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The Carrington Coleman COVID-19 Legal Resource Center is the collection of coronavirus related alerts to keep our clients apprised of potential legal issues that arise from the pandemic. If you would like to receive our alerts via email, please email us.

During this challenging and unsettling time, Carrington Coleman is here to help you and ready to respond to any legal needs you might have. Our attorneys are monitoring legislation, executive orders, and court orders that impact our clients and their legal matters. If there is a topic of interest or you have questions regarding our coronavirus related alerts, please contact one of COVID-19 response team:

David Heidenreich   Bonnie Barksdale   Lance Currie
214.855.3031   214.855.3119   214.855.3122

Additional Relief and Flexibility Provided to PPP Borrowers by the Paycheck Protection Program Flexibility Act of 2020. (Last updated June 5, 2020)
Contact Attorney: David Heidenreich

Reopening Your Business in the Age of COVID-19: A Customer-Facing Approach. (Last updated June 1, 2020)
Contact Attorneys: Monica Gaudioso, Debrán O’Neil, and Andrea Perez

SBA Releases Two Critical Interim Final Rules On: (1) Paycheck Protection Program Loan Forgiveness; And (2) Review of Forgiveness Applications by Lenders and SBA. (Last updated May 27, 2020)
Contact Attorney: David Heidenreich

The SBA Releases Paycheck Protection Program Loan Forgiveness Application (SBA Form 3508). (Last updated May 18, 2020)
Contact Attorney: David Heidenreich

SBA Issues New Rule Allowing Increased PPP Loan Amounts for Certain Partnerships and Seasonal Employers Previously Caught in Gaps of Changing Rules. (Last updated May 14, 2020)
Contact Attorney: David Heidenreich

SBA Provides Much Needed Guidance on “Necessity” Certification for PPP Loans and Impact on the Forgiveness Process. (Last updated May 13, 2020)
Contact Attorney: David Heidenreich

Federal Reserve Reworks Main Street Loan Program; SBA Promises to Audit PPP Loans in Excess of $2M Before Forgiveness is Approved. (Last updated April 30, 2020)
Contact Attorney: David Heidenreich

CARES Act 2.0 – Additional PPP and EIDL Funding and More. (Last updated April 23, 2020)
Contact Attorney: David Heidenreich

So You’ve Successfully Applied for a PPP Loan, Now What? What You Need to Know About the PPP Forgiveness Process. (Last updated April 17, 2020)
Contact Attorney: David Heidenreich

CARES Act Provides Subsidies for Loan Payment Relief on Certain SBA Loans. (Last updated April 10, 2020)
Contact Attorneys: Bonnie BarksdaleMichael Lin

“I Need a Hero” – The Fed Comes to the Rescue with an Array of Weapons Aimed at Combating Economic Impacts of COVID-19; PPP Support, Main Street Business Loans and More. (Last updated April 9, 2020)
Contact Attorney: David Heidenreich

U.S. Small Business Administration (SBA) Issues Supplemental Interim Final Rule for Affiliation Rules Applicable to Paycheck Protection Program. (Last updated April 5, 2020)
Contact Attorney: David Heidenreich

U.S. Small Business Administration (SBA) Finally Issues Much Anticipated Interim Final Rule for Paycheck Protection Program Loans. (Last updated April 3, 2020)
Contact Attorney: David Heidenreich

Department of Treasury Posts Application Form for Paycheck Protection Program Loan with More Specific Guidance on Program. (Last updated April 1, 2020)
Contact Attorney: David Heidenreich

Federal Government Rushes Through Legislation Designed to Help an Expanded Universe of Small Businesses. (Last updated March 27, 2020)
Contact Attorneys: David Heidenreich, Bonnie Barksdale, Ted Harrington

SBA Disaster Relief Loans Offer Lifeline to Small Businesses Amidst COVID-19 Uncertainty. (Last updated March 25, 2020)
Contact Attorneys: Bonnie Barksdale, Hayden Baker, Michael Lin

COVID-19: Cash Preservation Solutions. (Last updated March 19, 2020)
Contact Attorney: Bruce Hendrick

