FOOD & AGRICULTURE QUARTERLY | JUNE 2020
annual salary or hourly wages of employees in order to
maximize forgiveness. Borrowers should be aware of the
June 30 safe harbor, and if either the salary reduction or
FTE reduction applies, borrowers should consider applying
for forgiveness after June 30 if they can prove that they
meet the safe harbor to avoid any reduction in their
forgiveness amount.
FTE Reduction Exceptions
There are a few exceptions to the FTE reduction
calculation. The CARES Act allows “de minimis” exceptions
to these rules. For example, the SBA has recently clarified in
PPP FAQ #40 that an employer will not have its forgiveness
reduced if it laid off an employee, then attempted to rehire
that same employee on the same terms as before, and the
employee declined the offer. In this situation, the employer
needs to make a good-faith, documented effort to rehire
the laid off employee in order for the de minimis exception
to apply. This exception for good-faith efforts to rehire is
included in the Forgiveness Application. The Forgiveness
Application also adds three new FTE reduction exceptions.
Forgiveness will not be reduced by any employees who
during the chosen covered period (a) were fired for cause,
(b) voluntarily resigned, or (c) voluntarily requested and
received a reduction of their hours. Note that a Borrower
should only include these FTE reduction exceptions on its
application if the position was not filled by a new employee.
Non-Payroll Costs Offer Limited Forgiveness
The third situation where a borrower’s expected
forgiveness amount may be reduced is if more than 25
percent of its PPP loan is used on non-payroll costs. A
business can use a PPP loan on non-payroll costs, but
in order to maximize forgiveness, only 25 percent of the
forgiveness amount can be for non-payroll costs (i.e.,
covered secured debt interest payments, covered rent
payments, and covered utilities). So, a borrower is not
required to use at least 75 percent on payroll costs, but
failing to do so will result in less than full forgiveness.
Maximizing Forgiveness
Ultimately, in order to maximize its forgiveness amount,
a borrower must comply with the spirit of the program.
As the name suggests, the Paycheck Protection Program
is meant to protect payroll. This means that a borrower
should try to maintain employee levels, keep employees
at the same pay, and spend at least 75 percent of the loan
on these payroll costs. Doing so will allow a borrower
to achieve more forgiveness of its PPP loan. A borrower
should also carefully document its spending during the
covered period and consider using a separate bank account
for its PPP loan, so that it can easily demonstrate how it
spent each dollar from its PPP loan.
CONCLUSION
Small businesses should take advantage of the Paycheck
Protection Program, if they have not already done so,
in order to keep their employees paid and hired during
this pandemic. The program is widely available to small
businesses, including agricultural businesses and farmers.
Seasonal employers should carefully review their calculation
for their maximum loan amount, and if they applied prior
to the April 30 interim final rule, they should increase their
loan amount if the third alternative criterion would give
them a higher loan. To maximize its forgiveness amount,
a borrower should carefully document how it spends
every PPP dollar and otherwise spend the money on
mostly payroll costs in order to keep its employee count
and wages at the same level as before the pandemic. If a
borrower had to lay off employees or cut salaries during
its chosen forgiveness period, then if possible, it should
rehire employees or restore salaries before the June 30 safe
harbor in order to maximize its forgiveness amount.
Jack Meadows an associate and focuses
his practice on banking, finance and real
estate. He can be reached at 614.227.2101
or [email protected]
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