Business Loan Program Temporary Changes; Paycheck Protection Program: Requirements - Loan Forgiveness
Summary
Federal Register pages (Vol. 85, No. 105, Monday, June 1, 2020) containing the interim final rule of the Small Business Administration and the Department of the Treasury, Docket Number SBA-2020-0032, RIN 3245-AH46 and RIN 1505-AC69, titled Business Loan Program Temporary Changes; Paycheck Protection Program - Requirements - Loan Forgiveness. The rule provides borrowers and lenders guidance on requirements governing forgiveness of PPP loans and requests public comment. It is effective May 28, 2020, applies to loan forgiveness applications, and sets a comment deadline of July 1, 2020. It recounts that Section 1106 of the CARES Act provides for forgiveness of up to the full principal amount of qualifying PPP loans. The text begins with the end of an unrelated credit union notice.
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- Department Of The Treasury Interim Final Rule On Loan Forgiveness Home Treasury Gov System
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- Department Of The Treasury Interim Final Rule On Loan Forgiveness Home Treasury Gov System Files 136 C16489D496
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“Business Loan Program Temporary Changes; Paycheck Protection Program: Requirements - Loan Forgiveness.”
Original at home.treasury.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/department-of-the-treasury-interim-final-rule-on-loan-forgiveness-home-treasury-gov-system-files-136-c16489d496/
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33004 Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations
Dated at Washington, DC, on February 20, applications, and requests public affected by the coronavirus pandemic.
2020. comment. The Small Business Administration
Robert E. Feldman, (SBA) received funding and authority
DATES: Effective date: May 28, 2020.
Executive Secretary. Applicability date: This interim final through the CARES Act to modify
By the National Credit Union rule applies to loan forgiveness existing loan programs and establish a
Administration Board. applications submitted under the new loan program to assist small
Gerard Poliquin, Paycheck Protection Program. businesses nationwide adversely
Comment date: Comments must be impacted by the COVID–19 emergency.
Secretary of the Board.
received on or before July 1, 2020. Section 1102 of the CARES Act
[FR Doc. 2020–10291 Filed 5–29–20; 8:45 am]
ADDRESSES: You may submit comments, temporarily permits SBA to guarantee
BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 100 percent of 7(a) loans under a new
7535–01–P identified by number SBA–2020–0032
through the Federal eRulemaking Portal: program titled the ‘‘Paycheck Protection
http://www.regulations.gov. Follow the Program.’’ Section 1106 of the CARES
instructions for submitting comments. Act provides for forgiveness of up to the
SMALL BUSINESS ADMINISTRATION full principal amount of qualifying
SBA will post all comments on
www.regulations.gov. If you wish to loans guaranteed under the Paycheck
13 CFR Part 120
submit confidential business Protection Program, and requires SBA to
[Docket Number SBA–2020–0032] information (CBI) as defined in the User issue guidance and regulations
Notice at www.regulations.gov, please implementing section 1106 within 30
RIN 3245–AH46 days after the date of enactment of the
send an email to ppp-ifr@sba.gov.
Highlight the information that you CARES Act. On April 2, 2020, SBA
DEPARTMENT OF THE TREASURY
consider to be CBI and explain why you posted its first PPP interim final rule (85
RIN 1505–AC69 believe SBA should hold this FR 20811) (the First Interim Final Rule)
information as confidential. SBA will covering in part loan forgiveness. On
Business Loan Program Temporary review the information and make the April 8, 2020 and April 26, 2020, SBA
Changes; Paycheck Protection final determination whether it will also posted Frequently Asked Questions
Program—Requirements—Loan publish the information. relating to loan forgiveness.1 On April
Forgiveness 14, 2020, SBA posted an interim final
FOR FURTHER INFORMATION CONTACT: A
Call Center Representative at 833–572– rule covering in part loan forgiveness for
AGENCY: U.S. Small Business
0502, or the local SBA Field Office; the individuals with self-employment
Administration; Department of the
list of offices can be found at https:// income. On April 24, 2020, the
Treasury.
www.sba.gov/tools/local-assistance/ President signed the Paycheck
ACTION: Interim final rule. Protection Program and Health Care
districtoffices.
SUMMARY: On April 2, 2020, the U.S.
Enhancement Act (Pub. L. 116–139),
SUPPLEMENTARY INFORMATION: which provided additional funding and
Small Business Administration (SBA)
posted an interim final rule announcing I. Background Information authority for the Paycheck Protection
the implementation of the Coronavirus Program.
On March 13, 2020, President Trump As described below, this interim final
Aid, Relief, and Economic Security Act declared the ongoing Coronavirus rule provides borrowers and lenders
(CARES Act). The CARES Act Disease 2019 (COVID–19) pandemic of guidance on requirements governing the
temporarily adds a new program, titled sufficient severity and magnitude to forgiveness of PPP loans.