Your Contracts and COVID-19: Force Majeure and Impossibility. (Last updated March 20, 2020)
Contact Attorneys: Lance Currie, Bonnie Barksdale, Cathy Altman, Michael Lin, Joshua Kipp, David Drumm, Charles Jordan

COVID-19 Family Law Update No. 5 (Last updated April 1, 2020)
Contact Attorney: Carmen Eiker

COVID-19 Family Law Update No. 4 (Last updated March 25, 2020)
Contact Attorney: Carmen Eiker

COVID-19 Family Law Update No. 3 (Last updated March 23, 2020)
Contact Attorney: Carmen Eiker

COVID-19 Family Law Update No. 2 (Last updated March 19, 2020)
Contact Attorney: Carmen Eiker

COVID-19 Family Law Update (Last updated March 13, 2020)
Contact Attorney: Carmen Eiker


(Last updated July 6, 2020)

The CARES Act established the Coronavirus Relief Fund (“CRF”) to make payments for specified uses to states and local governments. CRF is a relief (not stimulus) program designed to mitigate the impact of the COVID-19 crisis. Texas was allocated $11.24 billion of CRF funds- the US Treasury disbursed $3.2 billion directly to 18 Texas local governments (those with over 500,000 residents), and the remaining $8.04 billion will be distributed from the state to the local governments that did not receive direct disbursements.
Subject to the CRF compliance rules, Texas local governments have broad discretion on how to deploy the CRF funds within their communities. Pursuant to various governmental economic development programs, a significant portion of the CRF funds are being distributed as economic aid to (1) small businesses suffering business interruption losses caused by COVID-19 and (2) households suffering job and income losses caused by COVID-19 for housing and food relief.

Grants to households (i.e., individuals) are taxed differently than grants to small businesses. As explained below, need-based grants to households likely fall under the general welfare exclusion, and are therefore not taxable, whereas grants to small businesses are likely not covered by this exclusion, and would be taxable.

Household Grants

Taxpayers are taxed on their gross income, which is defined as “all income from whatever source derived.” However, there are several exclusions from that statutory rule, and the IRS has long recognized a non-statutory exclusion to that rule, i.e., the general welfare exclusion.

The general welfare exclusion exempts from the recipient’s taxable income payments by governmental units under legislatively provided social programs that promote the general welfare. To qualify, the payments must (1) be made from a government fund, (2) be made for the promotion of general welfare (generally based upon individual or family needs), and (3) not represent compensation for services rendered.

Need-based grants to households are likely excluded from taxable income under the general welfare exclusion. However, there are other possible exclusions for the grant, including characterizing it as a gift under Section 102 of the Code, as a qualified disaster relief payment under Section 139 of the Code, or as a capital contribution to the business.

Small Business Grants

While grants to small businesses would appear to fit under the general welfare doctrine, the IRS has ruled that grants to a business generally do not qualify for the general welfare exclusion, because they are not based upon individual or family needs.

Congress recently changed the tax code to make clear that any contribution by a governmental entity to the corporation is taxable. Although the rule only applies to corporations, the IRS would likely treat other businesses (e.g., sole proprietorships, partnerships, LLCs and S corps) similarly.

On July 6, 2020, the IRS confirmed that the receipt of a government grant by a business generally is not excluded from the business’s gross income under the Code and therefore is taxable.

Bruce Hendrick Ted Harrington
214.855.3033 214.855.3115

(Last updated June 5, 2020)

Today, June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”) into law. The text of the Flexibility Act can be found here. As its name implies, the Flexibility Act provides much-needed flexibility to PPP borrowers.

Over the past couple of months, we have heard from numerous clients about their concerns about having to use all of their PPP funds within the limited 8-week period after their funds were received. In many cases, those clients were prohibited by government order from opening their businesses during that period – or were at least severely limited in how “open” they could be – and questioned the logic of having to pay employees to sit at home. Their concerns were amplified by the fact that unemployment benefits had been increased by an additional $600 per week payment funded by the federal government on top of the usual state benefits – boosting the unemployment benefits of some of their laid-off employees to an amount well in excess of what the employee earned previously. Of course, in many cases, this made it difficult to hire employees back once the PPP funds arrived. Congress clearly heard these concerns and others and the Flexibility Act is the result.


