It’s Finally Here: Guidance on PPP Loan Forgiveness

Please note that this blog is based on laws effective on June 3, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.

The Small Business Administration (SBA) released guidance on May 22, 2020 specifically related to the loan forgiveness piece of the Payroll Protection Program (PPP) loan. Although we received a glimpse of this guidance in the most recently released loan forgiveness application there were some new developments that we will clarify below.

Compensation Caps for Owner-Employees and Self-Employed Individuals

In general, compensation under a PPP loan is capped for each individual at $15,385 which is based upon a salary limit of $100,000 prorated for eight weeks of the year. However, owners and self-employed individuals have a further cap in that their compensation cannot be more than the lesser of either $15,385 or their 2019 payroll compensation/owner compensation replacement. No forgiveness for retirement or health insurance contributions is available for self-employed individuals and general partners as these expenses are paid out of their net self-employment income (which is considered the owner compensation replacement).

Full-Time Equivalent Simplified Method

Each borrower is required to maintain a count of employees using a full-time equivalent (FTE) calculation for purposes of determining loan forgiveness eligibility. This calculation is based upon equating each employee’s hours to a base metric of a 40-hour work week. To assist in this calculation, a simplified method was provided because many employers may not capture employee hours for a full-time equivalent calculation. The simplified method provides for any employee working on average 40 hours or more to be considered an FTE employee of 1.0. An employer may elect all part-time employees (those working on average less than 40 hours) to be considered an FTE of 0.50. Under this method, each employee you pay must be counted for as either 1.0 or 0.50.

If an employer maintains hours-worked data, the employer could use a factor that is more accurate to hours worked. For example, an employee that works on average 30 hours per week can be determined to be a .75 for the FTE computation. Whichever method is chosen, the employer must be consistent in using that method for every employee.

Reduction in Employees’ Salaries or Wages

In general, a reduction in an employee’s salary or wages in excess of 25% will result in a reduction in the loan forgiveness amount, unless an exception applies. The guidance specifically states:

“For each new employee in 2020 and each existing employee who was not paid more than the annualized equivalent of $100,000 in any pay period in 2019, the borrower must reduce the total loan forgiveness amount by the total dollar amount of the salary or wage reductions that are in excess of 25% of the base salary or wages between January 1, 2020 and March 31, 2020 unless those wages were restored by June 30, 2020”. 

For example, a borrower reduced a full-time employee’s weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. The employee continued to work on a full-time basis during the covered period with an FTE of 1.0. In this case, the first $250 (25% of $1,000) is exempted from the reduction. Borrowers seeking forgiveness would list $400 as the salary/hourly wage reduction for that employee (the extra $50 weekly reduction multiplied by eight weeks).

Please note this calculation is performed on a per employee basis and cannot be performed in the aggregate. For hourly wage employees, the reduction in wages is computed based upon the changes in hourly rates only and therefore changes in hours worked by hourly employees would not result in a wage reduction.

Loan Forgiveness Process

The loan forgiveness process begins by submitting a completed SBA Form 3508 or a lender equivalent form to the lender who processed the PPP loan for you. This form is detailed so maintaining a PPP loan tracker will be essential to assist in your compilation of the items requested on the application. The lender has 60 days from receipt of your completed application to issue a decision to the SBA on whether any, all, or a portion of your loan is subject to forgiveness. The SBA then has 90 days after receiving the lender’s decision to remit payment to the lender related to the forgiveness. However, the SBA can request further review of the loan or loan application at any time and this may lengthen the timeframe.

As some loans may be reviewed by the SBA prior to the lender’s decision on the loan forgiveness, the lender will not approve the application for loan forgiveness until after the SBA has completed its review and therefore the timeframes may vary.

To assist you in planning, tracking, and maintaining your PPP funds, we have provided a PPP loan tracker workbook that has been recently updated based upon the final guidance released.


Please contact Cray Kaiser at 630-953-4900 if you need further information or assistance in tracking your PPP loan funds.


These are certainly trying times and we want to reiterate that Cray Kaiser is here for you. As things continue to evolve in light of the COVID-19 pandemic, we at CK are taking additional precautions for the benefit of our team members and our clients.

Effective immediately:

  • No clients or guests will be allowed in our suite.
  • All in-person meetings are cancelled. Instead, we will be utilizing phone calls and/or email to communicate with our clients.
  • Our team members are being encouraged to work remotely. All staff are equipped with the appropriate technology and resources to continue to securely and confidentially serve you from home.
  • We will no longer have in-person drop offs of accounting/tax data. Instead, please drop off any packages outside the office door of our suite in the box provided.
  • All paper files, tax returns etc. will no longer be mailed by our office to you. We will be holding these items in our office to send to you at a later date.


We want to remind our clients of our portal access and your ability to safely and securely share your information with our team. We ask that you email to request your portal access. This will eliminate the need for you to drop off your tax information at our office.


Thank you for your patience and understanding during this challenging time. We wish you, your family, and your business health and safety. We will continue to support you as best as we can while keeping each other’s health a priority. If any changes occur during the course of the next few days, we will update our website.

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