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How can I determine pay reductions when using the PPP Loan Forgiveness Estimator?

by Intuit• Updated 2 weeks ago

Learn how reducing pay to your employees could impact your forgiveness amount and how to estimate pay reductions for purposes of the PPP Loan Forgiveness Estimator.

Note: The PPP reopened on January 11, 2021. Please refer to the latest guidance from the SBA and Treasury to confirm current program rules and how they apply to your particular situation.

When you apply for forgiveness, you need to include information on any relevant salary or wage reductions. Once you have calculated this information, you can include these amounts in the PPP Loan Forgiveness Estimator.

Note: Because the Estimator relies on salary and wage information you calculate and input into the tool, your actual reduction and forgiveness amount may differ, and will be determined following rules set by SBA and Treasury.

In general, your loan forgiveness amount may be reduced if you reduce the average annual salary or average hourly wages for certain employees during the Loan Forgiveness  Covered Period (or, if applicable, your Alternative Payroll Covered Period) by more than 25% as compared to Q1 2020 (January 1, 2020 and March 31, 2020).

Determine what employees and wage reductions to include

There are a few important things to consider when reviewing your pay reductions and determining which to enter into the PPP Loan Forgiveness Estimator. You will need to exclude certain employees and certain wage reductions, as these will generally not reduce your loan forgiveness amount. As you go through the steps described in the next section, do not include the following:

  • Employees that made more than the annualized equivalent of $100,000 based on any pay period in 2019
  • Employees whose principal residence is outside of the United States.
  • Independent contractors, owner-employees, self-employed individuals or partners.
  • Reductions to salary or hourly wages made between February 15, 2020 and April 26, 2020 if the reductions are reversed by the earlier of (i) the date you submit your application for loan forgiveness or (ii) December 31, 2020, or June 30, 2020.
  • You will need to go through the steps described below to determine whether there was a reduction in the wages for a particular employee.

Determine your pay adjustment

Now that you know which salary and hourly wages and which employees to include in your pay adjustment, let's estimate what your pay adjustments are.

Step 1: Identify specific reduction for each employee

In order to estimate whether there are salary or wage reductions that impact your loan forgiveness amount, you need to figure out whether there have been salary or hourly wage reductions for each of your employees.

InstructionsExample
Step 1: Determine the employee's annualized salary based on your Covered Period (8 or 24 weeks), or Alternative Payroll Covered Period, and Q1 2020 (Jan 1 - Mar 31, 2020).
In order to figure out each employee's pay adjustment, you need to annualize their salary for both (1) your Covered Period (or Alternative Covered Period) and (2) Q1 2020 and then compare the numbers
Get your employee's annualized salary for the Covered Period or Alternative Payroll Covered Period
a) Determine the employee's gross wages for your Covered Period or Alternative Payroll Covered Period: Enter the sum of gross wages for the Covered Period or Alternative Payroll Covered Period.$7,000
b) Divide that by 8 (or 24) (determining the average salary for one week)$875
c) Multiply that by 52 (determining the annualized salary for the Covered Period or Alternative Covered Period$45,500
Step 2: Determine your employee's annualized salary based on Q1 2020 (Jan 1 - Mar 31, 2020)
a) Enter the employee's salary from Q1 2020 (Jan 1, 2020 and Mar 31, 2020).$20,000
b) Multiply the above number by 4. (determining the annualized salary during Q1 2020)$80,000
Step 3: Calculate the percent salary reduction for that employee
Once you have your employee's annualized salary for both time periods, you'll need to figure out whether there was a change.
a) Divide the annualized salary from the Covered Period or Alternative Covered Period (the amount you calculated in Step 1c) by the annualized salary from Q1 2020 (the amount you calculated in Step 2b).0.57
Decision Point: If the number in Step 3 is 0.75 or more, then you don't need to continue and the estimated salary adjustment for this employee is $0.
Step 4: Determine the pay adjustment for the employee
If your employee's pay was reduced by more than 25% (the number in Step 3 is less than .75), your loan forgiveness amount may be reduced.
a) Multiply annualized salary during Q1 2020 (the amount you entered in Step 2b) by .75. This is the minimum annualized salary for the employee that would NOT result in an adjustment of your loan forgiveness.$60,000
b) Take the amount in Step A, and subtract the amount in 1c (annualized salary for Covered Period or Alternative Covered Period).$14,500
c) Multiply the number from Step 4b by 8.$116,000
d) Divide the number in Step 4c by 52. This is the estimated pay adjustment for this employee.$2,230.77
This final number in Step 4d is the $ value of the employee’s salary reduction above 25% which may result in a reduction to your forgiveness amount.
InstructionsExample
Step 1: Get the employees average hourly wages for the Covered Period (8 or 24 weeks), or Alternative Payroll Covered Period, and Q1 2020 (Jan 1 - Mar 31, 2020).
In order to figure out your employee's pay adjustment, you need to compare their average hourly salary for the Covered Period( or Alternative Covered Period, if applicable) and for Q1 2020.
a) Calculate the average hourly wage from Covered Period or Alternative Covered Period$10.50
b) Calculate the average hourly wage during Q1 2020 (Jan 1 - Mar 31, 2020)$15.00
Step 2: Calculate the percent hourly wage reduction for that employee
Once you have your employee's average hourly wage, you'll need to figure out whether there was a change.
a) Divide the average hourly wage during the Covered Period or Alternative Covered Period by the average hourly wage during Q1 2020.0.70
(i.e. divide Step 1a by Step 1b)
Decision Point: If Step 2 is 0.75 or more, then you don't need to continue and the estimated pay adjustment for this employee is $0.
Step 3: Calculate the employee's pay adjustment amount (i.e. reduction 25%)
If your employee's pay was reduced by more than 25%, your loan forgiveness amount will be reduced.
This final number is the $ value of the employee's salary reduction above 25%, which will result in a reduction to your forgiveness amount.
a) Multiply the average hourly wage during Q1 2020 by .75. This is the minimum average hourly wage for the employee that would NOT result in an adjustment of your loan forgiveness.$11.25
b) Subtract the average hourly wage from the Covered Period or the Alternative Payroll Covered Period (Step 1a above) from Step 3a.$0.75
c) Take the hourly wage reduction beyond 25% and determine the 8 or 24 week version of it.
1) Enter the average number of hours worked per week between Jan 1, 2020 and Mar 31, 202025
2) Get the 1-week $ value of the reduction (Multiply Step 3b by Step 3c1)$18.75
3) Get the 8-week (or 24-week) $ value of the reduction (Multiply Step 3c2 by 8)

 

This is the estimated pay reduction for this employee, which may result in a reduction to your forgiveness amount.

$150.00

Step 2: Add all your employees’ reductions

After you’ve calculated all your employees' specific reductions, you need to add them all together to get your total estimated pay reduction amount. Once you determine your total pay reduction amount, you can enter this number into your PPP Forgiveness Estimator within QuickBooks.

Regulations and guidance from the SBA and the U.S. Department of the Treasury on the PPP are evolving rapidly and the above information may be outdated. Please refer to the latest guidance from SBA and Treasury to confirm current program rules and how they apply to your particular situation.

The funding described is made available to businesses located in the United States of America and are not available in other locations.

This content is for information purposes only and should not be considered legal, accounting or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer's particular situation. Intuit Financing Inc. (d/b/a QuickBooks Capital) does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. QuickBooks Capital does not warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.

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