(1) Extension of the 8 Week Period for the Forgivable Use of PPP Funds – The 8 week “covered period” is no more – unless you still want it. The new covered period for the forgivable usage of your PPP funds begins on the date that you received your funds and extends until the earlier of: (i) the expiration of 24 weeks thereafter, or (ii) December 31, 2020. In recognition of the fact that there are some employers who will be able to fully use their PPP funds during the 8 week period established previously, Congress built in a provision that allows those employers to elect to have the 8 week period apply – if they prefer – so that they can submit their forgiveness application at an earlier date.

(2) Extension of Deadline to Rehire Employees or Restore Compensation Levels – For those employers who laid-off workers between February 15, 2020 and April 26, 2020 (30 days after the CARES Act was enacted), the “safe harbor” deadline to restore full-time equivalent (FTE) headcount and employee compensation levels was previously June 30, 2020, failing which a reduction in forgiveness for such reduced headcount and/or compensation levels would be applied. The previous June 30, 2020 deadline is now December 31, 2020. Please keep in mind that the covered period described in point (1) above still applies for forgivable fund usage, but, so long as you can properly spend all of your PPP funds within the now longer period (which should be quite easy for most employers), you won’t be required to ramp back up to your full staff and compensation levels until December 31, 2020.

(3) Relief for Employers with Trouble Rehiring Employees or Who Cannot Restore Prior Business Activity Levels Due to Health Requirements and Guidance – The Flexibility Act includes a new provision that loan forgiveness will not be impacted by a reduction in FTE headcount if either of the following apply: (i) the employer can document that they weren’t able to rehire all of their former employees and were also not able to hire similarly qualified replacement employees by December 31, 2020; or (ii) the employer can document that they were unable to return to the same level of business activity as existed before February 15, 2020 due to compliance with requirements established or guidance issued by the HHS, CDC or OSHA during the period beginning March 1, 2020 and ending December 31, 2020, related to maintenance of standards for sanitation, social distancing, etc. related to COVID-19.

(4) Relaxation of the 75% Payroll Spending Requirement – The previous requirement created by the SBA and the Department of Treasury that PPP borrowers needed to spend at least 75% of their PPP funds on payroll costs is gone and has been replaced by a 60% requirement. There is, however, one potentially significant issue that has resulted from the new language. The language now says “(t)o receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs . . .” This language creates a potential “cliff” in that it seems to say that no forgiveness will be granted if an employer doesn’t meet the 60% payroll cost threshold – unlike the previous language associated with the 75% threshold that only would have resulted in a reduction of forgiveness if the threshold wasn’t met. Members of Congress are already pointing this issue out to the SBA and seeking confirmation on whether this seemingly unintended effect can be negated through regulations to be issued by the SBA.

(5) Extension of the Payment, Interest and Fee Deferral – The previous 6 month period for deferral of payments, interest, and fees has now been replaced by a deferral of those items until the “date on which the amount of forgiveness determined under Section 1106 of the CARES Act is remitted to the lender.” This language begs the question of what happens if a borrower never applies for forgiveness. To close that loophole, the Flexibility Act includes a provision that says that if a borrower fails to apply for forgiveness of a covered loan within 10 months after the last day of the covered period described in point (1) above, such borrower shall make payments of principal, interest, and fees on the loan beginning on the day that is not earlier than 10 months after the last date of the covered period. In other words, Congress has provided a significant deferral on the payment of non-forgiven loan amounts and of interest and fees thereon.

(6) Exclusion from Payroll Tax Deferrals for PPP Borrowers is Removed – The CARES Act included a provision that allowed almost all employers to defer the employer’s portion of Social Security payroll taxes that would otherwise have been required to have been paid for the period from March 27, 2020 until December 31, 2020, until: (i) December 31, 2021 for the first 50%, and (ii) December 31, 2022 for the balance. However, the CARES Act also included an exclusion that prohibited an employer who was also a PPP borrower from benefiting from that deferral once PPP loan forgiveness was granted (amounts deferred prior to that forgiveness determination could continue to be deferred, but all amounts coming due after that date would not be able to be deferred). The Flexibility Act removes that limitation on PPP borrowers and they can now realize the full benefit of the payroll tax deferral provision regardless of when or if their PPP loan is forgiven. It is important to note that self-employed individuals can also benefit from this deferral provision by deferring 50% of their Social Security payroll tax obligations until the dates provided above.

