A month has passed since the Paycheck Protection Program was rolled out on April 3rd to small businesses, and a week later to self-employed and independent contract workers.  On March 31st, the Treasury Department issued a one pager on the loans:

Top-line overview of PPP (3/31/2020)

The final application forms for borrowers and lenders were issued the evening of April 2nd, mere hours before the SBA opened their E-Tran system for submissions.  This resulted in many business owners, advisors and lenders operating in the dark on how to complete the applications and loan files within the vague guidelines of the CARES Act and interim final rules provided by the Treasury the same evening.

By April 16th, the $350 billion dollars allocated to the program were spoken for.  After an intense backlash towards the national lending institutions showing favorable treatment to preferred customers and public companies receiving substantial PPP loans, Congress went back to the well for an additional $310 billion for the program and the Treasury/SBA began re-writing the rules.

Additional interim final rules were issued on April 14th, April 24th, April 27th, April 28th and April 30th alongside an FAQ resource that has been updated 13 times with answers to 42 questions:

Paycheck Protection Program Frequently Asked Questions (as of 5/3/2020)

Our professionals have been advising on the program since inception, working with community lenders to educate and assist our clients on the program criteria and facilitate the application process.  Over this time, many questions were left unanswered due to a lack of authoritative guidance on the swift rollout of the program.  We understand this has led to confusion and frustration for individuals that are facing important business decisions.  The American Institute of Certified Public Accountants (AICPA) and various other professional organizations have and continue to actively lobby for clear, final guidance on the rules for forgiveness as well as easing restrictions to align with the spirit of the program — supporting small businesses and their employees.

As the focus of borrowers shifts towards loan forgiveness, we want to provide valuable resources and guidance to serve our client base the best way possible.  Our team is developing a tool to help track and account for the use of PPP funds that will be released when final forgiveness rules are available.  In the meantime, here are some tips and interpretations from our team to help you prepare for the weeks ahead.



  1. Segregate PPP proceeds from operational accounts

Applying for forgiveness of loan proceeds after the covered period (8 weeks from the date you receive the PPP funds) will involve a detailed record of how the dollars were spent.  A separate account will assist the borrower in producing an easy audit trail of funds to the lender.

  1. For businesses that utilize a payroll processor, request headcount and/or FTE reports for periods from 2/15/2019-6/30/2019 and 1/1/2020-2/29/2020.

Loan forgiveness will be affected by a reduction in workforce over the covered period compared to the periods above.  Our interpretation is that you can choose either of the periods above as the denominator, unless you are a seasonal business, in which you are advised to use 2/15/2019-6/30/2019 as the comparable period.  Please note this is an interpretation of the CARES Act language, and we expect final guidance to provide a clear conclusion.  Most payroll processors have advertised the ability to provide these reports.  Request these now so that you have an idea of how your current workforce compares to these periods.

  1. Document the status of your workforce on the date you receive your PPP funds

Maintain a file of employee status throughout the covered period — but start with where your workforce is now.  Document recent furloughs, layoffs, reduction in hours or reduction in pay.  Although cumbersome, this analysis will assist you in making pressing business decisions and provide you thoughtful records for your forgiveness application.

  1. Maintain payroll records, payroll tax filings & invoices of covered expenses

The interim final rules have hinted that these will need to be presented to the lender during the forgiveness process.  Having supporting documentation that ties to the use of funds will result in a seamless trail of evidence.

NOTE: Payroll costs used to calculate forgiveness are defined the same as payroll costs used to calculate the initial PPP loan.  Your payroll costs may not “tie” to the actual dollars paid to employees.  For example, there are cash disbursements for the net employee payroll and gross taxes (employer and employee share).  Eligible payroll costs do not include the employer portion of the payroll taxes.  A quick reconciliation of payroll runs during the covered period to “gross” payroll costs will track your true progress towards forgivable funds usage.

  1. EIDL Grants – communicate with your lender if you received one after applying

Any EIDL advanced grants will reduce your forgiveness amount on a PPP loan.  If you received funds from the SBA, communicate this with your lender so they are aware you are in possession of additional government assistance that is not required to be paid back.  We are unsure how a lender would become aware of EIDL grants received outside of the PPP process, but it is our interpretation that your full forgiveness could be at risk if you do not report receipt of EIDL funds.



