Tracking PPP Spending and Forgiveness

Updated December 1, 2020


For recipients of PPP loans, how and when the funds are spent will determine how much of the loan is eligible for forgiveness.  We recommend that borrowers begin tracking and planning spending as early as possible to understand - and, if appropriate, make adjustments to - their forgiveness prospects.  Borrowers should focus on the three key metrics that determine PPP forgiveness (more information on each below):

  1. Total spending within the “covered period” (the 24 weeks beginning the day PPP funds are received) and the percentage of this devoted to payroll
  2. Maintenance of salary and hourly wage rates that are at least 75% of pre-crisis levels, or the ability to restore these by December 31
  3. Headcount levels relative to pre-crisis benchmarks (with a similar ability to restore staff by December 31)

Also, while forgiveness is attractive, borrowers should bear in mind that amounts not forgiven convert into a low-cost loan with no collateral or personal-guarantee requirements.  For more information, see “PPP Loan Terms”, below.

Managing & Tracking PPP Funds

To facilitate tracking and expedite the forgiveness application, borrowers are advised to segregate and track funds

  • If possible, receive PPP funds into and pay eligible expenses from a separate account
  • If funds must be paid from another account (for example, payroll costs or automatic payments for rent or utilities), transfer these funds from the PPP account to clarify payment tracking

Familiarize yourself with the PPP Application

There are now three PPP forgiveness applications.

  • Recipients of PPP loans of $50Kor less can use the simplified forgiveness application 3508S (instructions here).
  • Other recipients may be able to use the shorter, Form E-Z application if they meet any one of the following criteria:
    • No employees (sole proprietorship, independent contractors, self-employed individuals)
    • Have not reduced headcount (measured as full-time equivalency or “FTE”) and have not cut salaries or hourly wages by more than 25%
    • Were unable to maintain FTE based on HHS, CDC or OSHA directives and have not cut salaries or hourly wages by more than 25%
  • The remainder should use the PPP Forgiveness application  and instructions.

Even businesses using the Form E-Z will be required to attest that they meet the criteria, so it’s important to understand the key elements of forgiveness

  1. Total Spending and Payroll Percentage

The first criterion is the recipient’s spending within the covered period.

  • At least 60% - but as much as 100% - of the forgiven amount must be spent on payroll.  
    • To clarify, this is not the same as 60% of the total PPP.  The maximum forgivable amount will be total eligible payroll spending divided by 60%
  • The balance of the PPP loan can be spent on mortgage interest, rent or utilities.  Eligible utilities include electricity, gas, water, transportation, telephone, or internet access.


  • Calculate 24 weeks of payroll at current staffing levels, including applicable taxes and other costs to estimate how this compares to minimum payroll percentage and PPP total
  • Assess whether an Alternative Covered Payroll Period (“APCP”) is beneficial for your business
  • Understand which nonpayroll items qualify.  Make sure all such spending is documented

Additional information:

Eligible Payroll includes gross salary, wages, tips, commissions, paid leave and allowances for dismissal or separation

  • Paid leave reimbursed under the Families First Coronavirus Response Act is not eligible for PPP coverage
  • Base salaries are capped at a $100K annual rate; spending above this level is not eligible
    • While bonuses or increases to salary or wage levels paid to employees can be included forgivable payroll, owner-operators or sole proprietors are limited to the 2019 compensation rate

      • This equates to 2.5 months or 10/52 of compensation claimed for 2019 for those with a 24-week covered period
      • For those electing an 8-week period, the cap is 8/52 of 2019 compensation
      • Both are subject to the $100K annual compensation cap.  The maximum forgivable owner salary is thus $20,833 for those using a 24-week period, and $15,385 for 8 weeks
  • Spending on payroll and other eligible costs can include amounts that are incurred during the period, but paid out in a billing or pay cycle that takes place soon thereafter

Alternative Payroll Covered Period ("APCP"): While non-payroll spending must be incurred during the covered period, borrowers may elect to use an Alternative Payroll Covered Period ("APCP"), allowing them to document payroll using a 24-week period beginning on the first day of the next normal pay period after funds are received.  

