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Eric, Financial Manager
Category: Finance
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Experience:  Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.
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Our company received a payroll protection program loan. We

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Our company received a payroll protection program loan. We have to spend the money in a 2 month period. Exactly how is payroll calculated for the purpose of loan forgiveness? Is it gross pay, net pay or what?

Hello and welcome to JustAnswer. There is a lot of confusion out there on how to appropriately handle the PPP money. Here are the general guidlines

The Eight-Week Coverage Period:

The amount of the PPP loan eligible for forgiveness will depend on how the borrower uses the loan proceeds during the eight-week period immediately following the borrower’s receipt of the loan. The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. Thus, borrowers should be planning ahead to maximize their loan forgiveness. The lender must make the first loan disbursement no later than 10 calendar days from the date of loan approval.

Qualifying Expenditures

The maximum amount of a PPP loan that is eligible for forgiveness is equal to the amount an employer has both incurred and spent on qualifying expenses during the eight-week coverage period, beginning on the loan origination date. Qualifying expenses include the following:

  • Payroll costs (gross), including salaries, wages and commissions (not to exceed $100,000 per employee) and certain other noncash benefits (e.g,. group health care benefits (including insurance premiums), retirement benefits, and state and local taxes assessed on employee compensation);
  • Paid sick, medical or family leave where no tax credits were taken;
  • Mortgage interest payments (but not mortgage prepayments or principal payments);
  • Rent payments;
  • Utilities payments; and
  • Interest payments on any other debt obligations that were incurred before Feb. 15.

Examples of ineligible expenses include: accounts payable, including payments made to proprietorships and independent contractors; life insurance costs; principal portions of mortgage or other debt payments; and payments of interest on other debt obligations established after Feb. 15.

Conditions for Forgiveness

Based on guidance from the CARES Act and the SBA interim final rule, there are currently three factors that may impact loan forgiveness:

  • The 75/25 Rule—At least 75% of the loan must be used for payroll costs.
  • Reduction in salary/wages—A major objective of the PPP loan program was to keep employees working. As a result, the CARES Act provides that the amount of loan forgiveness will be reduced by the amount of any reduction in total salary or wages of any employee that exceeds 25% of such employee’s total salary or wages during the most recent full quarter during which the employee was employed before the eight-week covered period. This reduction rule applies to employees who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000.
  • Reduction in FTEs—The amount of the forgivable portion of the loan will be reduced for a decrease in the number of FTEs over the covered period. FTEs for the purposes of this calculation do not include employees who earn more than $100,000 annually.
Customer: replied 3 months ago.
We will have the same number if not more employees and payroll cost. Does that mean the entire loan will be forgiven.

he amount of the Paycheck Protection Program (PPP) loan forgiveness can be up to the full principle amount of the loan, plus any accrued interest.

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