the ‘‘Paycheck Protection Program,’’ to warrant an emergency declaration for all Four provisions of this interim final
the SBA’s 7(a) Loan Program. The States, territories, and the District of rule are an exercise of rulemaking
CARES Act also provides for forgiveness Columbia. With the COVID–19 authority by Treasury either jointly with
of up to the full principal amount of emergency, many small businesses SBA or by Treasury alone: (1) The de
qualifying loans guaranteed under the nationwide are experiencing economic minimis exemption provided with
Paycheck Protection Program (PPP). The hardship as a direct result of the respect to certain offers of rehire, (2) the
PPP is intended to provide economic Federal, State, tribal, and local public additional reference period option
relief to small businesses nationwide health measures that are being taken to provided for seasonal employers, (3) the
adversely impacted by the Coronavirus minimize the public’s exposure to the de minimis exemption from the full-
Disease 2019 (COVID–19). SBA posted virus. These measures, some of which time equivalent employee reduction
additional interim final rules on April 3, are government-mandated, are being penalty when an employee is, for
2020, April 14, 2020, April 24, 2020, implemented nationwide and include example, fired for cause, and (4) the de
April 28, 2020, April 30, 2020, May 5, the closures of restaurants, bars, and minimis exemption from the full-time
2020, May 8, 2020, May 13, 2020, May gyms. In addition, based on the advice equivalent employee reduction penalty
14, 2020, May 18, 2020, and May 20, of public health officials, other when the borrower eliminates
2020, and the Department of the measures, such as keeping a safe reductions by June 30, 2020. Otherwise,
Treasury (Treasury) posted an distance from others or even stay-at- all provisions in this rule are an exercise
additional interim final rule on April home orders, are being implemented, of rulemaking authority by SBA alone.
27, 2020. This interim final rule resulting in a dramatic decrease in
supplements the previously posted economic activity as the public avoids II. Comments and Immediate Effective
interim final rules in order to help PPP malls, retail stores, and other Date
borrowers prepare and submit loan businesses. The intent of the CARES Act is that
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forgiveness applications as provided for On March 27, 2020, the President SBA provide relief to America’s small
in the CARES Act, help PPP lenders signed the Coronavirus Aid, Relief, and businesses expeditiously. This intent,
who will be making the loan forgiveness Economic Security Act (the CARES Act) along with the dramatic decrease in
decisions, inform borrowers and lenders (Pub. L. 116–136) to provide emergency
of SBA’s process for reviewing PPP loan assistance and health care response for 1 https://www.sba.gov/document/support-faq-
applications and loan forgiveness individuals, families, and businesses lenders-borrowers.
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations 33005
economic activity nationwide, provides immediately, comments are solicited under a lease agreement in force before
good cause for SBA to dispense with the from interested members of the public February 15, 2020; and
30-day delayed effective date provided on all aspects of this interim final rule, (4) Business utility payments for the
in the Administrative Procedure Act. including section III below. These distribution of electricity, gas, water,
Specifically, it is critical to meet comments must be submitted on or transportation, telephone, or internet
lenders’ and borrowers’ need for clarity before July 1, 2020. SBA will consider access for which service began before
concerning loan forgiveness these comments and the need for February 15, 2020.
requirements as rapidly as possible making any revisions as a result of these This interim final rule uses the term
because borrowers can seek loan comments. ‘‘nonpayroll costs’’ to refer to the
forgiveness as early as eight-weeks payments described in (2), (3), and (4).
III. Paycheck Protection Program
following the date of disbursement of As set forth in the First Interim Final
Requirements for Loan Forgiveness
their PPP loans. Because the first PPP Rule (85 FR 20811), eligible nonpayroll
loans were disbursed after April 3, Overview costs cannot exceed 25 percent of the
providing borrowers with certainty on The CARES Act was enacted to loan forgiveness amount.
loan forgiveness requirements and other provide immediate assistance to 2. Loan Forgiveness Process
program requirements will enhance individuals, families, and organizations
their ability to carry out the purposes of affected by the COVID–19 emergency. What is the general process to obtain
the CARES Act in keeping their workers Among the provisions contained in the loan forgiveness?
employed and paid, while at the same CARES Act are provisions authorizing To receive loan forgiveness, a
time taking necessary steps to maximize SBA to temporarily guarantee loans borrower must complete and submit the
eligible loan forgiveness amounts. An under the Paycheck Protection Program Loan Forgiveness Application (SBA
immediate effective date also is (PPP). Loans under the PPP will be 100 Form 3508 or lender equivalent) to its
necessary for PPP lenders who generally percent guaranteed by SBA, and the full lender (or the lender servicing its loan).