Below is a collection of common concerns we have encountered while serving our clients and consulting with other professional service firms.  We hope our commentary and interpretations can assist you until definitive answers are provided.

  1. Employees are receiving benefits from the enhanced unemployment programs that are in excess of what they were earning before the pandemic.

In some situations, employees are unwilling to return to work due to the windfall of pandemic unemployment assistance.  On May 3, the Treasury addressed this issue in FAQ #40.  “(we) intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation.”  Please note that an offer to rehire must be in writing, and any rejection of employment must be documented by the borrower.

MKS Comments: We are pleased this has been addressed.  However, business owners must understand that an employee who rejects an employment offer will no longer be lawfully eligible for unemployment.  If employees are unwilling to accept their previous job back, the borrower will not be subject to forgiveness reduction for this individual.

  1. Is hiring additional employees to increase headcount for the covered period acceptable?

MKS Comments: Our team does not believe the guidance available prevents an employer from hiring additional staff.  There does not appear to be an issue with replacing an employee in the normal course of business with one that was previously on the payroll.  However, the borrower applying for the loan certified that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” which may seem less certain if the borrower has the ability to hire additional staff.

  1. How is a “Full-Time-Equivalent” (FTE) Employee defined?

The CARES Act Section 2301 defines a full-time employee by referencing IRC Section 4980H.  An FTE is any employee who works an average of 30 hours a week.  For employees that do not meet this threshold, employers may add the hours of part-time employees on a monthly basis and divide by 120 (i.e. 30 hours x 4 weeks).

MKS Comments: Although FTEs are not clearly defined, the reference to the Internal Revenue Code makes the calculation below a comfortable interpretation.  To calculate your FTE count for loan forgiveness, consider all employees who work 30 hours or move on average as “1”.  Then add all part-time employee hours on average over the month and divide by 120.

  1. Are payroll costs based on an accrual or cash basis over the covered period?

MKS Comments: We believe the amount of expenses on a cash basis over the covered period is the most desirable method (as this aligns with the actual use of PPP funds), but there is no definitive guidance on this issue.

  1. Is the deferral of payroll taxes allowed if a PPP loan is obtained?

Section 2302 of the CARES Act provides that employers may defer the deposit and payment of the employer’s portion of Social Security taxes beginning March 27, 2020 through December 31, 2020.

MKS Comments: In an FAQ issued by the IRS on April 16th, deferral of the employer’s portion of Social Security taxes may be deferred by a recipient of a PPP loan through the date the lender issues a decision to forgive the loan.  After any forgiveness determination, employers must cease further deferrals of these taxes, and any amounts deferred up to the date of forgiveness will be due 50% at the end of 2021 and 50% at the end of 2020.

  1. Is it acceptable to increase an employee’s compensation or to issue bonuses/commissions (up to the $100,000 annualized threshold)?

Per the SBA, compensation in the form of wages, salaries, bonuses, tips or commissions is limited to 8/52 of $100,000 over the covered period, per employee.

MKS Comments: The maximum amount of forgivable compensation per employee during the covered 8 weeks is $15,385.  Some employees may not reach this level of compensation over the 8 weeks.  It is our interpretation that no authoritative guidance forbids the increase in compensation or hours worked.  This may be a strategy for those borrowers that find it difficult to utilize at least 75% of the loan proceeds on payroll costs.  We have noticed discussions around adding family members to the payroll to assist in business operations during periods of disruption.  We would consider adding relatives or friends to the payroll that were not on any previous payroll records to be an aggressive strategy.

  1. Can an employer take advantage of both the Employee Retention Credit and the PPP loan?

MKS: Per the IRS FAQ issued April 29th, employers who receive PPP loans are ineligible for the Employee Retention Credit.

  1. Is it possible to return unused PPP funds? If so, how will this affect forgiveness?

MKS Comments: In recent discussions with lenders in the community, they are unsure what to do with returned PPP funds.  We expect further clarity on this issue.  In addition, we would hope that forgiveness would be determined based on the dollars spent vs. the initial PPP loan amount, but we are unable to definitively determine this right now.  Borrowers should plan to utilize the full loan proceeds if possible.