(7) Extension of the Repayment Term for PPP Loans . . . Sort of – All of the provisions of the Flexibility Act discussed above include enacting language that makes it clear that they apply as if included in the CARES Act originally, however, the much-hyped extension of the two-year repayment term for unforgiven PPP loan amounts to a new and improved five-year repayment term isn’t what it appears to be at first glance. The five-year repayment term is only applicable to any loan made on or after the enactment of the Flexibility Act (which is today, June 5, 2020). So, the $500B+ in PPP loans previously funded are not guaranteed to have that five-year minimum repayment term. The Flexibility Act does, however, provided that nothing in the Flexibility Act will prevent lenders and borrowers from mutually agreeing to modify the maturity terms of a covered loan to the new minimum term. In other words, Congress didn’t want to pull the rug out from under lenders and force them to live with an unanticipated five-year repayment term on previously funded loans but will allow them to agree to an extended repayment term if they desire.

Final Thoughts: The Flexibility Act generally does a good job of living up to its name and is expected to be warmly received by PPP borrowers – and may even trigger additional demand for the remaining $100B+ in allocated PPP funds that haven’t yet been funded. If you are one of those employers who have been sitting on the sideline on account of the previous constraints of the program, you may wish to give the PPP another look. For those who have already received their PPP loans, be prepared for additional regulations that will comport the program as previously applied to the new legislation. Among other things, these changes will include revisions to the forgiveness application.

David Heidenreich

(Last updated May 27, 2020)

As a follow-up to its release of the PPP Forgiveness Application (see our previous Client Alert on the application found here), late on Friday, May 22, 2020, the SBA released the following two Interim Final Rules (IFRs): (1) Paycheck Protection Program – Requirements – Loan Forgiveness (which can be found here); and (2) Paycheck Protection Program – SBA Loan Review Procedures and Related Borrower and Lender Responsibilities (which can be found here).  These IFRs include a wealth of useful guidance and should be carefully consulted by PPP borrowers.

As a number of the details in the IFR on Loan Forgiveness are also discussed in our Client Alert on the PPP Forgiveness Application linked above, I will not reiterate all of those details here.  Rather, I will focus this alert on new information and clarifications.

Here are the highlights from the referenced IFRs:


(1)  Payments to Furloughed Employees – In response to the confusion of many employers who furloughed employees (whether in response to government-mandated business closures or otherwise), the SBA makes clear that salary, wages, and commissions paid to furloughed employees during the covered 8 week period are eligible for forgiveness. We have heard of some employers only paying employees for work that the employees are actually able to do – to be clear, this is not the intent of the Paycheck Protection Program.  The primary intent of your PPP loan is to keep your employees on the payroll regardless of whether they are actually able to perform work functions during the 8 week covered period.  Employers who do not keep employees on the payroll for the covered period will either not be eligible for forgiveness or will only be eligible for partial forgiveness consistent with the forgiveness reduction provisions discussed in previous client alerts.

(2)  Bonuses and Hazard Pay – The SBA has determined that, if an employee’s total compensation does not exceed $100,000 on an annualized basis, the payment of hazard pay and bonuses to the employee is eligible for loan forgiveness as a supplement to salary or wages.

(3)  Caps on Loan Forgiveness for Owner-Employees and Self-Employed Individuals – The amount of PPP loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of: (i) 8/52 of 2019 compensation (i.e. approximately 15.38% of 2019 compensation); or (ii) $15,385 per individual in total across all businesses receiving a PPP loan. Please refer to the IFR on Loan Forgiveness (Section III.3.c.) for specific details on the caps for (a) owner-employees; (b) Schedule C filers; and (c) general partners.  Of note, the SBA has determined that no additional forgiveness will be 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 the net self-employment income of such individuals.

