The hottest topic among business owners and administrators right now is what are the rules, guidance, and steps to maximize PPP loan forgiveness. This blog post is Part Three of Checkright’s Three Part Series on PPP Loan Forgiveness. This document reflects guidance as of May 20th, 2020, but we expect more changes in this program in the coming weeks. At the time of writing, there is a bill in Congress that would lengthen the forgiveness period and relax some of the following rules. Best practices would dictate waiting before investing the time into completing this exercise until the SBA and Congress finalize guidance, but many small business owners are anxious to see where they stand with respect to loan forgiveness.

Step One. Gather and complete the basic information for the first section of the Application (page 3 of SBA Form 3508.) Let’s start off with the easiest step so we can all feel good about our progress. You may need to reach out to your banker for some of this information so no time like the present to take care of this section. The questions are as follows:

  • Business Legal Name, DBA or Tradename, Address, EIN, Phone, Primary Contact, and Email Address (all same as Loan App.)
  • SBA PPP Loan Number (obtain from banker or closing paperwork.)
  • Lender PPP Loan Number (obtain from banker or closing paperwork.)
  • PPP Loan Amount
  • PPP Loan Disbursement Date (use the date you received first proceeds.)
  • Employees at Time of Loan Application (total number, not FTE count.)
  • Employees at Time of Forgiveness Application (total number, not FTE count.)
  • EIDL Advance Amount (enter amount your business received from the EIDL loan, if any,) and your corresponding EIDL Application Number. Many did not receive Economic Injury Disaster Loans (EIDL.)
  • Payroll Schedule-your payroll frequency.
  • Covered Period. The first date is the day you first received funds (day one) and the second date is 8 weeks later, for example, Monday, April 20th to Sunday, June 14th.
  • Alternative Payroll Covered Period. If your pay frequency is Weekly or Bi-weekly, you will probably find it easier to use this alternate period. Enter the first day of the pay period on or following your funding date, and the end date 56 days later as above.
  • If Borrower (together with affiliates) received a loan over $2 million, check the box.

Step Two. Calculate your Payroll Costs.  Add up the gross wage paid or incurred for each employee during the 8 week Covered Period or Alternative Payroll Covered Period (see Part Two of this series.) For each employee you will also add and subtract certain amounts as described below.

  • Subtract any gross pay for the new Emergency Paid Sick Leave or Extended Family Leave pay types that were created in the Cares Act.
  • Subtract any gross pay over $15,385 per person.
  • Subtract gross pay for any owner that is higher than the owner’s pay for 8 weeks in 2019.
  • Add the employer contribution to retirement accounts.
  • Add the employer contribution to group health coverage.
  • Add employer taxes paid to states or localities (usually, State Unemployment tax.)

Step 3. Adjust the Payroll Costs for reductions in wages of more than 25% for any employee.  Find the average pay of each employee in the first quarter of 2020. Then find the average pay of each employee in the 8 week covered period. For each employee whose average pay was reduced by more than 25%, the loan forgiveness will be reduced by the amount of reduction over 25% (please see the form instructions for the specific calculation.) If wages are restored to the February 15, 2020 level by June 30th, 2020, this reduction does not apply.

Step 4. Reduce Payroll Costs for Reductions in Average Number of Employees. In this section, count the FTE (full time equivalent employees) for several time periods and compare them to see if your employee count has decreased. There are two periods from which to choose the FTE count that is lower: January 1st, 2020 to February 29th, 2020; or February 15th, 2019 to June 30th, 2019. For each period, any employee that works 40 or more hours per week is counted as 1.0.  Any employee who works less than 40 hours receives a one decimal fraction-32 hours a week equals 0.8. There is also a simplified method where all employees who work 40 hours or more are counted as 1, and all employees who work less than 40 hours are counted as 0.5. Use whatever works best, but you must keep consistent. Calculate an average of FTEs over these periods. Then, perform the same calculation for the 8 week forgiveness period. If the FTE count is 20% lower in the forgiveness period, you would reduce payroll costs by 20%. Any employee that is fired for cause, quits, or is offered a job back and declines, does not count as a reduction. Finally, if the business restores its FTE count to the same level as February 15th, 2020, by no later than June 30th, then this reduction does not apply.

Step 5. Calculate Non-payroll Costs. Add up all the payments made for rent, interest on business loans, and utility payments made during the 8 weeks that starts on funding date plus payments for these costs after the funding window so long as the bills are paid by the next due date and the bills were for periods in the funding window.

Step 6. Apply the 75% Rule. Small businesses can only receive full forgiveness so long as no more than 25% of the PPP loan was spent on non-payroll costs. Restated, 75% or more of the funds must be spent on Payroll Costs for full forgiveness. Take the adjusted Payroll Costs figure and divide it by .75. The Total of Payroll Costs plus Non Payroll Costs can not be greater than this result.

Step 7. Calculate your final loan forgiveness amount.  Borrower’s loan forgiveness will equal the smallest of the following:

  • Your PPP loan amount.
  • Your adjusted Payroll Costs plus your Non-payroll Costs
  • Adjusted Payroll Costs divided by .75


Helpful Links for PPP Loan Forgiveness:

PPP Loan Forgiveness Application:

PPP Frequently Asked Questions:

PPP Final Interim Rule:


Disclaimer: The subject matter in this article is subject to change and re-interpretation at any time by the SBA, Treasury, Executive Order, or Congress, and the author may or may not have a chance to update the material between when the changes were made and your reading. This article is meant to provide general guidance on PPP Loan Forgiveness, and the reader should seek specific advice for his or her situation from an attorney, CPA, or SBA representative. Neither the author nor Checkright make any representation or warranty as to the final accuracy or interpretation of the materials herein.

About the author: Arch Wallace is the President and founder of Checkright and has spent almost 20 years employed in the accounting and payroll industry. He can be reached at