How to Determine PPP Forgiveness Eligibility

June 16, 2020

Loans through the Paycheck Protection Program (PPP) will be fully forgiven if the funds are used for certain business costs. At least 60 percent of the forgiven amount must have been used for payroll (This includes health care, retirement, etc.). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

Loans issued prior to June 5 have a maturity of two years. Loans issued after June 5 have a maturity of five years. All loans have an interest rate of 1%.

PPP loans allow companies with 500 employees or less to borrow up to 2.5 times their average monthly payroll.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease.

Eligible Spending

Businesses can use funds from the Program loans to cover expenses including:

  • Payroll costs, including compensation to employees
  • Payments for vacation, parental, family, medical or sick leave
  • Severance payments
  • Payments required for group healthcare benefits (including insurance premiums), retirement benefits, and state and local employment taxes
  • Interest payments on any mortgage obligations or other debt obligations incurred before February 15, 2020 (but not any payments or prepayments of principal)
  • Rent
  • Utilities

Things Money Can’t Be Used For

  • Compensation of individual employees, independent contractors or sole proprietors in excess of an annualized salary of $100,000
  • Compensation of employees with a principal place of residence outside the United States
  • Leave wages already covered by the Families First Coronavirus Response Act.

Reductions to Loan Forgiveness

Loan forgiveness may be reduced if the average weekly number of full-time equivalent (FTE) employees is reduced, or salaries and wages are cut by more than 25% for any employee who made less than $100,000 annualized in 2019.

  • Reductions inFTE: Reduction in number of full time equivalent employees (FTEs) during covered period after origination of loan.
    • Period for calculating FTEs is average number from either (A) February 15, 2019 to June 30, 2019 or (B) January 1, 2020 to February 29, 2020.
    • Number of FTEs determined by calculating average number of FTEs for each pay period falling within a month.
  • Reductions in Payroll: Reduction in pay of any employee making less than $100,000 by more than 25% compared to last complete calendar quarter.
    • No limit to amount of reduction in pay of employees who make over $100,000.

Repairing Reductions in Payroll

There is no penalty for salary reductions from Feb. 15, 2020 to April 26, 2020 if salaries are restored to original amount by Dec. 31, 2020 (per Paycheck Protection Program Flexibility Act (PPPFA).

  • Example: On Feb. 15, 2020, Company A decreased the salaries of employees making $75,000 to $50,000. If Company A increases the salaries of those employees back to $75,000 by December 31, 2020, there will be no penalty regarding the amount of loan forgiveness.

It’s important to keep in mind that this possible reduction in loan forgiveness applies only to employees who make less than $100,000 per year.

A company is still eligible for forgiveness if it tried to rehire people who were furloughed and couldn’t be replaced. Yes. If you have documentation that any furloughed worker did not accept an offer to be rehired and you can demonstrate that you were unable to hire a similarly qualified employee for the unfilled position on or before Dec. 31, or that your business was unable to return to a level of business activity you achieved before Feb. 15, this requirement will be exempted from your forgiveness application.

In order to prove this, ensure every step of the offer to rehire a furloughed worker is documented and that your business made a good faith effort to fill the position, if you were able to do so under CDC and OSHA guidelines.

Additionally, businesses do not have to rehire the same worker to be eligible for forgiveness. No. The application requires comparing your FTE headcount on February 15 with the headcount during the period chosen on your PPP Schedule A form on line 11.

Additional Information


Contact ALTA at 202-296-3671 or communications@alta.org.

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