(4)  Employees who Refuse Reemployment Offers – The SBA previously indicated that an employer’s loan forgiveness amount would not be reduced for an employee who was laid-off or who had his/her hours reduced during the period between February 15, 2020 and April 26, 2020, and who refused a re-employment offer made once the applicable employer received its PPP loan funds. The SBA has clarified the requirements for such exception as follows (including the critical change highlighted below):

a.   The borrower must have made a good faith, written offer to rehire such employee during the covered period (or alternative payroll covered period, as applicable);

b.   The offer to the employee must be for the same salary or wages and the same number of hours as earned by the employee during the last pay period prior to the separation or reduction in hours;

c.   The offer was rejected by the employee;

d.   The borrower has maintained a written record documenting the offer and its rejection; and

e.   The borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of re-employment within 30 days of the employee’s rejection of the offer.


(1)  Timing for Forgiveness Process – Once you submit your PPP Forgiveness Application (Form 3508) and all required documentation, your lender will have 60 days to review your application package and provide a determination on forgiveness to the SBA. If your lender has recommended the forgiveness of all or a portion of your SBA loan, the SBA will have 90 days after receipt of your lender’s forgiveness determination to remit the appropriate forgiveness amount to your lender (subject to the outcome of any internal review by the SBA of your application).

(2)  Lender Review Responsibilities – Your lender will be responsible to confirm the following to the SBA in connection with its forgiveness determination for your loan: (i) receipt from you of the proper certifications; (ii) receipt from you of the required documents supporting your payroll and non-payroll costs for which forgiveness is sought; (iii) your forgiveness application calculations; and (iv) compliance by you with the 75% rule (requiring you to spend 75% of your loan proceeds on payroll costs).

(3)  Forgiveness Determination – Following your lender’s review of your forgiveness application, your lender may recommend the following to the SBA: (i) forgiveness (in whole or in part); (ii) denial; or (iii) denial without prejudice (which means that you will have the chance to request reconsideration – perhaps after the submission of additional needed information). If your lender determines that you are not entitled to forgiveness in any amount, your lender must provide that determination to the SBA together with the reason for its denial and all documents submitted as part of your forgiveness application.  Furthermore, in such case your lender must provide you with notice of such denial determination.  The SBA reserves the right to review your lender’s determination.  Additionally, if your forgiveness application has been denied, then, within 30 days after you receive notice of your lender’s denial determination, you will have the right to request that the SBA review your lender’s decision.

(4)  SBA Review Right; Notice to Borrower – The SBA made it clear that it has the right to review any PPP loan. If the SBA undertakes a review of your loan forgiveness application, the SBA will notify your lender in writing and your lender is responsible to advise you of such review by the SBA within 5 business days after the lender receives notice of such review from the SBA.  As established in prior client alerts, the SBA will pay special attention to PPP loans for borrowers who (when considered with their affiliates) received loans in excess of $2,000,000, but this does not mean that the SBA cannot also review PPP loans for lesser amounts.

(5)  Document Retention Requirements – The SBA reiterated the obligation on borrowers to retain PPP related documents (including loan applications, forgiveness applications and supporting documents) in their files for a period of 6 years.

(6)  Outcome of SBA Review – If your PPP loan is determined to be an ineligible loan, the SBA may: (i) direct your lender to not forgive the loan; (ii) require prompt repayment; and/or (iii) pursue other available remedies. As indicated in previous client alerts, the SBA in previous guidance has indicated its intent to simply require prompt repayment of loans determined to be ineligible and that, if such ineligible loans are promptly repaid, the SBA will not make any referrals to other government agencies for enforcement.

(7)  Borrower Right to Respond to SBA Questions; Borrower Right to Appeal – If your forgiveness application is reviewed by the SBA, the SBA will provide you with the opportunity to respond to any questions that they have. This process will largely take place through your lender, but may also be addressed directly with you by the SBA.  If your forgiveness application is denied in whole or in part, the SBA indicates that you will have a right to appeal that decision.  The SBA intends to issue a future IFR outlining the forgiveness appeal process.

(8)  Notification of Forgiveness Determination – If your forgiveness application is approved, your lender will notify you of the forgiveness amount.  If the forgiveness is partial (and your PPP loan was not otherwise determined to be an ineligible loan), you will have 2 years to repay the balance of your loan with interest at 1% per annum.

