Latest PPP Guidance and Market and Economic Update

Event Detail
  • Date
  • July 16, 2020
  • 2 – 2:30 p.m. CT
  • Location
  • Virtual
Woman Gesturing by Laptop
  • Rick Krueger
  • Principal

Join CLA professionals for an update on the most recent PPP guidance, a discussion around market and economic outlook, as well as tax and wealth advisory strategies. Submit your questions to — our professionals dive in to share what you need to know around these ever changing regulations.


In case you missed it:


Questions and Answers: 

The latest SBA Procedural notice says we need to submit a monthly PPP 1502 report on the 15th. Is this something different from the reports we have already submitted?

It is the same report that you used to report PPP loan originations to SBA and you keep submitting those reports until your last PPP loan is forgiven or paid back.  For most loans, they will have a status of “4” since they are deferred and I believe you use the new deferral date to indicate the next payment date vs using the previous 6 month deferral date.

When will they start taking Forgiveness applications and how do we submit them?

We’re all still awaiting guidance from SBA on timing and submission processes for PPP forgiveness applications received from borrowers.  That fact, combined with the potential for automatic forgiveness, is why most lenders seem to be telling their borrowers they are not yet accepting forgiveness. We are hearing most banks will begin accepting applications mid to late August and expect the SBA will have their application submission portal released in a similar timeframe.

Is there any further guidance on using the 24 week coverage period and applying for forgiveness before the full 24 weeks has expired?  There was some question as to how to calculate salary reduction and employee reduction through the coverage period if you don’t actually complete the full period before applying for forgiveness.

No further guidance yet. While SBA has indicated that’s acceptable, they have not provided instructions on that yet and your question is common. Questions such as this and the possibility of automatic forgiveness of loans under a certain amount are reasons why many lenders and communicating to borrowers that they are not yet accepting applications.

PPP and FFCRA leaves. How do these programs interact? Does participation in one (PPP) limit the availability of the other?

You will not be able to get forgiveness for the same amounts that you have taken as a credit for FFCRA. It is important to properly track these expenses to avoid the risk of double dipping.

Can a company use any time frame for loan forgiveness?  Does it have to be either eight weeks or twenty-four weeks?  Can it be thirteen weeks and have the loan forgiveness calculations then be based upon that time frame?

Covered period starts the day you received loan proceeds. Assuming you received loan before June 5th you can use either an 8 week or 24 week period. However, the SBA has stated that you can file for forgiveness before the end of your 24 week covered period, so it appears that you will be able to file for forgiveness after 13 weeks. At this time we do not have guidance on how the partial period forgiveness application will work, so you’ll need to wait for guidance from Treasury on that topic.

At what point after the time frame used in calculating loan forgiveness can one reduce their work force numbers or hours?

No specific guidance is out there. If you use the 8 week period I would think there would be very little risk associated with reducing work force following the 8 week period. If you are using the 24 week period but filing for forgiveness after 13 weeks, we don’t know if there will be a requirement to look at the whole 24 week period or not, so there is some risk if you reduce work force in that scenario.

Is there a required time frame in which the banks that lent the money have to have their loan forgiveness forms ready for processing?

No, right now the banks are waiting on guidance from the SBA, so they can’t start accepting applications because they don’t have instructions on the processing they have to do or how they will transmit a completed application to the SBA. The delay is being caused by the SBA, not the banks. We are hearing the SBA may be opening their portal mid to late August.

What is the current position of CLA regarding deductibility of expenses that were the basis of the PPP Forgiveness and the taxability of the PPP loan amount that is forgiven?

Right now the position is crystal clear, the forgiveness amount is nontaxable as income and, per the IRS guidance, the expense paid using with the PPP forgiven loan are nondeductible. With that said, we are hearing that there is a high likelihood that Congress will pass future legislation to overrule the IRS guidance and allow the expenses to be deductible, but this is yet to be seen and will depend on future congressional negotiations. This change does have bi-partisan support.

