33004 Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations 

1https://www.sba.gov/document/support-faqlenders-borrowers. 

Dated at Washington, DC, on February 20, 

2020. 

Robert E. Feldman, 

Executive Secretary. 

By the National Credit Union 

Administration Board. 

Gerard Poliquin, 

Secretary of the Board. 

[FR Doc. 2020–10291 Filed 5–29–20; 8:45 am] 

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 

7535–01–P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 120 

[Docket Number SBA–2020–0032] 

RIN 3245–AH46 

DEPARTMENT OF THE TREASURY 

RIN 1505–AC69 

Business Loan Program Temporary 

Changes; Paycheck Protection 

Program—Requirements—Loan 

Forgiveness 

AGENCY: U.S. Small Business 

Administration; Department of the 

Treasury. 

ACTION: Interim final rule. 

SUMMARY: On April 2, 2020, the U.S. 

Small Business Administration (SBA) 

posted an interim final rule announcing 

the implementation of the Coronavirus 

Aid, Relief, and Economic Security Act 

(CARES Act). The CARES Act 

temporarily adds a new program, titled 

the ‘‘Paycheck Protection Program,’’ to 

the SBA’s 7(a) Loan Program. The 

CARES Act also provides for forgiveness 

of up to the full principal amount of 

qualifying loans guaranteed under the 

Paycheck Protection Program (PPP). The 

PPP is intended to provide economic 

relief to small businesses nationwide 

adversely impacted by the Coronavirus 

Disease 2019 (COVID–19). SBA posted 

additional interim final rules on April 3, 

2020, April 14, 2020, April 24, 2020, 

April 28, 2020, April 30, 2020, May 5, 

2020, May 8, 2020, May 13, 2020, May 

14, 2020, May 18, 2020, and May 20, 

2020, and the Department of the 

Treasury (Treasury) posted an 

additional interim final rule on April 

27, 2020. This interim final rule 

supplements the previously posted 

interim final rules in order to help PPP 

borrowers prepare and submit loan 

forgiveness applications as provided for 

in the CARES Act, help PPP lenders 

who will be making the loan forgiveness 

decisions, inform borrowers and lenders 

of SBA’s process for reviewing PPP loan 

applications and loan forgiveness 

applications, and requests public 

comment. 

DATES: Effective date: May 28, 2020. 

Applicability date: This interim final 

rule applies to loan forgiveness 

applications submitted under the 

Paycheck Protection Program. 

Comment date: Comments must be 

received on or before July 1, 2020. 

ADDRESSES: You may submit comments, 

identified by number SBA–2020–0032 

through the Federal eRulemaking Portal: 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

SBA will post all comments on 

www.regulations.gov. If you wish to 

submit confidential business 

information (CBI) as defined in the User 

Notice at www.regulations.gov, please 

send an email to ppp-ifr@sba.gov. 

Highlight the information that you 

consider to be CBI and explain why you 

believe SBA should hold this 

information as confidential. SBA will 

review the information and make the 

final determination whether it will 

publish the information. 

FOR FURTHER INFORMATION CONTACT: A 

Call Center Representative at 833–572– 

0502, or the local SBA Field Office; the 

list of offices can be found at https://

www.sba.gov/tools/local-assistance/ 

districtoffices. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

On March 13, 2020, President Trump 

declared the ongoing Coronavirus 

Disease 2019 (COVID–19) pandemic of 

sufficient severity and magnitude to 

warrant an emergency declaration for all 

States, territories, and the District of 

Columbia. With the COVID–19 

emergency, many small businesses 

nationwide are experiencing economic 

hardship as a direct result of the 

Federal, State, tribal, and local public 

health measures that are being taken to 

minimize the public’s exposure to the 

virus. These measures, some of which 

are government-mandated, are being 

implemented nationwide and include 

the closures of restaurants, bars, and 

gyms. In addition, based on the advice 

of public health officials, other 

measures, such as keeping a safe 

distance from others or even stay-athome orders, are being implemented, 

resulting in a dramatic decrease in 

economic activity as the public avoids 

malls, retail stores, and other 

businesses. 

On March 27, 2020, the President 

signed the Coronavirus Aid, Relief, and 

Economic Security Act (the CARES Act) 

(Pub. L. 116–136) to provide emergency 

assistance and health care response for 

individuals, families, and businesses 

affected by the coronavirus pandemic. 

The Small Business Administration 

(SBA) received funding and authority 

through the CARES Act to modify 

existing loan programs and establish a 

new loan program to assist small 

businesses nationwide adversely 

impacted by the COVID–19 emergency. 