will make the loan forgiveness principal amount of the loans may As a general matter, the lender will
determinations as provided in the qualify for loan forgiveness. Additional review the application and make a
CARES Act. Specifically, an immediate information about the PPP is available decision regarding loan forgiveness. The
effective date is necessary for lenders so in interim final rules published by SBA lender has 60 days from receipt of a
that they will have both a degree of and Treasury in the Federal Register (85 complete application to issue a decision
certainty and sufficient time to develop FR 20811, 85 FR 20817, 85 FR 21747, to SBA. If the lender determines that the
their systems and policies and 85 FR 23450, 85 FR 23917, 85 FR 26321, borrower is entitled to forgiveness of
procedures in order to timely review 85 FR 26324, 85 FR 27287, 85 FR 29842, some or all of the amount applied for
and process loan forgiveness 85 FR 29845, 85 FR 29847, 85 FR 30835) under the statute and applicable
applications, which borrowers are as well as an SBA interim final rule regulations, the lender must request
permitted to begin submitting at the end posted on May 20, 2020. payment from SBA at the time the
of their covered period. lender issues its decision to SBA. SBA
1. General
This interim final rule supplements will, subject to any SBA review of the
previous regulations and guidance on Section 1106(b) of the CARES Act loan or loan application, remit the
the discrete issues related to loan provides that, subject to several appropriate forgiveness amount to the
forgiveness. This interim final rule is important limitations, borrowers shall lender, plus any interest accrued
effective without advance notice and be eligible for forgiveness of their PPP through the date of payment, not later
public comment because section 1114 of loan in an amount equal to the sum of than 90 days after the lender issues its
the CARES Act authorizes SBA to issue the following costs incurred and decision to SBA. If applicable, SBA will
regulations to implement Title I of the payments made during the covered deduct EIDL Advance Amounts from
CARES Act without regard to notice period (as described in section III.3. the forgiveness amount remitted to the
requirements. In addition, SBA has below): Lender as required by section 1110(e)(6)
determined that there is good cause for (1) Payroll costs; 2 of the CARES Act. If SBA determines in
(2) Interest payments on any business
dispensing with advance public notice the course of its review that the
mortgage obligation on real or personal
and comment on the ground that it borrower was ineligible for the PPP loan
property that was incurred before
would be contrary to the public interest. based on the provisions of the CARES
February 15, 2020 (but not any
Specifically, SBA has determined that Act, SBA rules or guidance available at
prepayment or payment of principal);
advance notice and public comment the time of the borrower’s loan
(3) Payments on business rent
would delay the ability of PPP application, or the terms of the
obligations on real or personal property
borrowers to understand with certainty borrower’s PPP loan application (for
which payroll costs and nonpayroll 2 Payroll costs consist of compensation to example, because the borrower lacked
costs that are incurred or paid during employees (whose principal place of residence is an adequate basis for the certifications
the covered period are eligible for the United States) in the form of salary, wages, that it made in its PPP loan application),
forgiveness. By providing a high degree commissions, or similar compensation; cash tips or the loan will not be eligible for loan
the equivalent (based on employer records of past
of certainty to PPP borrowers through tips or, in the absence of such records, a reasonable,
forgiveness. The lender is responsible
this interim final rule, PPP borrowers good-faith employer estimate of such tips); payment for notifying the borrower of the
will be able to take immediate steps to for vacation, parental, family, medical, or sick forgiveness amount. If only a portion of
maximize their loan forgiveness leave; allowance for separation or dismissal; the loan is forgiven, or if the forgiveness
payment for the provision of employee benefits
amounts, for example, by either rehiring consisting of group health care coverage, including
request is denied, any remaining
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employees or not laying off employees insurance premiums, and retirement; payment of balance due on the loan must be repaid
during the covered period. This rule is state and local taxes assessed on compensation of by the borrower on or before the two-
being issued to allow for immediate employees; and for an independent contractor or year maturity of the loan. If the amount
sole proprietor, wages, commissions, income, or net
implementation of the forgiveness earnings from self-employment, or similar
remitted by SBA to the lender exceeds
component of this program. Although compensation. See 15 U.S.C. 636(a)(36)(A)(viii); 85 the remaining principal balance of the
this interim final rule is effective FR 20811, 20813. PPP loan (because the borrower made
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33006 Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations
scheduled payments on the loan after day of the first payroll cycle in the $100,000, as prorated for the covered
the initial deferment period), the lender covered period and continues for the period. The Administrator, in
must remit the excess amount, following eight weeks. If payroll costs consultation with the Secretary, has
including accrued interest, to the are incurred during this eight-week determined that this interpretation is
borrower. alternative payroll covered period, but consistent with the text of the statute
The general loan forgiveness process paid after the end of the alternative and advances the paycheck protection
described above applies only to loan payroll covered period, such payroll purposes of the statute by enabling
forgiveness applications that are not costs will be eligible for forgiveness if borrowers to continue paying their
reviewed by SBA prior to the lender’s they are paid no later than the first employees even if those employees are
decision on the forgiveness application. regular payroll date thereafter.
not able to perform their day-to-day
In a separate interim final rule on SBA The Administrator, in consultation
with the Secretary, determined that this duties, whether due to lack of economic
Loan Review Procedures and Related
alternative computational method for demand or public health considerations.
Borrower and Lender Responsibilities,
payroll costs is justified by This intent is reflected throughout the
SBA will describe its procedures for
considerations of administrative statute, including in section 1106(d)(4)
reviewing PPP loan applications and
loan forgiveness applications. feasibility for borrowers, as it will of the Act, which provides that
reduce burdens on borrowers and their additional wages paid to tipped
3. Payroll Costs Eligible for Loan payroll agents while achieving the employees are eligible for forgiveness.
Forgiveness paycheck protection purposes manifest The Administrator, in consultation with
a. When must payroll costs be incurred throughout the CARES Act, including the Secretary, has also determined that,
and/or paid to be eligible for section 1102. Because this alternative if an employee’s total compensation
forgiveness? computational method is limited to does not exceed $100,000 on an
payroll cycles that are bi-weekly or annualized basis, the employee’s hazard
In general, payroll costs paid or more frequent, this computational
incurred during the eight consecutive pay and bonuses are eligible for loan
method will yield a calculation that the forgiveness because they constitute a
week (56 days) covered period are Administrator does not expect to
eligible for forgiveness. Borrowers may supplement to salary or wages, and are
materially differ from the actual covered thus a similar form of compensation.
seek forgiveness for payroll costs for the period, while avoiding unnecessary
eight weeks beginning on either: administrative burdens and enhancing c. Are there caps on the amount of loan
i. The date of disbursement of the auditability. forgiveness available for owner-
borrower’s PPP loan proceeds from the Example: A borrower has a bi-weekly employees and self-employed
Lender (i.e., the start of the covered payroll schedule (every other week). individuals’ own payroll compensation?