We have an employee that was out due to his wife testing positive for COVID.  He was paid 80 hours under the FFCRA.  He returned to work for a few days and now he has tested positive and needs to quarantine again. Can we compensate him and turn those wages in for reimbursement from our withholding under FFCRA?

He’d be eligible for the first 80 hours of EPSL and then EFMLA provisions would kick in.

We have a monthly payroll – last business day of the month is pay day! I understand we must only use the eight week period vs. 24 week period? Is this true? Why?

You can use the 24 week period if you would like. The only thing you can’t do because you have a monthly payroll cycle is select an Alternative Payroll Covered Period, which is a period that would effectively conform your 8 or 24 week period to your payroll cycle. Since a monthly payroll will never equal 8 or 24 weeks, you can’t make that election.

We’ve had employees leave voluntarily due to change in career and/or finding jobs closer to home. How will voluntary terminations impact FTE count for forgiveness purposes?

If an employee voluntarily leaves you will not be penalized for that when you do your FTE reduction calculation using the Form 3508 PP Loan Forgiveness Application. It is unclear how to factor this into the FTE reduction calculation, but the instructions clearly indicate that there are a number of FTE reduction exceptions that won’t cause a reduction in the borrower’s forgiveness amount. We expect further guidance on how this will mechanically be reflected on the forgiveness application, but even if you don’t replace the position you should be okay and not have your forgiveness reduced.

How soon would you expect to recent SBA Forgiveness notifications after submission by the bank to the SBA? Any notifications received yet by clients?

The rules of the CARES Act state that the bank will have 60 days to review the forgiveness application submitted by the borrower and then the SBA will have 90 days to review once submitted by the bank.  However, at this point the SBA has not provided guidance to the banks on the procedures they are supposed to perform on the forgiveness applications or on how the banks can submit the reviewed applications to the SBA. This is why most banks are not accepting loan forgiveness applications at this time. I think the banks are expecting to get guidance from the SBA later this month and anticipate accepting applications in August sometime, although we have heard that a few banks have already today their customers it will likely be September before they will even start accepting loan forgiveness applications.

I appreciate Jack’s comments regarding how much payroll to include in PPP forgiveness, but it doesn’t really address the position of grant-funded nonprofits, where some payroll is covered, other isn’t.  I think I’ll be good with showing total payroll and payroll funded from PPP, but the ‘general’ advice does make me a bit nervous … or unsatisfied.

Thanks for the thoughtful question, I wish we had a firm answer for you at this point.

What I can tell you is that if you meet either of the safe harbors related to the elimination of the FTE test (i.e., no reduction in headcount or hours from 1/1/ through forgiveness filing date or unable to conduct business activity at pre-COVID levels due to CDC, HHS or OSHA guidance/requirements) then you don’t need to worry about only reporting a portion of your payroll for forgiveness because the FTE tests are not applicable.

If the FTE reduction test is applicable though, I don’t see a way based on the current mechanics of the forgiveness application to include payroll/employees in the FTE calculations on Schedule A and the Schedule A Worksheet but then exclude the compensation amount from the requested forgiveness calculation since the Schedule A information is supposed to flow directly to Form 3508. I don’t disagree that there SHOULD be a way to both demonstrate what the true FTE reduction is while also excluding certain employee compensation from the PPP forgiveness request because it is subject to reimbursement under another federal program.

I would expect that once the SBA provides further guidance on the loan forgiveness application that this question will be addressed. We will make sure to submit to the AICPA and others that are working to influence the scope of SBA guidance to emphasize the importance of clarification on this topic.

If you didn’t reduce any hourly rate or salary by 25%, does almost every person qualify for the third bullet on the EZ form?  Even you if reduced hours, but not salary or hourly rate.