Section 1102 of the CARES Act 

temporarily permits SBA to guarantee 

100 percent of 7(a) loans under a new 

program titled the ‘‘Paycheck Protection 

Program.’’ Section 1106 of the CARES 

Act provides for forgiveness of up to the 

full principal amount of qualifying 

loans guaranteed under the Paycheck 

Protection Program, and requires SBA to 

issue guidance and regulations 

implementing section 1106 within 30 

days after the date of enactment of the 

CARES Act. On April 2, 2020, SBA 

posted its first PPP interim final rule (85 

FR 20811) (the First Interim Final Rule) 

covering in part loan forgiveness. On 

April 8, 2020 and April 26, 2020, SBA 

also posted Frequently Asked Questions 

relating to loan forgiveness.1 On April 

14, 2020, SBA posted an interim final 

rule covering in part loan forgiveness for 

individuals with self-employment 

income. On April 24, 2020, the 

President signed the Paycheck 

Protection Program and Health Care 

Enhancement Act (Pub. L. 116–139), 

which provided additional funding and 

authority for the Paycheck Protection 

Program. 

As described below, this interim final 

rule provides borrowers and lenders 

guidance on requirements governing the 

forgiveness of PPP loans. 

Four provisions of this interim final 

rule are an exercise of rulemaking 

authority by Treasury either jointly with 

SBA or by Treasury alone: (1) The de 

minimis exemption provided with 

respect to certain offers of rehire, (2) the 

additional reference period option 

provided for seasonal employers, (3) the 

de minimis exemption from the fulltime equivalent employee reduction 

penalty when an employee is, for 

example, fired for cause, and (4) the de 

minimis exemption from the full-time 

equivalent employee reduction penalty 

when the borrower eliminates 

reductions by June 30, 2020. Otherwise, 

all provisions in this rule are an exercise 

of rulemaking authority by SBA alone. 

II. Comments and Immediate Effective 

Date 

The intent of the CARES Act is that 

SBA provide relief to America’s small 

businesses expeditiously. This intent, 

along with the dramatic decrease in 


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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations 33005 

2Payroll costs consist of compensation to 

employees (whose principal place of residence is 

the United States) in the form of salary, wages, 

commissions, or similar compensation; cash tips or 

the equivalent (based on employer records of past 

tips or, in the absence of such records, a reasonable, 

good-faith employer estimate of such tips); payment 

for vacation, parental, family, medical, or sick 

leave; allowance for separation or dismissal; 

payment for the provision of employee benefits 

consisting of group health care coverage, including 

insurance premiums, and retirement; payment of 

state and local taxes assessed on compensation of 

employees; and for an independent contractor or 

sole proprietor, wages, commissions, income, or net 

earnings from self-employment, or similar 

compensation. See 15 U.S.C. 636(a)(36)(A)(viii); 85 

FR 20811, 20813. 

economic activity nationwide, provides 

good cause for SBA to dispense with the 

30-day delayed effective date provided 

in the Administrative Procedure Act. 

Specifically, it is critical to meet 

lenders’ and borrowers’ need for clarity 

concerning loan forgiveness 

requirements as rapidly as possible 

because borrowers can seek loan 

forgiveness as early as eight-weeks 

following the date of disbursement of 

their PPP loans. Because the first PPP 

loans were disbursed after April 3, 

providing borrowers with certainty on 

loan forgiveness requirements and other 

program requirements will enhance 

their ability to carry out the purposes of 

the CARES Act in keeping their workers 

employed and paid, while at the same 

time taking necessary steps to maximize 

eligible loan forgiveness amounts. An 

immediate effective date also is 

necessary for PPP lenders who generally 

will make the loan forgiveness 

determinations as provided in the 

CARES Act. Specifically, an immediate 

effective date is necessary for lenders so 

that they will have both a degree of 

certainty and sufficient time to develop 

their systems and policies and 

procedures in order to timely review 

and process loan forgiveness 

applications, which borrowers are 

permitted to begin submitting at the end 

of their covered period. 

This interim final rule supplements 

previous regulations and guidance on 

the discrete issues related to loan 

forgiveness. This interim final rule is 

effective without advance notice and 

public comment because section 1114 of 

the CARES Act authorizes SBA to issue 

regulations to implement Title I of the 

CARES Act without regard to notice 

requirements. In addition, SBA has 

determined that there is good cause for 

dispensing with advance public notice 

and comment on the ground that it 

would be contrary to the public interest. 

Specifically, SBA has determined that 

advance notice and public comment 

would delay the ability of PPP 

borrowers to understand with certainty 

which payroll costs and nonpayroll 

costs that are incurred or paid during 

the covered period are eligible for 

forgiveness. By providing a high degree 

of certainty to PPP borrowers through 

this interim final rule, PPP borrowers 

will be able to take immediate steps to 

maximize their loan forgiveness 

amounts, for example, by either rehiring 

employees or not laying off employees 

during the covered period. This rule is 

being issued to allow for immediate 

implementation of the forgiveness 

component of this program. Although 

this interim final rule is effective 

immediately, comments are solicited 

from interested members of the public 

on all aspects of this interim final rule, 

including section III below. These 

comments must be submitted on or 

before July 1, 2020. SBA will consider 

these comments and the need for 

making any revisions as a result of these 

comments. 