  • For example, if a borrower received PPP funds on Tuesday May 5, but has a bi-weekly pay period that runs Sunday-Saturday, the covered period will run May 5 - October 19th, but the APCP would be from May 10-October 24

Eligible non-payroll spending: 

  • Spending on rent, mortgages and utilities must reflect obligations in place by February 15, 2020
  • Eligible mortgage payments include mortgage interest only; prepayments of principal are not eligible.
  • Eligible utilities include business payments for electricity, gas, water, telephone, transportation, or internet access 
  1. Salary and Hourly Wage Reduction 

Forgiveness levels will be reduced if the borrower has cut salary or hourly wage rates by more than 25% compared to January 1 - March 31, 2020.  (This only applies to reductions in pay rates themselves; employee pay reductions due to fewer hours worked are captured by the FTE calculation below)


  • If any employee’s salary or hourly rate has been reduced, check whether this reduction is greater than 25%
  • If so, consider whether it makes sense to readjust to limit the reduction below 25% - currently or by the December 31 safe harbor date

Additional information:

  • Reductions are calculated for each employee and do not offset each other.  So if one employee’s salary is reduced while another’s is increased, forgiveness will be impacted to reflect only the reduction (if greater than 25%)
  • Reductions do not apply to base salaries greater than $100K or to salaries of owners reduced to insure compensation does not exceed the cap (more detail in “eligible payroll”, above)
  • Borrowers who have reduced salaries or wages by more than 25% have a “safe harbor” that eliminates the forgiveness reduction if average salaries and wages are restored to levels as of February 15, 2020 by December 31, 2020
  1. FTE Reduction Quotient 

Forgiveness is further reduced if headcount levels (as measured in “Full Time Equivalency” or “FTE”) fall below those of a pre-crisis reference period.  This calculation is not required of employers who are unable to operate at a pre-crisis level of business activity due to compliance with government guidelines


  • Borrowers are exempt from this calculation if they:

    • Have not reduced headcount or staff hours
    • Have reduced staff or hours in compliance with governmental guidelines - see below
    • Made offers to rehire or replace employees or restore reduced hours which were declined, or if employees have resigned or been terminated for cause
  • Those not exempt should:

    • Review the allowable reference periods and FTE calculation methods (see “FTE Calculation”, below) to determine which is optimal for them
    • If FTE have been reduced, consider the pros and cons of attempting to rehire by December 31st
    • Retain documentation for any offers declined, resignations or other exemptions described below

Additional information:

The FTE calculation will not be negatively impacted for:

  • FTE restored by December 31, 2020
  • Employees who have declined an offer to return or restore lost hours (see details below)
  • Employees who were fired for cause, voluntarily resigned or requested and received reduced hours 
  • Employers whose business activity between February 15, 2020, and the end of the Covered Period could not continue at the same level as before February 15, 2020, due to compliance with HHS, CDC or OSHA requirements or guidelines regarding sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19, issued between March 1, 2020 and December 31, 2020 

Reference period: The borrower can choose to compare covered-period headcount to:

  •  February 15, 2019 to June 30, 2019
  • January 1, 2020 to February 29, 2020, or
  • in the case of seasonal employers, either of the preceding periods or any consecutive 12-week period between May 1, 2019 and September 15, 2019 

Calculating headcount (FTE): Borrowers can choose to either:

  • Calculate FTE on an hourly basis for all employees by dividing the hours worked each week by 40.  (This number can not exceed 1.0)
  • Designate employees who work 40 hours or more per week as full time (1.0 FTE) and all those who work less than 40 hours as part-time (0.5)

Determine the reference period and FTE calculation that works best for your company:

  • Calculate FTE levels for the covered period using both the standard, 40-hour and simplified calculation
  • Compare these to similar calculations for reference periods listed above (as well as the seasonal option, if applicable)

Employees who decline offers to return or restore hours can be counted if:

  • Both offer and refusal are in writing
  • The offer must have been for the same salary or wages and same number of hours earned by the employee in the last pay period before the separation or reduction
  • You must have reported the employee’s rejected offer to the state Unemployment Insurance office within 30 days

PPP loan terms

PPP amounts not forgiven convert into a loan.  Loan terms - reflecting changes made by the PPPFA - are:

  • Interest rate: all PPP loans carry a 1% interest rate
  • Deferral period: the PPPFA extended the period in which no payments are due from the original 6 month term to the date at which the SBA affirms the forgiven amount.  This ensures that borrowers will not be charged interest for amounts ultimately forgiven
  • Maturity: all PPPs issued after June 5, 2020 have a 5-year maturity. Those issued earlier have the original, 2-year maturity.  However, borrowers can negotiate directly with lenders for a longer maturity