  1. How do self-employed and independent contractors who receive PPP loans “pay” themselves?

MKS Comments: We believe these borrowers can replace their “net income” used to calculate their loan by issuing checks from the PPP funding account to themselves or the entity on the application.  The replacement income is representative of 8 weeks’ pay, and this can be done by cutting weekly, bi-weekly, or monthly checks.  We consider it aggressive to issue just one check for the full amount of the allowable loan proceeds per employee ($15,385) and recommend spacing the payments out over the covered period, if possible.  It is likely that the borrower will not be able to apply for forgiveness early should the funds be exhausted before the 8 weeks are up.

  1. A PPP loan for a self-employed or independent contractor that had 2019 Schedule C income of at least $100,000 would amount to at least $20,833. If payroll costs per employee are capped at $15,385, and covered expenses are used for the remaining funds, only 73.8% of the loan proceeds are used on payroll.  Full forgiveness cannot be achieved.  How will this work?

MKS Comments: The “8/52” rule has been heavily criticized amongst the professional services industry, given the obvious issue here.  We expect this to be rectified by the SBA/Treasury, especially considering many of these borrowers may not have additional covered expenses to use up the entirety of the loan proceeds during the covered period.

  1. Are expenses paid with PPP funds deductible for tax purposes?

On April 30th, the IRS issued Notice 2020-32 which states that otherwise deductible expenses that are paid with PPP funds and forgiven may not be deducted for federal income tax purposes.

MKS Comments: The IRS is clearly trying to prevent a double benefit for taxpayers when the debt forgiveness is already considered tax-free.  Take this with a grain of salt for now – House Ways and Means Committee Chair Richard E. Neal announced a few days later that “(Congress) we are planning to fix this in the next response legislation.”

  1. As long as a borrower hires back all employees at full pay by June 30, 2020 will the loan be forgiven?

“Reductions in employment or salary that occur between Feb. 15, 2020 and April 26, 2020 can be “cured” and will not reduce the amount of loan forgiveness if, by June 30, 2020, the borrower eliminates the reduction in employees or the reduction in wages.”

MKS Comments: This language from the CARES Act raises a few questions from our team.  How does this interact with the forgiveness requirement to maintain headcount for the covered period?  If the covered period ends before June 30th, does the borrower have to wait until after this date to apply for forgiveness?  We believe building a business strategy around this language would be aggressive without further clarification from the SBA/Treasury.

  1. Once the PPP proceeds are exhausted and my operations are unable to support payroll costs or employee headcount, will employees be eligible to receive unemployment benefits?

MKS Comments: We believe that an individual is eligible for enhanced unemployment assistance for any week that they are experiencing reduced hours or wages (before or after the covered period of a PPP loan).  The benefits are requested each week and the applicant will need to certify the hours worked and income earned on a weekly basis.  The PPP proceeds should not interact negatively with the unemployment benefits as long as the applicant is truthful in their request for benefits.

  1. Numerous news outlets and statements from the Treasury have suggested returning the funds if applying for the PPP loan was not necessary to continue ongoing operations.

Per an NBC news article on April 28th, “Treasury Secretary Steven Mnuchin warned companies last week that they could suffer consequences if they could not certify that they were facing economic injury. Companies have until May 7 to return funds “in good faith.”  Mnuchin said companies receiving loans over $2 million would be audited, and he warned of potential criminal liability.”

MKS Comments: We advise all business owners that received PPP funds to evaluate and document their need for the loan.  It is clear that any borrower with access to public markets or private capital should return the proceeds by May 7th.  However, we continue to believe in the spirit of the program, “to assist small businesses across America who wish to maintain their workforce and have the liquidity to continue operations in the future.”  Any loans over $2 million will be audited by the SBA, and potentially other loans as well.  The decision to return the PPP loan is at the borrower’s discretion. However, we believe the harsh statements from the authorities are directed towards the large and/or publicly traded organizations receiving PPP loans.

EDIT: As of 6:00 p.m. on May 5th, the Treasury issued a statement extending the safe harbor date that PPP loans may be returned from May 7th to May 14th.

EDIT: On the evening of May 13th, the Treasury again issued guidance extending the safe harbor date that PPP loans may be returned from May 14th to May 18th.