period); or The borrower’s eight-week covered
ii. the first day of the first payroll period begins on June 1 and ends on Yes, the amount of loan forgiveness
cycle in the covered period (the July 26. The first day of the borrower’s requested for owner-employees and self-
‘‘alternative payroll covered period’’). first payroll cycle that starts in the employed individuals’ payroll
Payroll costs are considered paid on covered period is June 7. The borrower compensation can be no more than the
the day that paychecks are distributed may elect an alternative payroll covered lesser of 8/52 of 2019 compensation
or the borrower originates an ACH period for payroll cost purposes that (i.e., approximately 15.38 percent of
credit transaction. Payroll costs incurred starts on June 7 and ends 55 days later 2019 compensation) or $15,385 per
during the borrower’s last pay period of (for a total of 56 days) on August 1. individual in total across all businesses.
the covered period or the alternative Payroll costs paid during this alternative See 85 FR 21747, 21750.
payroll covered period are eligible for payroll covered period are eligible for
forgiveness if paid on or before the next forgiveness. In addition, payroll costs In particular, owner-employees are
regular payroll date; otherwise, payroll incurred during this alternative payroll capped by the amount of their 2019
costs must be paid during the covered covered period are eligible for employee cash compensation and
period (or alternative payroll covered forgiveness as long as they are paid on employer retirement and health care
period) to be eligible for forgiveness. or before the first regular payroll date contributions made on their behalf.
Payroll costs are generally incurred on occurring after August 1. Payroll costs Schedule C filers are capped by the
the day the employee’s pay is earned that were both paid and incurred during amount of their owner compensation
(i.e., on the day the employee worked). the covered period (or alternative replacement, calculated based on 2019
For employees who are not performing payroll covered period) may only be net profit.3 General partners are capped
work but are still on the borrower’s counted once. by the amount of their 2019 net earnings
payroll, payroll costs are incurred based from self-employment (reduced by
on the schedule established by the b. Are salary, wages, or commission
payments to furloughed employees; claimed section 179 expense deduction,
borrower (typically, each day that the unreimbursed partnership expenses,
employee would have performed work). bonuses; or hazard pay during the
covered period eligible for loan and depletion from oil and gas
The Administrator of the Small properties) multiplied by 0.9235. No
Business Administration forgiveness?
additional forgiveness is provided for
(Administrator), in consultation with Yes. The CARES Act defines the term
retirement or health insurance
the Secretary of the Treasury ‘‘payroll costs’’ broadly to include
compensation in the form of salary, contributions for self-employed
(Secretary), recognizes that the eight-
week covered period will not always wages, commissions, or similar individuals, including Schedule C filers
and general partners, as such expenses
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align with a borrower’s payroll cycle. compensation. If a borrower pays
For administrative convenience of the furloughed employees their salary, are paid out of their net self-
borrower, a borrower with a bi-weekly wages, or commissions during the employment income.
(or more frequent) payroll cycle may covered period, those payments are
elect to use an alternative payroll eligible for forgiveness as long as they
covered period that begins on the first do not exceed an annual salary of 3 See 85 CFR 21747, 21749 (April 20, 2020).
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations 33007
4. Nonpayroll Costs Eligible for Loan and wage levels by June 30, 2020 (with CARES Act reduces the amount of the
Forgiveness limitations). In addition, SBA and PPP loan that may be forgiven if the
a. When must nonpayroll costs be Treasury are adopting a regulatory borrower reduces full-time equivalent
incurred and/or paid to be eligible for exemption to the reduction rules for employees during the covered period as
forgiveness? borrowers who have offered to rehire compared to a base period selected by
employees or restore employee hours, the borrower. Section 1106(d)(5) of the
A nonpayroll cost is eligible for even if the employees have not CARES Act waives this reduction in the
forgiveness if it was: accepted. The instructions to the loan forgiveness amount if the borrower
i. Paid during the covered period; or forgiveness application and the eliminates the reduction in full-time
ii. incurred during the covered period guidance below explains how the equivalent employees occurring during
and paid on or before the next regular statutory forgiveness reduction formulas a different statutory reference period 6
billing date, even if the billing date is work. by not later than June 30, 2020. The
after the covered period. Administrator and the Secretary believe
Example: A borrower’s covered a. Will a borrower’s loan forgiveness
amount be reduced if the borrower laid- that the additional exemption set forth
period begins on June 1 and ends on above is consistent with the purposes of
July 26. The borrower pays its May and off or reduced the hours of an employee,
then offered to rehire the same the CARES Act and provides borrowers
June electricity bill during the covered appropriate flexibility in the current
period and pays its July electricity bill employee for the same salary and same
number of hours, or restore the economic climate. The Administrator,
on August 10, which is the next regular in consultation with the Secretary, have
billing date. The borrower may seek reduction in hours, but the employee
declined the offer? determined that the exemption is de
loan forgiveness for its May and June minimis for two reasons. First, it is
electricity bills, because they were paid No. Employees whom the borrower reasonable to anticipate that most laid-
during the covered period. In addition, offered to rehire are generally exempt off employees will accept the offer of
the borrower may seek loan forgiveness from the CARES Act’s loan forgiveness reemployment in light of current labor
for the portion of its July electricity bill reduction calculation. This exemption is market conditions. Second, to the extent
through July 26 (the end of the covered also available if a borrower previously this exemption allows employers to cure
period), because it was incurred during reduced the hours of an employee and FTE reductions attributable to
the covered period and paid on the next offered to restore the employee’s hours terminations that occurred before
regular billing date. at the same salary or wages. February 15, 2020 (the start of the
The Administrator, in consultation Specifically, in calculating the loan statutory FTE reduction safe harbor
with the Secretary, has determined that forgiveness amount, a borrower may period), it is reasonable to anticipate
this interpretation provides an exclude any reduction in full-time those reductions will represent a
appropriate degree of borrower equivalent employee headcount that is relatively small portion of aggregate
flexibility while remaining consistent attributable to an individual employee employees given the historically strong
with the text of section 1106(b). The if: labor market conditions before the
Administrator believes that this i. The borrower made a good faith, COVID–19 emergency.
