PLEASE NOTE: much of the information in this article is now outdated due to new rules. See the most recent article at

Many of you have obtained the Paycheck Protection Program (PPP) loans. This means your eight week clock is underway. Allowable expenditures during this “covered period” may lead to your loan being forgiven. You should have opened a separate PPP bank account, and received or downloaded our PPP guide from our website at Now your job is to make sure you qualify for the maximum amount of loan forgiveness allowed under the laws and regulations. This body of law is very fluid, so check the SBA website often for changes. As this article was written on April 24, 2020 it is possible this advice is outdated by the time of your reading.

Also, on our website is a new PPP Loan Forgiveness EXCEL Calculator which will help you better understand the forgiveness process.

Maximize Expenditures in the Covered Period

As you know, the monies you spend on allowable expenditures during the 8-week period (which commences on the date you first received PPP funds in your bank account) are eligible for forgiveness. I can’t encourage you enough to budget for these expenditures. The MOST important goal is to ensure 75% of what you spend (not of the loan amount) is for allowable payroll costs. What happens if you spend only 73% on payroll and 27% on other allowable costs? We think the regulations will eventually clarify that the 2% is not forgivable. While unlikely perhaps, we FEAR that if you fail the 75% requirement, future regulations may state none of the loan is forgivable. We don’t know for sure.

The law uses precise language:  Forgiveness relates to allowable “costs incurred and payments made during the covered period.” What does that mean? It is possible you can include either “costs incurred” OR “payments made” during the covered period. It could also mean that BOTH tests must be made.  

As I’m sure you know, the word “incurred” is equivalent to an accrual basis of accounting. The date an expenditure is incurred is the date to which an expenditure relates. For instance, the electricity consumed by your business in the first week in May is considered to be a cost incurred in the first week in May, despite that the bill might be paid in June.

Let me give you a PPP specific example: Your 8-week (56 day) forgiveness period (the covered period) begins on May 1st. On May 9th you pay employees for a 2-week pay period that ended on May 7th.  As such, 7 days of payroll were incurred prior to the covered period, but all of it was paid in the covered period. How much will be counted towards forgiveness? Seven days of payroll or the entire amount paid? No one knows. Future regulations need to clarify. An allowable expenditure can be incurred anytime from February 15th to June 30th.  As such, the worst case scenario is the first 7 days of that payroll might constitute a non-forgivable portion of the loan.

Planning Point (1)

The most important take away is you don’t want to be “caught with your pants down” paying any expenditure incurred in the covered period with a check dated after the 56th day.  In addition to payroll, on the 56th day, make sure you pay all other costs incurred, such as accrued interest not yet due, utilities, health insurance, pro-rated rents, etc.  If you can pay any employer matching or employer pension contribution relating to a period prior to the 56th day, you should attempt to get that paid. The 56th day is an important day to pay everything you can!!

Planning Point (2)

Certain utility expenses were excluded from the definition of utilities in the law, for example, garbage and sewer service.  My advice is to track those utilities and maybe they will correct the oversight in forthcoming regulations.  Also, the law gave an example of gasoline for a business vehicle that qualifies as a transportation utility expense.  What about diesel fuel for machinery? Track it, as it probably will qualify.

Planning Point (3)

As of today, the regulations are silent as to any restrictions on whom you bring onto your payrolls in the 8-week covered period and how much you pay them (limited only to a $100,000 per year equivalent maximum.)  Also, when you re-hire, no requirement exists for the workers to actually do any work. I expect forthcoming regulations to prevent employers from hiring family members during the covered period. But who knows?  For unrelated employees, it seems the spirit of the law is not violated if you pay them more during the covered period than you had prior to the crisis. But again, we don’t know this answer right now.   


Once you have spent your allowable funds and determined the amount which can be forgiven, you are then subject to two separate tests. Only one is really an obstacle. Your forgiveness is reduced proportionally if the average FTEs in the 8-week period (numerator) are less than the FTEs in two optional base periods (denominator). Therefore, you must make sure you increase the numerator and decrease the denominator.

Loan Forgiveness Reduction Test #1 = FTE Reduction

Planning Point (4)
You should pick the base period which has the lowest FTEs. The law states you measure the average FTEs for each pay period during the calendar month within the base period.  I’m speculating the regulations will clarify that an FTE is 30 hours per week, and to determine the FTEs, you will add up hours worked in a pay period and divide by 30.  The two base periods are (1) February 15, 2019 through June 30, 2019, or (2) January 1, 2020 through February 29, 2020.  For most businesses in the Black Hills of South Dakota, the obvious low ebb for employees will be the two winter months.

Planning Point (5)

Increasing the numerator is more fun for sure. If you don’t have normal duties for people, you may find it advantageous to hire people to do odd, yet productive jobs, like cleaning and painting.  Another thought is to maximize the hours. For instance, if you re-hire a tipped employee who had been working 20 hours a week making $20 an hour, bring them back on making $10 an hour at 40 hours a week. But, in this example since you reduced the wage by more than 75%, you will need to pay attention to Planning Point (7).

Planning Point (6)

If you rehire laid off workers, you can eliminate the FTE fractional forgiveness reduction calculation altogether. This can be used if you have laid off workers from February 15th through April 26th. It is a simple test, and it is an “all or none” deal. You measure the FTEs on the date of February 15th, and if you rehire laid off workers at any time prior to June 30th, such that your FTE count equals or exceeds the February 15th count, then you pass the test, and no FTE reduction is calculated.  Please note the rehired workers can be different people.  At least that’s how I read the law at this time.  Again, additional regulations will explain this better.

Loan Forgiveness Reduction Test #2 = Wage Reductions

Planning Point (7)

Avoiding this reduction in your loan forgiveness is simple. But first, it is important to remember this reduction is applied on a specific employee by employee basis.  During the 8-week covered period, do not pay anyone less than 75% of the wage rate they were earning in the first calendar quarter of 2020.  Also, for workers for whom you’ve laid off due to this crisis, you can avoid the test altogether.  All you need to do is re-hire all of them any time prior to June 30, 2020, and pay them at least one paycheck at a pay rate equal to the pay rate they were earning on February 15, 2020.


Again, watch for new regulations on the SBA website.  And PLAN, PLAN, PLAN!