Final Recommendations:  We recommend that you become familiar with the details of the various Q&A sections of the IFR on Loan Forgiveness as there is a great amount of detail provided in that IFR.  Also, as the forgiveness application is the beginning of a process that could take almost 5 months before a borrower receives confirmation of forgiveness (initial 60-day lender review period plus the 90 day SBA review period), we strongly recommend that each borrower commence now to prepare the information necessary to submit its application for forgiveness and that such application be filed with the applicable lender promptly following completion of the applicable 8 week covered period.

David Heidenreich

(Last updated May 18, 2020)

With little to no fanfare, the SBA released the PPP Forgiveness Application late on Friday, May 15, 2020.  Known as SBA Form 3508, the Application can be found here.

The Application reads a bit like a simplified tax return and is comprised of the following sections:  (i) Application Instructions (pages 1-2); (ii) the PPP Loan Forgiveness Form (pages 3-4); (iii) PPP Schedule A Instructions (page 5); (iv) PPP Schedule A (page 6); (v) PPP Schedule A Worksheet (pages 7-9); (vi) List of Required Documents (page 10); and (vii) PPP Borrower Demographic Information Form (Optional) (page 11).

The Application makes clear that each borrower seeking forgiveness must submit both the PPP Loan Forgiveness Form (the “Forgiveness Form”) and the PPP Schedule A (“Schedule A”), together with all required supporting documentation, to the lender who issued the applicable PPP loan.

Here are some highlights for the (i) Forgiveness Form, (ii) Schedule A and (iii) List of Required Documents:


(1) Covered Period – Confirmed to be 8 weeks (56 days). The first day of the Covered Period for a borrower is the date on which the borrower received its loan proceeds.

(2) Alternative Payroll Covered Period – Borrowers with a biweekly or more frequent payroll schedule may elect to start their 56 day covered period on the first day of their first pay period following the disbursement of their loan.

(3) Loans over $2M – Borrowers who, in the aggregate with their affiliates (to the extent affiliate aggregation is required under the SBA’s interim final rule on affiliates found here), have PPP loans in excess of $2M must check the indicated box. This will clearly signal which Applications need further review by the SBA to confirm appropriateness of the “necessity” certification.

(4) Eligible Payroll Costs – The Forgiveness Form clarifies that a borrower must have either “incurred” or “paid” the eligible payroll costs during the applicable of the Covered Period or the Alternative Payroll Covered Period (See the instructions for Line 1 of the Forgiveness Form). So, for example, if your loan was disbursed on April 15 and your first payroll date after loan disbursement was on the same date (for wages owed for the immediately prior period), you can include that payroll in your forgiveness calculations even though that payroll amount was “incurred” by the borrower (earned by the employees) prior to the loan disbursement date.  This helps to clarify the uncertainty that was created on account of loan disbursements occurring out of cycle with employer payroll periods.  Furthermore, payroll costs “incurred” but not paid towards the end of the Covered Period (or Alternative Payroll Covered Period, as applicable) are eligible for forgiveness if paid on or before the next occurring regular payroll date after the completion of the Covered Period (or Alternative Payroll Covered Period, as applicable).  This provides comfort to employers that they won’t have to run a special payroll to “sneak it in” just before the 8 week period expires.

(5) 75% Requirement – The SBA is sticking with the requirement that 75% of the amount forgiven must be for payroll costs and that “eligible nonpayroll costs” cannot exceed 25% of the total forgiveness amount.

(6) Additional Certifications – As expected, additional certifications are included in the Forgiveness Form, including certifications on (i) the details on the forgiveness amount requested; (ii) understanding of penalties for knowingly using PPP funds for unauthorized purposes; (iii) verification by the borrower of payments for eligible payroll and non-payroll costs; (iv) submittal of required documentation; (v) submittal being true and correct; (vi) tax documents submitted are consistent with IRS submissions; and (vii) understanding that the SBA may request additional information.