simplified approach to calculation of written offer to rehire such employee
forgivable nonpayroll costs is also (or, if applicable, restore the reduced b. What effect does a reduction in a
supported by considerations of hours of such employee) during the borrower’s number of full-time
administrative convenience for covered period or the alternative payroll equivalent (FTE) employees have on the
borrowers, and the Administrator notes covered period; loan forgiveness amount?
that the 25 percent cap on nonpayroll ii. the offer was for the same salary or In general, a reduction in FTE
costs will avoid excessive inclusion of wages and same number of hours as employees during the covered period or
nonpayroll costs. earned by such employee in the last pay the alternative payroll covered period
period prior to the separation or reduces the loan forgiveness amount by
b. Are advance payments of interest on
reduction in hours; the same percentage as the percentage
mortgage obligations eligible for loan iii. the offer was rejected by such
forgiveness? reduction in FTE employees. The
employee;
No. Advance payments of interest on borrower must first select a reference
iv. the borrower has maintained
a covered mortgage obligation are not period: (i) February 15, 2019 through
records documenting the offer and its
eligible for loan forgiveness because the June 30, 2019; (ii) January 1, 2020
rejection; and
CARES Act’s loan forgiveness v. the borrower informed the through February 29, 2020; or (iii) in the
provisions regarding mortgage applicable state unemployment case of a seasonal employer, either of
obligations specifically exclude insurance office of such employee’s the two preceding methods or a
‘‘prepayments.’’ Principal on mortgage rejected offer of reemployment within consecutive 12-week period between
obligations is not eligible for forgiveness 30 days of the employee’s rejection of May 1, 2019 and September 15, 2019.7
under any circumstances. the offer.4
other provisions of this interim final rule are an
The Administrator and the Secretary exercise of rulemaking authority by SBA, except as
5. Reductions to Loan Forgiveness determined that this exemption is an expressly noted otherwise.
Amount appropriate exercise of their joint 6 Section 1106(d)(5) specifies that this reference
Section 1106 of the CARES Act rulemaking authority to grant de period is between February 15, 2020 and 30 days
specifically requires certain reductions minimis exemptions under section after the date of enactment of the CARES Act or
April 26, 2020 (the safe harbor period).
in a borrower’s loan forgiveness amount 1106(d)(6).5 Section 1106(d)(2) of the 7 This decision to permit seasonal employers to
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based on reductions in full-time use, as a reference period, any consecutive 12-week
equivalent employees or in employee 4 Further information regarding how borrowers
period between May 1, 2019 and September 15,
salary and wages during the covered will report information concerning rejected rehire 2019 is an exercise of the Secretary’s rulemaking
offers to state unemployment insurance offices will authority under section 1109 of the CARES Act.
period, subject to an important statutory be provided on SBA’s website. This reference period is consistent with the interim
exemption for borrowers who have 5 Section 1106(d)(6) is the sole joint rulemaking final rule on seasonal employers issued by
rehired employees and restored salary authority exercised in this interim final rule. All Treasury. See 85 FR 23917 (April 30, 2020).
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33008 Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations
If the average number of FTE employees choose to calculate the full-time period in 2019, the borrower must
during the covered period or the equivalency in one of two ways. First, reduce the total forgiveness amount by
alternative payroll covered period is less the borrower may calculate the average the total dollar amount of the salary or
than during the reference period, the number of hours a part-time employee wage reductions that are in excess of 25
total eligible expenses available for was paid per week during the covered percent of base salary or wages between
forgiveness is reduced proportionally by period. For example, if an employee was January 1, 2020 and March 31, 2020 (the
the percentage reduction in FTE paid for 30 hours per week on average reference period), subject to exceptions
employees. For example, if a borrower during the covered period, the employee for borrowers who restore reduced
had 10.0 FTE employees during the could be considered to be an FTE wages or salaries (see g. below). This
reference period and this declined to 8.0 employee of 0.75. Similarly, if an reduction calculation is performed on a
FTE employees during the covered employee was paid for ten hours per per employee basis, not in the aggregate.
period, the percentage of FTE week on average during the covered Example: A borrower reduced a full-
employees declined by 20 percent and period, the employee could be time employee’s weekly salary from
thus only 80 percent of otherwise considered to be an FTE employee of $1,000 per week during the reference
eligible expenses are available for 0.25. Second, for administrative period to $700 per week during the
forgiveness. convenience, borrowers may elect to use covered period. The employee
This formula implements section a full-time equivalency of 0.5 for each continued to work on a full-time basis
1106(d)(2) of the CARES Act, which part-time employee. The Administrator during the covered period with an FTE
expressly requires that the loan recognizes that not all borrowers of 1.0. In this case, the first $250 (25
forgiveness amount be reduced by the maintain hours-worked data, and has percent of $1,000) is exempted from the
amount resulting from multiplying the decided to afford such borrowers this reduction. Borrowers seeking
amount that the borrower would flexibility in calculating the full-time forgiveness would list $400 as the
otherwise receive by the quotient of the equivalency of their part-time salary/hourly wage reduction for that
average FTE employees in the covered employees. employee (the extra $50 weekly
period divided by the average FTE Borrowers may select only one of reduction multiplied by eight weeks).
