members here at LSL.
We will keep you posted if we receive any additional significant guidance from Treasury and the SBA.