Reductions in Forgiveness Due to Reductions in Employees or Reductions in Salary or Wages

The total amount of your loan that may otherwise be forgiven may be reduced if you have a Reduction in Employees or Reduction in Salary or Wages, each as further described below, during the period beginning on February 15, 2020 and ending on April 26, 2020. This is in effect a penalty in that it may reduce your forgiveness amount beyond the reduction you might already incur if your monthly payroll costs for the 8 weeks after the date your loan is disbursed are less than the amount used to calculate your eligible loan amount.  

Note: The SBA has not yet issued complete rules and guidance on potential reductions in forgiveness and as a result, the specific requirements described below may change.

Reduction in Employees: During the period beginning on February 15, 2020 and ending on April 26, 2020, was there a reduction, as compared to February 15, 2020, in your Full-Time Equivalent employees (“FTE’s”)? 

If yes, you can avoid a reduction in your loan forgiveness amount if, not later than June 30, 2020, your FTE’s are equal to or greater than the number you had on February 15, 2020. 

If the reduction in FTE’s has not been eliminated by June 30, 2020, your loan forgiveness amount may be reduced by multiplying the amount that might otherwise be eligible for forgiveness by the quotient obtained by dividing—

Regular Non-Seasonal Employers: The average number of FTE’s per month employed during the 8-week period from the date of the first disbursement of your loan, by one of the following:

  • The average number of FTE’s per month employed during the period beginning on February 15, 2019 and ending on June 30, 2019; or 
  • The average number of FTE’s per month employed during the period beginning on January 1, 2020 and ending on February 29, 2020.

Seasonal Employers: In the case of a seasonal employer, as determined by the SBA, the average number of FTE’s per month employed during the 8-week period from the date of the first disbursement of your loan, by the average number of FTE’s per month employed during the period beginning on February 15, 2019 and ending on June 30, 2019.

The average number of full-time equivalent employees shall be determined by calculating the average number of full-time equivalent employees for each pay period falling within a month.

Reduction in Salary or Wages: During the period beginning on February 15, 2020 and ending on April 26, 2020, was there a reduction in in the salary or wages of one or more employees? 

If yes, you can avoid a reduction in your loan forgiveness amount if, not later than June 30, 2020, the salaries or wages of such employees return to at least the amount paid as of February 15, 2020.

If the reduction in salary or wages has not been eliminated, then your loan forgiveness amount may be reduced by the amount of any reduction in total salary or wages of any employee during the period beginning on February 15, 2020 and ending on April 26, 2020, that is in excess of 25 percent of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before February 15, 2020.

Note: This reduction does not apply to any employee that, during any single pay period during 2019, had wages or salary at an annualized rate of pay in an amount more than $100,000.

 

More information on the CARES Act and the Paycheck Protection Program