employees in the relevant reference these two methods, and must apply that
The provision implements section
period. method consistently to all of their part-
1106(d)(3) of the CARES Act, which
time employees for the covered period
c. What does ‘‘full-time equivalent provides that ‘‘the amount of loan
or the alternative payroll covered period
employee’’ mean? forgiveness shall be reduced by the
and the selected reference period. In
Full-time equivalent employee means amount of any reduction in total salary
either case, the borrower shall provide
an employee who works 40 hours or or wages of any employee [who did not
the aggregate total of FTE employees for
more, on average, each week. The hours receive, during any single pay period
both the selected reference period and
of employees who work less than 40 the covered period or the alternative during 2019, wages or salary at an
hours are calculated as proportions of a payroll covered period, by adding annualized rate of pay in an amount
single full-time equivalent employee together all of the employee-level FTE more than $100,000] during the covered
and aggregated, as explained further employee calculations. The borrower period that is in excess of 25 percent of
below in subsection d. must then divide the average FTE the total salary or wages of the employee
The CARES Act does not define the employees during the covered period or during the most recent full quarter
term ‘‘full-time equivalent employee,’’ the alternative payroll covered period during which the employee was
and the Administrator, in consultation by the average FTE employees during employed before the covered period.’’
with the Secretary, has determined that the selected reference period, resulting f. How should borrowers seeking loan
full-time equivalent is best understood in the reduction quotient. forgiveness account for the reduction
to mean 40 hours or more of work each The Administrator, in consultation based on a reduction in the number of
week. The Administrator considered with the Secretary, determined that employees (Section 1106(d)(2)) relative
using a 30 hour standard, but because the Act does not define the term to the reduction relating to salary and
determined that 40 hours or more of FTE employee, this approach to wages (Section 1106(d)(3))?
work each week better reflects what measurement of FTE is a reasonable and
constitutes full-time employment for the appropriate exercise of the To ensure that borrowers are not
vast majority of American workers. Administrator’s rulemaking authority, doubly penalized, the salary/wage
as it balances the need for a reasonable reduction applies only to the portion of
d. How should a borrower calculate its measurement of FTE employee the decline in employee salary and
number of full-time equivalent (FTE) headcount with the need to limit wages that is not attributable to the FTE
employees? borrower compliance burdens and reduction.
Borrowers seeking forgiveness must ensure administrative feasibility. The Act does not address the
document their average number of FTE intersection between the FTE employee
employees during the covered period (or e. What effect does a borrower’s reduction provision in section
the alternative payroll covered period) reduction in employees’ salary or wages 1106(d)(2) and the salary/wage
and their selected reference period. For have on the loan forgiveness amount? reduction provision in section
purposes of this calculation, borrowers Under section 1106(d)(3) of the 1106(d)(3). To help ensure uniformity
must divide the average number of CARES Act, a reduction in an across all borrowers in applying the FTE
hours paid for each employee per week employee’s salary or wages in excess of reduction provision and the salary/wage
by 40, capping this quotient at 1.0. For 25 percent will generally result in a reduction provision, the Administrator,
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example, an employee who was paid 48 reduction in the loan forgiveness in consultation with the Secretary, has
hours per week during the covered amount, unless an exception applies. determined that the salary/wage
period would be considered to be an Specifically, for each new employee in reduction applies only to the portion of
FTE employee of 1.0. 2020 and each existing employee who the decline in employee salary and
For employees who were paid for less was not paid more than the annualized wages that is not attributable to the FTE
than 40 hours per week, borrowers may equivalent of $100,000 in any pay reduction. This approach will help
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations 33009
ensure that borrowers are not doubly This provision implements section Forgiveness Application (SBA Form
penalized for reductions. 1106(d)(5) of the CARES Act, which 3508 or a lender equivalent),
Example: An hourly wage employee gives borrowers an opportunity to cure documentation each borrower is
had been working 40 hours per week reductions in FTEs, salary/wage required to maintain and make available
during the borrower selected reference reductions in excess of 25 percent, or upon request, and documentation each
period (FTE employee of 1.0) and the both, using the applicable methodology borrower may voluntarily submit with
borrower reduced the employee’s hours set forth in section 1106(d)(5). The Act its loan forgiveness application. Section
to 20 hours per week during the covered provides that the reduction in FTEs or 1106(e) of the Act requires borrowers to
period (FTE employee of 0.5). There was the reduction in salary/hourly wages submit to their lenders an application,
no change to the employee’s hourly must be eliminated ‘‘not later than June which includes certain documentation,
wage during the covered period. 30, 2020.’’ This does not change or and section 1106(f) provides that the
Because the hourly wage did not affect the requirement that at least 75 borrower shall not receive forgiveness
change, the reduction in the employee’s percent of the loan forgiveness amount without submitting the required
total wages is entirely attributable to the must be attributable to payroll costs. documentation. For purposes of
FTE employee reduction and the administrative convenience for both
borrower is not required to conduct a h. Will a borrower’s loan forgiveness
amount be reduced if an employee is lenders and borrowers, the
salary/wage reduction calculation for Administrator, in consultation with the
that employee. fired for cause, voluntarily resigns, or
voluntarily requests a schedule Secretary, has determined that requiring
The Administrator considered borrowers to submit certain
applying the salary/wage reduction reduction?
documentation, maintain certain
provision in addition to the FTE No. When an employee of the documentation, and choose whether to
reduction in situations similar to the borrower is fired for cause, voluntarily submit additional documentation will
example above because section resigns, or voluntarily requests a reduce initial reporting burdens on
1106(d)(3) refers to reductions in ‘‘total reduced schedule during the covered borrowers and reduce initial
salary or wages’’ in excess of 25 percent. period or the alternative payroll covered recordkeeping burdens on lenders.
