Treasury Issues Guidance on Review Procedures and Loan Forgiveness Regarding Paycheck Protection Program

May 28, 2020

 

On May 22nd, the Department of the Treasury issued two new interim final rules relating to the Paycheck Protection Program (“PPP”). These are the Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities and the Interim Final Rule on Loan Forgiveness.

The Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities lays out the procedures for SBA review of “any PPP loan, as the Administrator [of the SBA] deems appropriate.” The Rule also provides that a negative determination by the SBA following such a review will be appealable and states that another interim final rule will be forthcoming which will lay out the appeal process.

The Interim Final Rule on Loan Forgiveness lays out the process for forgiveness and how forgiveness amounts will be calculated by the SBA. This Rule provides important guidance on several issues.

Importantly, this Rule clarifies the effect on the amount of forgiveness available to a borrower where: (1) a borrower previously laid-off an employee, then offered to rehire the same employee for the same salary and same number of hours, but the employee declined the offer; or (2) the borrower previously reduced the hours of an employee, then offered to restore the reduction in hours, but the employee declined the offer.

The Rule provides that if an employee refuses to accept a borrower’s offer to rehire that employee, or restore a reduction of that employee’s hours, the fact that the borrower previously laid-off or reduced the hours of that employee will not reduce the amount of forgiveness the borrower is eligible for, so long as five requirements are met, which are:

  • The borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;
  • The offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;
  • The offer was rejected by such employee;
  • The borrower has maintained records documenting the offer and its rejection; and
  • The borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.

Additionally, the Rule states that the amount of loan forgiveness available to a borrower will not be reduced on account of employees who are fired for cause, voluntarily resign, or voluntarily request a schedule reduction.

Further, the Rule provides flexibility for employers applying for forgiveness by allowing them to elect to use an “alternative payroll covered period” as the period for forgiveness, which allows each employer to account for its particular payroll cycle.

The Rule also imposes a cap on the amount of loan forgiveness available for owner-employees and self-employed individuals’ own payroll compensation of the lesser of: (a) 8/52 of that individual’s 2019 compensation (approximately 15.38%); or (b) $15,385 per individual in total across all businesses.

This is only a summary of certain aspects of the two newly released Interim Final Rules. PPP borrowers who are preparing to apply for forgiveness of a PPP loan should review these two new Interim Final Rules carefully prior to submitting an application for forgiveness.

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Should you have any questions regarding the above, please contact the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.

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