I think your observation is a good one and we expect a significant number of borrowers to meet that third set of criteria and therefore be able to file for forgiveness using the 3508EZ form. I’m sure there will be further guidance on how to comply with the new safe harbor regarding being unable to conduct business activity at pre-COVID levels as either a direct or indirect result of requirements or guidance issued by CDC, HHS or OSHA. We expect that any businesses that had to close because they were deemed to be non-essential will meet this safe harbor.

I am looking to see if it's been clarified that if I can use all my funds in 10 weeks, what time period am I doing my FTE calculation?  Is it over that 10 weeks compared to the pre-COVID period or do I have to wait and do the calculation over 24 weeks, even if we didn't use funds over that whole period?

Unfortunately while the SBA has told borrowers that you will be able to file for forgiveness before the end of the 24 week period it has not issued the guidance needed to answer very basic questions like the one you are asking. It would make sense that the guidance would be that if you use the funds in 10 weeks that is also the period that you will measure your FTE tests during. However, having followed this program for the last 4 months now I have learned that not all things the SBA does make sense. We know, for instance, that if you have a wage reduction in excess of 25% that your wage reduction impact on forgiveness will be determined assuming the reduction is in place for the entire 24 week period, even if you file for forgiveness after 10 weeks. We’ll have to wait for further guidance to know the answer to your question with any certainty.

Can we choose to pick our number of weeks for PPP loan between 8 & 24 weeks - for example can we use 13 or 14 weeks?  If we have used all of our funds as of 7/15/20 - do we need to wait and submit for forgiveness as of payroll records out 24 weeks - which for us would be 10/1/20?

The guidance from the SBA does clarify that a borrower does not need to wait until the end of the 24 week period to request forgiveness for the loan, so in theory you can pick a shorter period of time that coincides with when you have used all the PPP loan proceeds for which you intend to request forgiveness. That being said, there has been no guidance issued by the SBA on how to request forgiveness if you would like to use a period shorter than the entire 24 week period. At this point we are suggesting that borrowers wait for guidance before moving forward with forgiveness applications using a shorter period other than the original 8 week period.

We are getting ready to submit our forgiveness application for the $110K PPP funds we received in April. I see there is legislation that would make <$150K applications go to a “simple” one page form. Would you suggest waiting for this legislation, or take the time/effort to complete the current application?

We would suggest waiting at this point. If there is a blanket forgiveness for all loans under $150k the application process and the supporting documentation you will need to provide to the bank will likely be significantly reduced. At this point, because of a lack of guidance from the SBA to the banks, most banks are not currently accepting forgiveness applications anyway.

When calculating the FTE for Safe Harbor period noted Feb 15-April 26, we laid off employees during this period which is also before we were granted our loan. Do we count all FTE that worked during that period even though they did not work the entire period?

I know the FTE test and the related safe harbors can be confusing. There are essentially three FTE safe harbors.

  • The first is that you didn’t have a reduction in employees or hours between 1/1/2020 and the date you file for forgiveness.

  • The second is that you aren’t able to conduct business activity at pre-COVID levels due to compliance with requirements or guidance from CDC, HHS or OSHA. This can be either direct or indirect impact. So if your business was determined to be non-essential in your state and was shut down for some period of time this would apply to you.

  • The third safe harbor has to do with the FTE counts you are referencing. The safe harbor reads that if the company had a reduction in FTE’s during the period from 2/15 – 4/26 and eliminated that reduction prior to filing for forgiveness then the FTE reduction test will not impact your forgiveness. In order to see if you meet this safe harbor you have to complete a number of FTE calculations. The first is what were the FTE’s you had in the 2/15/2020 payroll period (let’s say 20). The next number is the FTE’s you have during the period from 2/15 – 4/26. This will determine if there was a reduction that can be eliminated to meet this safe harbor. If the average FTE’s during the 2/15 – 4/26 period were 20 or more using my example, then you can’t fall into this safe harbor and you have to do the full blown FTE calculations (assuming you don’t meet either the 1st or 2nd safe harbors noted above). However, if the FTE count during the 2/15 – 4/26 period is less than 20, say 15, then you may be able to qualify for this safe harbor. The last FTE count you need is for a pay period as of the forgiveness application date. If the FTE count is above 20 (the 2/15 FTE count), then you have demonstrated that the reduction during the 2/15 – 4/26 period was eliminated and the safe harbor applies. The applicant will also need to record the total FTE of the earlier of December 31, 2020, and the date the application is submitted.