However, the Administrator determined period (FTE reduction event), the
that, based on the structure of section borrower may count such employee at 7. Additional Information
1106(d)(2) and section 1106(d)(3), the same full-time equivalency level SBA may provide further guidance, if
Congress intended to distinguish before the FTE reduction event when needed, through SBA notices that will
between an FTE reduction on the one calculating the section 1106(d)(2) FTE be posted on SBA’s website at
hand and a reduction in hourly wages employee reduction penalty. The www.sba.gov. Questions on the
or salary on the other hand. This Administrator and the Secretary have Paycheck Protection Program may be
interpretation harmonizes the two loan decided to exempt such employees from directed to the Lender Relations
forgiveness reduction provisions in a the calculation of the FTE reduction Specialist in the local SBA Field Office.
logical manner consistent with the penalty. The local SBA Field Office may be
statute. Section 1106 is silent concerning how found at https://www.sba.gov/tools/
to account for employees who are fired local-assistance/districtoffices.
g. If a borrower restores reductions for cause, voluntarily resign, or
made to employee salaries and wages or voluntarily request a reduced schedule. Compliance With Executive Orders
FTE employees by not later than June The Administrator and the Secretary 12866, 12988, 13132, 13563, and 13771,
30, 2020, can the borrower avoid a have determined that such an the Paperwork Reduction Act (44
reduction in its loan forgiveness exemption is de minimis, because a U.S.C. Ch. 35), and the Regulatory
amount? limited number of borrowers will face Flexibility Act (5 U.S.C. 601–612)
Yes. Section 1106(d)(5) of the CARES an FTE reduction event during the Executive Orders 12866, 13563, and
Act provides that if certain employee covered period or the alternative payroll 13771
salaries and wages were reduced covered period. Further, borrowers
between February 15, 2020 and April should not be penalized for changes in This interim final rule is
26, 2020 (the safe harbor period) but the employee headcount that are the result economically significant for the
borrower eliminates those reductions by of employee actions and requests. purposes of Executive Orders 12866 and
June 30, 2020 or earlier, the borrower is Borrowers that avail themselves of this 13563, and is considered a major rule
exempt from any reduction in loan de minimis exemption shall maintain under the Congressional Review Act.
forgiveness amount that would records demonstrating that each such SBA, however, is proceeding under the
otherwise be required due to reductions employee was fired for cause, emergency provision at Executive Order
in salaries and wages under section voluntarily resigned, or voluntarily 12866 Section 6(a)(3)(D), based on the
1106(d)(3) of the CARES Act. Similarly, requested a schedule reduction. The need to move expeditiously to mitigate
if a borrower eliminates any reductions borrower shall provide such the current economic conditions arising
in FTE employees occurring during the documentation upon request. from the COVID–19 emergency. This
safe harbor period by June 30, 2020 or rule’s designation under Executive
6. Documentation Requirements Order 13771 will be informed by public
earlier, the borrower is exempt from any
reduction in loan forgiveness amount What must borrowers submit for comment.
that would otherwise be required due to forgiveness of their PPP loans?
Executive Order 12988
reductions in FTE employees.8 The loan forgiveness application form
SBA has drafted this rule, to the
details the documentation requirements;
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8 In light of the flexibility the Act provides to extent practicable, in accordance with
specifically, documentation each
borrowers with respect to their selection of the the standards set forth in section 3(a)
reference time period for any potential reduction in borrower must submit with its Loan
and 3(b)(2) of Executive Order 12988, to
loan forgiveness, and the statutory authority for
SBA and the Department of the Treasury to grant reduction safe harbor, it will not be subject to any
minimize litigation, eliminate
de minimis exemptions from this requirement, if loan forgiveness reduction based on a reduction in ambiguity, and reduce burden. The rule
the borrower meets the requirements for the FTE FTE employees. has no preemptive or retroactive effect.
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33010 Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations
Executive Order 13132 economic impact on a substantial of up to the full principal amount of
SBA has determined that this rule number of small entities.’’ 5 U.S.C. qualifying loans guaranteed under the
will not have substantial direct effects 605(b). The agency must, however, Paycheck Protection Program (PPP). The
on the States, on the relationship publish the certification in the Federal PPP is intended to provide economic
between the National Government and Register at the time of publication of the relief to small businesses nationwide
rule, ‘‘along with a statement providing adversely impacted by the Coronavirus
the States, or on the distribution of
the factual basis for such certification.’’ Disease 2019 (COVID–19). SBA posted
power and responsibilities among the
If the agency head has not waived the additional interim final rules on April 3,
various layers of government. Therefore,
requirements for a regulatory flexibility 2020, April 14, 2020, April 24, 2020,
SBA has determined that this rule has
analysis in accordance with the RFA’s April 28, 2020, April 30, 2020, May 5,
no federalism implications warranting
waiver provision, and no other RFA 2020, May 8, 2020, May 13, 2020, May
preparation of a federalism assessment.