(1) Cash Compensation – The amount of forgiveness requested for each employee may not include cash compensation of more than $15,385 for the Covered Period (or Alternative Payroll Covered Period, as applicable). This is simply the application of the $100,000 annualized cap per employee applied to the applicable 8 week (56 day) period.  Please note that other non-cash payroll amounts (such as payments for qualifying benefits) are allowed to cause the total forgiveness requested for an individual employee to be over this amount.

(2) Full-Time Equivalent (FTE) Reduction in Forgiveness – The SBA confirmed that – as we suspected in a previous Client Alert – full-time equivalency should be calculated based on the traditional 40-hour workweek (not the 30-hour workweek introduced by the Affordable Care Act (a.k.a. Obamacare)). The comparison of FTE before the PPP loan and during the Covered Period (or Alternative Payroll Covered Period, as applicable) will be used to determine whether a reduction in forgiveness is warranted due to a decline in FTE employees.  There is an exception to the FTE reduction standard if an employer offered – in writing – to rehire an employee in good faith and the applicable employee either rejects such offer of re-employment or such employee (i) was fired for cause, (ii) voluntarily resigned, or (iii) voluntarily requested and received a reduction of their hours, in each case during the Covered Period (or Alternative Payroll Covered Period, as applicable).

(3) FTE Reduction Safe Harbor – The SBA reiterated the “safe harbor” for borrowers who reduced FTE levels in the period beginning February 15, 2020 and ending April 26, 2020, but who, not later than June 30, 2020, restored their FTE levels to the same level as existed during the pay period that included February 15, 2020.

(4) Reduction in Forgiveness for Decline in an Employee’s Salary or Hourly Wage – As the CARES Act and subsequent guidance confirmed, there will be a reduction in allowed forgiveness where an employee’s salary/hourly wage was reduced by more than 25% during the Covered Period (or Alternative Payroll Covered Period, as applicable).


(1) Payroll Records – Required payroll records include:

a. Bank account statements or 3rd party payroll service provider reports;

b. Tax forms (or equivalent 3rd party payroll service provide reports) confirming: (i) payroll tax filings reported (or that will be reported) to the IRS, and (ii) State quarterly business and individual employee wage reporting and unemployment insurance tax filings;

c. Payment receipts, cancelled checks, or account statements documenting employer contributions to employee health insurance and retirement plans included in the forgiveness amount.

(2) FTE – Required FTE records include documentation showing, as applicable:

a. Average FTE employees on payroll per month between February 15, 2019 and June 30, 2019; or

b. Average FTE employees on payroll per month between January 1, 2020 and February 29, 2020; or

c. If elected by seasonal employers, the average FTE on payroll per month for any consecutive 12-week period between May 1, 2019 and September 15, 2019.

(3) Non-payroll Records – To the extent that forgiveness is requested for eligible non-payroll amounts, required non-payroll records include documentation verifying the existence (prior to February 15, 2020) of: (i) business mortgage interest payments; (ii) business rent or lease payments; and (iii) business utility payments.

(4) Documents Required to be Maintained, but not Submitted with the Application –

a. PPP Schedule A Worksheet (or its equivalent) and supporting documentation including: (i) listing of each individual employee, including the salary/hourly wage reduction calculations if applicable; (ii) listing of each individual employee that received annualized compensation of more than $100K; (iii) documentation identifying any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by employees for a reduction in work schedule; and (iv) documentation supporting the details of the FTE Reduction Safe Harbor claim by the borrower.

b. All records relating to the borrower’s PPP loan, including documentation submitted with the loan application, documentation supporting certifications as to the necessity of the loan request and eligibility for a PPP loan, documentation supporting the forgiveness application, and documentation supporting the borrower’s material compliance with PPP requirements.

The documentation listed under this item (4) must be retained by the borrower for 6 years after the date the loan is forgiven or repaid in full, and the borrower must permit authorized representatives of the SBA to access such files upon request.

Final Recommendation:  As recommended in previous Client Alerts, as we expect that lenders will quickly be overwhelmed with forgiveness applications, we strongly recommend that each borrower commence now to prepare the information necessary to submit its application for forgiveness and that such application be filed with the applicable lender promptly following completion of the applicable 8 week “Covered Period.”

David Heidenreich