2 New PPP Forgiveness Applications Released

The U.S. Treasury Department and Small Business Administration released a new, shorter version of the loan forgiveness application and introduced an even shorter EZ version for some borrowers. The changes are designed to make it easier for businesses to realize full forgiveness of PPP loans, but several tests and safe harbors were put into place.

How to Qualify for Form 3508EZ

To use the 3508EZ form, you must meet ONE of the tests below.

1. Must be self-employed and have no employees 
   
2. Borrower did not reduce annual salary or hourly wages by more than 25% during the covered period AND did not reduce the number of employees or the average paid hours of employees between January 1, 2020, and end of the covered period
   
3. Borrower did not reduce annual salary or hourly wages by more than 25% during covered period AND borrower was unable to operate during covered period at the same level as before February 15, due to compliance with requirements issued from March 1, 2020, to December 31, 2020, by governing bodies

Form 3508EZ does not include any calculations on the reduction in FTEs or a reduction in payroll. However, this simplified form still requires borrowers to maintain support for wages, hours, and FTE count numbers at or above those of the reference period. Form 3508EZ does not allow for any safe harbors because of the levels required to be maintained to use this form.

Updates to Form 3508

Form 3508 follows the prior released form and includes updates for the changes in the PPP. The application does point to 3 safe harbors that are available to borrowers:

1. FTE Reduction Exceptions – No reduction is needed for a decreased number in FTE if the borrower can document that the Borrower made a good faith, written offer to rehire and the Borrower was unable to hire similarly qualified worker; the Borrower made a written offer to employee and the employee rejected the offer; and Any employee who was fired, voluntarily resigned, or voluntarily requested. Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness. 
   
2. FTE Reduction Safe Harbor 1 – No reduction in loan forgiveness based on reduction in FTE employees if borrower can document an inability to operate between February 15, 2020, and end of the covered period at the same level of business activity as prior to February 15 due to compliance with governing bodies.
   
3. FTE Reduction Safe Harbor 2 – No reduction in loan forgiveness based on reduction in FTE employees if the borrower reduced FTE beginning February 15, 2020, and ending April 26, 2020, and the borrower restored its FTE employee levels by not later than December 31, 2020, to its FTE employee levels. 

Supporting Documentation Required

Form 3508 requires that documentation be submitted with the application to substantiate payroll costs, FTE numbers, and non-payroll costs. However, the borrower must be required to obtain, but not submit, documentation on each employee’s individual pay, including salary reduction calculations, documentation on job offer and refusals, documentation on inability to operate due to compliance with governing bodies, and documentation to support the restoration of FTE count.

Even though there is a simplified application, the supporting documentation requirements remain such that — unless you are a sole proprietor with no employees —borrowers are still expected to submit and maintain detailed records for their applications, including employee counts (FTEs), salary levels, and hourly pay rates.

For help navigating the applications or if you have questions about the PPP loan forgiveness process, contact us at PPPForgiveness@hornellp.com. To sign up for our HORNE’s Forgiveness Assistance Program, click the button below.

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