If an employee is on STD during the FTE calculation, should they be counted?  They are still an employee, although not working.

Unfortunately, there is no guidance specifically on how employees out on STD should be handled. However, based on the other safe harbor and FTE reduction exceptions I would not expect that there would be an impact of forgiveness in the FTE reduction test due to this situation, which is beyond the control of the organization. It will obviously impact the amount of wages you are incurring, but with the extended 24 week period that should not be a problem and impact your ability to get 100% forgiveness, it may just take some planning on your part during the forgiveness application process.

The long-form of the forgiveness application does not penalize the applicant's FTE calculation for employees that leave voluntarily. The short-form does not appear to allow the same relief for voluntary leavers. Has there been any guidance on whether the short form will be changed to grant this relief?

You are correct in your observation that in order to take advantage of the FTE Reduction Exceptions a borrower must use the Form 3508 and is not able to use the Form 3508EZ. The EZ is designed solely for those borrowers that meet the various conditions or safe harbors that cause the wage rate reduction and the FTE reduction to not be applicable. Unfortunately, while a borrower might not meet the safe harbor because of certain employee matters, such as voluntary departures, that are ultimately FTE reduction exceptions and therefore won’t reduce forgiveness, currently the only way to work through the calculation to document such exceptions is on the long form. We know that there will be significant clarifications related to the 3508 and 3508EZ coming out at some point and there may be future revisions of these forms as well, but we do not have any insight at this point if this situation will be addressed.

What you missed:

Leslie Boyd: Good afternoon to our CLA family members, clients, community partners, and friends. Welcome back to our Livestream. We sincerely hope that you are continuing to stay safe and healthy at this time.

We appreciate all your questions and interaction that have come through the inbox at! The questions are wonderful and we are monitoring and responding to them daily. Please keep them coming through the session and we will address as many as we can while we’re live with you today. We also would like to direct you to our COVID-19 landing page at for up to date information about all these programs, tools, and ways to contact us for more specific consultation.

Today, we have a jam packed session. Today we have Brian Ream from CLA Wealth Advisory to give us a market and economic outlook update today for the second half of the year. Additionally, he'll answer a few questions for us about the current economic climate. In addition, Jack is here to provide an update related to last week’s Paycheck Protection Program (PPP) session and some new economic relief legislation for nonprofit organizations. Finally, we have Scott Hess back to discuss changes and pertinent items on the newly updated form 941. So – welcome to the three of you. We are thrilled to have you.

I’d like to start today with Brian and the Market and Economic Outlook information. Welcome back, Brian, why don’t you start us off with some key points that you’ll be covering today? A lot has happened, it’s been a wild year. Can you give us a recap of what we have seen so far in the market and economy?

Brian Ream: As a summary: 

  • Peak to trough decline of 35.% from February – March
  • Massive coordinated response from the Fed and global Central Banks
  • Abruptly turned off the lights on the economy, then a gradual “reopening” around Memorial Day
  • Death of George Floyd, and wave of social unrest through June
  • Covid cases spiking again, hiatus on many states “reopening”

Boyd: So where do you think we are now?

Ream: Well, we’re back to where we started on the S&P. In addition:

  • Interest rates at zero with no sign of moving higher
  • Mega-cap tech has led the way (28% of the S&P)
  • Market focusing on the vaccine
  • Federal debt and Fed balance sheet growing
  • Lack of earnings clarity remains Boyd: What do you see on the horizon for the rest of the year?

Boyd: What do you see on the horizon for the rest of the year?