exception applies, the agency must 14, 2020, May 18, 2020, and May 20,
Paperwork Reduction Act, 44 U.S.C. prepare the regulatory flexibility 2020, and the Department of the
Chapter 35 analysis and publish it in the Federal Treasury (Treasury) posted an
SBA has determined that this rule Register at the time of promulgation or, additional interim final rule on April
if the rule is promulgated in response to 27, 2020. SBA and Treasury posted an
will impose a new reporting
an emergency that makes timely interim final rule on Loan Forgiveness
requirement on borrowers who request
compliance impracticable, within 180 contemporaneously with this interim
forgiveness of their PPP loan. SBA has
days of publication of the final rule. 5 final rule on May 22, 2020. This interim
developed Form 3508, Paycheck
U.S.C. 604(a), 608(b). Rules that are final rule supplements the previously
Protection Program—Loan Forgiveness
exempt from notice and comment are posted interim final rules in order to
Application, for use in collecting the
also exempt from the RFA requirements, inform borrowers and lenders of SBA’s
information required to determine
including conducting a regulatory process for reviewing PPP loan
whether a borrower is eligible for loan
flexibility analysis, when among other applications and loan forgiveness
forgiveness. SBA obtained approval of
things the agency for good cause finds applications, and requests public
Form 3508 from the Office of
that notice and public procedure are comment.
Management and Budget (OMB) as a
impracticable, unnecessary, or contrary DATES:
modification to the existing PPP
to the public interest. SBA Office of Effective date: This rule is effective
collection of information (OMB Control
Advocacy guide: How to Comply with May 28, 2020.
Number (3245–0407). This collection of
the Regulatory Flexibility Act, Ch.1. p.9. Applicability date: This interim final
information was approved under
Accordingly, SBA is not required to rule applies to loan applications and
emergency procedures to facilitate
conduct a regulatory flexibility analysis. loan forgiveness applications submitted
immediate implementation of the PPP
and expires on October 31, 2020. Jovita Carranza, under the Paycheck Protection Program.
Comment date: Comments must be
Administrator Small Business
Regulatory Flexibility Act (RFA) Administration.
received on or before July 1, 2020.
The Regulatory Flexibility Act (RFA) ADDRESSES: You may submit comments,
Michael Faulkender,
generally requires that when an agency identified by number SBA–2020–0033
Assistant Secretary for Economic Policy, through the Federal eRulemaking Portal:
issues a proposed rule, or a final rule Department of the Treasury.
pursuant to section 553(b) of the APA or http://www.regulations.gov. Follow the
[FR Doc. 2020–11536 Filed 5–28–20; 8:45 am]
another law, the agency must prepare a instructions for submitting comments.
BILLING CODE 8026–03–P SBA will post all comments on
regulatory flexibility analysis that meets
the requirements of the RFA and www.regulations.gov. If you wish to
publish such analysis in the Federal submit confidential business
SMALL BUSINESS ADMINISTRATION
Register. 5 U.S.C. 603, 604. Specifically, information (CBI) as defined in the User
the RFA normally requires agencies to 13 CFR Part 120 Notice at www.regulations.gov, please
describe the impact of a rulemaking on send an email to ppp-ifr@sba.gov.
[Docket Number SBA–2020–0033] Highlight the information that you
small entities by providing a regulatory
impact analysis. Such analysis must RIN 3245–AH47 consider to be CBI and explain why you
address the consideration of regulatory believe SBA should hold this
options that would lessen the economic Business Loan Program Temporary information as confidential. SBA will
effect of the rule on small entities. The Changes; Paycheck Protection review the information and make the
RFA defines a ‘‘small entity’’ as (1) a Program—SBA Loan Review final determination whether it will
proprietary firm meeting the size Procedures and Related Borrower and publish the information.
standards of the Small Business Lender Responsibilities FOR FURTHER INFORMATION CONTACT: A
Administration (SBA); (2) a nonprofit AGENCY: U.S. Small Business Call Center Representative at 833–572–
organization that is not dominant in its Administration. 0502, or the local SBA Field Office; the
field; or (3) a small government list of offices can be found at https://
ACTION: Interim final rule.
jurisdiction with a population of less www.sba.gov/tools/local-assistance/
than 50,000. 5 U.S.C. 601(3)–(6). Except SUMMARY: On April 2, 2020, the U.S. districtoffices.
for such small government jurisdictions, Small Business Administration (SBA) SUPPLEMENTARY INFORMATION:
neither State nor local governments are posted an interim final rule announcing
‘‘small entities.’’ Similarly, for purposes the implementation of the Coronavirus I. Background Information
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of the RFA, individual persons are not Aid, Relief, and Economic Security Act On March 13, 2020, President Trump
small entities. The requirement to (CARES Act). The CARES Act declared the ongoing Coronavirus
conduct a regulatory impact analysis temporarily adds a new program, titled Disease 2019 (COVID–19) pandemic of
does not apply if the head of the agency the ‘‘Paycheck Protection Program,’’ to sufficient severity and magnitude to
‘‘certifies that the rule will not, if the SBA’s 7(a) Loan Program. The warrant an emergency declaration for all
promulgated, have a significant CARES Act also provides for forgiveness States, territories, and the District of
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