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PPP Loans: How to Ensure Maximum Forgiveness

As the dust settles on the Payroll Protection Program’s initial application stage, attention for those successful loan applicants now needs to turn to ensuring the appropriate steps are followed to gain maximum loan forgiveness.

Whilst the loan application was relatively straightforward (your average monthly payroll multiplied by 2.5x, plus healthcare & state employer payroll taxes), the forgiveness criteria are slightly more complex.

There are three main points for employers to bear in mind:

The first: At least 75% of the PPP loan money received must be used toward funding the payroll.

The remaining 25% of the PPP loan received can be used for business expenses like utilities, rent etc.

The second: You must maintain the number of employees on your payroll for the duration of the loan period.

To put it simply, if your headcount reduces over the loan period, you will lose some forgiveness. In order to determine the extent of forgiveness, employers must review two separate things:

  • (A) The number of full-time employees on the payroll for the 8-week period following receipt of loan monies
  • (B) The average number of employees on the payroll before the loan was received. You look at two periods here, and use the period which has the fewer full-time employees:
    • Either 2nd Feb – 30th June, or
    • 1st Jan – 29th Feb
  • You then divide A by B, and if you get a number less than one, the amount of the loan able to be forgiven is reduced proportionally.

The third: You must maintain 75% of salaries.

This only applies to those earning up to $100k per year (pro-rated for the loan period).

  • If these employees receive less than 75% of their normal pay during the 8 weeks from the receipt of the loan, then the amount of the loan forgiven is reduced proportionately.

For those employees earning more than $100k per year, you can reduce their salaries as much as you like down to $100k, with no consequences on loan forgiveness.

For those earning up to $100k per year, you can only reduce their salaries by up to 25% before the forgiven amount is reduced, albeit proportionately.


If you had to lay off, furlough any staff, or reduce salaries by more than 25% during the loan period, all is not lost…  if you can reinstate people, or put salaries back up to normal before 30 June, then there are no effects over the forgiveness calculation.

For more information or advice on your PPP loan, please contact Gareth Jones or Chris Osborn.