Ream: A couple of things:

  • Stimulus round 2
  • Second quarter earnings are starting to be reported with clear winners and losers; is there rotation in market leadership?
  • No second wave, better analogy is a forest fire
  • Bank loan loss provisions ballooned — $28b in Q2, but so have deposits
  • Pent up consumer demand should bode well for consumer discretionary spending
  • The election

Boyd: Brian – that’s really helpful. Thank you so much for bringing us up to speed and giving us good data to use when considering investment options. I’m going to pivot our focus now to Jack Rybicki and some conversation around PPP and new legislation to provide relief for nonprofit organizations. Jack, I know we wanted to start with a quick clarification on some of what we covered last week.

Jack Rybicki: Thanks, Leslie. I’ve gotten a couple questions along the lines of the one noted from Jennifer’s client where they are not fully considering the impact associated with an eligible cost reporting strategy related to only including compensation for select employees for a portion of the period rather than all the employees for all periods included.

Here’s the answer: you only need to include the costs for the portion of the loan that you want forgiven.

So now with the 24 weeks, companies may just need to use payroll costs only to apply for the forgiveness, no utilities/loan interest.

The loan forgiveness application states that borrowers “are not required to report payments that you do not want to include in the forgiveness amount,” so it is clear that a borrower can be selective on which payroll costs to include in the amounts they are reporting with respect to being eligible for forgiveness.

However, a borrower must also realize that if they don’t use all their payroll costs, then they are going to have a higher FTE reduction quotient, because the FTE test is based on the FTEs reported during the covered period divided by the FTEs from one of two pre-COVID periods. So let’s say there are 50 admin and 100 teachers at a school in the pre-COVID setting for total FTE’s of 150. If the borrower only reported the admin salary for forgiveness they would only have 33% retention (50/150) and therefore a 67% FTE reduction quotient. The borrower would not get to pick and choose the pre-COVID FTE subset, they have to use the entire company/borrower for the denominator in the test. So, while they can possibly get 100% forgiveness by using less than all the employees for reporting purposes, they will need to take the impact of excluding some employee groups on the FTE test into consideration.

Boyd: Thanks, Jack. I think that clarification is going to be really helpful. I know we’ve got a ton more questions related to PPP coming in, but I was hoping that you could talk to me about the bill Congress just passed to support cash flow for nonprofits.

Rybicki: Last week Congress passed the “Protecting Nonprofits from Catastrophic Cash Flow Strain Act”, which I believe is still awaiting signature from the President. This bill provides relief to those nonprofits that operate as “reimbursing employers”, meaning they pay their share of unemployment taxes by reimbursing states for 100 percent of the unemployment benefits collected by their former employees. Recognizing that reimbursing employers wouldn’t be able to cover all of their unemployment costs, the CARES Act lets nonprofits reimburse only 50 percent to the states while the federal government covered the remaining 50 percent. However, the Labor Department had previously provided guidance that required nonprofits to fund 100% of the unemployment cost upfront and then get reimbursement for the 50% that would be federally funded at some point in time in the future. This policy had the potential to place a huge financial burden on nonprofits. While many individual states took action to help their nonprofit organizations by deferring the payments due for Q1 and Q2 of 2020, the response was inconsistent. The new bill, if it becomes law will overturn the Labor Department guidance and only require nonprofits to provide 50% in payments upfront, thereby reducing their cash burden by 50%.

Boyd: Thanks, Jack! I am sure that this will have an impact on a lot of our clients.

Unfortunately, that’s all we have time for today. Thank you to Brian, Jack, and Scott for the great discussion, to you for your questions, and to our moderators for all the support and great information and answers.

Next week, we’ll be back on Thursday with any additional updates, as well as a deep dive discussion on the impact of COVID legislation on the education system and changes you can expect in the current economic situation. Please send in your questions in advance of the session and we’ll cover what we can while we’re together.

Thanks for watching, and have a great weekend.

For more information:
Heather Kloster
Marketing Project Management Director

Experience the CLA Promise