Loan forgiveness may be reduced if the average wages paid to an employee during the covered period decreased by more than 25% when compared to their average wages during the 1st quarter of 2020. This does not apply to employees who earned $100,000 or more (annualized) in any pay period in 2019.
For each eligible employee whose pay decreases by more than 25%, your loan forgiveness amount may be reduced by the amount in excess of 25%. However, you may be exempt from this reduction if you fully restore wages by December 31st, 2020.
What are wage reductions?
A wage reduction is a decrease in pay for a specific employee. This goes beyond hourly or salaried rate – it is total cash compensation. Cash compensation includes standard pay, plus additional earnings like overtime, tips, commission, and bonuses. A decrease in any of these factors could result in a wage reduction.
For salaried workers, average weekly cash compensation is used to determine whether wages fell by more than 25%. For hourly workers, it's based on a calculated hourly rate. This is average weekly cash compensation divided by the average weekly number of hours logged (either worked or taken as PTO).
If an employee picked up additional hours in a position with a lower pay rate, this could also result in a wage reduction.
For workers whose earnings are based on units or miles without any assigned hours, their pay is calculated as a total amount. This amount is used to determine whether wages fell 25%.
What exactly is included in cash compensation?
Cash compensation is the sum of salary, vacation, leave (sick, parental, family, and medical), severance pay, wages, commissions or similar compensation, hazard pay, bonuses, and cash tips or the equivalent. For calculating wage reductions, leave covered by the Families First Coronavirus Response Act is included.
What if an employee's average pay is reduced due to fewer hours worked?
For employees with a pay type of Hourly, the Estimator looks at the rate of pay based on total cash compensation. As long as you maintain an employee's cash compensation per hour, forgiveness will not be impacted by a wage reduction. (However, forgiveness may be impacted by an FTE reduction.)
For employees with a pay type of Salary, a wage reduction will appear if their average weekly cash compensation goes down by more than 25%. Review the PPP Forgiveness Data report to identify these employees. Determine if the sole cause of the wage reduction is the decrease in the employee’s hours. If so, you may remove the wage reduction for that employee in the Estimator.
Examples:
- A pieceworker whose assigned work was cut
- A salaried employee who dropped from full-time to part-time
- A part-time salaried employee whose workload was decreased
What if an employee was hired, furloughed, or left the company during the covered period?
If employees worked for only part of the covered period (or for only part of Q1 2020), average wages are calculated based on the weeks they earned money.
Which time periods are used to determine whether there's been a decrease?
The Estimator compares wages earned during these timeframes:
- Your covered period for payroll costs
- The 1st quarter of 2020
Who is included?
Employees are included if all of the following are true:
- Their principal address is in the United States or one of its territories
- They earned wages during the covered period for payroll costs (this includes FFCRA wages)
- They earned wages during Q1 2020
- They made less than $100,000 (annualized) every pay period in 2019, or they didn't work there in 2019
Contractors are not included.
What is the impact on estimated loan forgiveness?
For each eligible employee whose pay decreases by more than 25%, your loan forgiveness amount may be reduced by the amount in excess of 25%.
An example of a salaried employee:
- Maria was paid $400 per week in Q1.
- During the covered period, her pay must be at least 75% of this amount to avoid a potential decrease in forgiveness. That's $300 per week.
- If Maria is paid $250 per week during the covered period, then the additional $50 per week will be subtracted from the amount that is eligible for forgiveness. The total decrease could be up to $1200 for the extended covered period ($50 per week x 24 weeks).
An example of an hourly employee:
- Cai had an hourly rate of $20.0 per hour and worked 40 hours every week in Q1.
- During the covered period, his average compensation must be at least 75% of $20 per hour to avoid a potential decrease in forgiveness. That's $15 per hour.
- If Cai works only 30 hours per week but is paid at least $15 per hour, he will not have a wage reduction. (However, the company may have an FTE reduction.)
- If Cai works 30 hours per week, but his rate is lowered to $12.50 per hour, there will be a wage reduction of $2.50 per hour multiplied by the number of hours he works during the covered period. The total decrease could be up to $1800 for the extended covered period ($2.50 per hour x 30 hours x 24 weeks).
You'll see Decrease due to wage reductions in the Estimator under Track the progress, Amount 3.
What about the December 31st exemption?
You may be exempt from this reduction if you fully restore wages by December 31st, 2020.
If you reduced wages between February 15th and April 26th, you may be eligible for the Salary/Hourly Wage Safe Harbor if you fully restore annual salary and hourly wages by December 31st, 2020 to the annual salary and hourly wages existing on February 15th, 2020. More details about how this exemption is applied are expected soon.