III. Paycheck Protection Program 

Requirements for Loan Forgiveness 

Overview 

The CARES Act was enacted to 

provide immediate assistance to 

individuals, families, and organizations 

affected by the COVID–19 emergency. 

Among the provisions contained in the 

CARES Act are provisions authorizing 

SBA to temporarily guarantee loans 

under the Paycheck Protection Program 

(PPP). Loans under the PPP will be 100 

percent guaranteed by SBA, and the full 

principal amount of the loans may 

qualify for loan forgiveness. Additional 

information about the PPP is available 

in interim final rules published by SBA 

and Treasury in the Federal Register (85 

FR 20811, 85 FR 20817, 85 FR 21747, 

85 FR 23450, 85 FR 23917, 85 FR 26321, 

85 FR 26324, 85 FR 27287, 85 FR 29842, 

85 FR 29845, 85 FR 29847, 85 FR 30835) 

as well as an SBA interim final rule 

posted on May 20, 2020. 

1. General 

Section 1106(b) of the CARES Act 

provides that, subject to several 

important limitations, borrowers shall 

be eligible for forgiveness of their PPP 

loan in an amount equal to the sum of 

the following costs incurred and 

payments made during the covered 

period (as described in section III.3. 

below): 

(1) Payroll costs; 2

(2) Interest payments on any business 

mortgage obligation on real or personal 

property that was incurred before 

February 15, 2020 (but not any 

prepayment or payment of principal); 

(3) Payments on business rent 

obligations on real or personal property 

under a lease agreement in force before 

February 15, 2020; and 

(4) Business utility payments for the 

distribution of electricity, gas, water, 

transportation, telephone, or internet 

access for which service began before 

February 15, 2020. 

This interim final rule uses the term 

‘‘nonpayroll costs’’ to refer to the 

payments described in (2), (3), and (4). 

As set forth in the First Interim Final 

Rule (85 FR 20811), eligible nonpayroll 

costs cannot exceed 25 percent of the 

loan forgiveness amount. 

2. Loan Forgiveness Process 

What is the general process to obtain 

loan forgiveness? 

To receive loan forgiveness, a 

borrower must complete and submit the 

Loan Forgiveness Application (SBA 

Form 3508 or lender equivalent) to its 

lender (or the lender servicing its loan). 

As a general matter, the lender will 

review the application and make a 

decision regarding loan forgiveness. The 

lender has 60 days from receipt of a 

complete application to issue a decision 

to SBA. If the lender determines that the 

borrower is entitled to forgiveness of 

some or all of the amount applied for 

under the statute and applicable 

regulations, the lender must request 

payment from SBA at the time the 

lender issues its decision to SBA. SBA 

will, subject to any SBA review of the 

loan or loan application, remit the 

appropriate forgiveness amount to the 

lender, plus any interest accrued 

through the date of payment, not later 

than 90 days after the lender issues its 

decision to SBA. If applicable, SBA will 

deduct EIDL Advance Amounts from 

the forgiveness amount remitted to the 

Lender as required by section 1110(e)(6) 

of the CARES Act. If SBA determines in 

the course of its review that the 

borrower was ineligible for the PPP loan 

based on the provisions of the CARES 

Act, SBA rules or guidance available at 

the time of the borrower’s loan 

application, or the terms of the 

borrower’s PPP loan application (for 

example, because the borrower lacked 

an adequate basis for the certifications 

that it made in its PPP loan application), 

the loan will not be eligible for loan 

forgiveness. The lender is responsible 

for notifying the borrower of the 

forgiveness amount. If only a portion of 

the loan is forgiven, or if the forgiveness 

request is denied, any remaining 

balance due on the loan must be repaid 

by the borrower on or before the twoyear maturity of the loan. If the amount 

remitted by SBA to the lender exceeds 

the remaining principal balance of the 

PPP loan (because the borrower made 


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3See 85 CFR 21747, 21749 (April 20, 2020). 

scheduled payments on the loan after 

the initial deferment period), the lender 

must remit the excess amount, 

including accrued interest, to the 

borrower. 

The general loan forgiveness process 

described above applies only to loan 

forgiveness applications that are not 

reviewed by SBA prior to the lender’s 

decision on the forgiveness application. 

In a separate interim final rule on SBA 

Loan Review Procedures and Related 

Borrower and Lender Responsibilities, 

SBA will describe its procedures for 

reviewing PPP loan applications and 

loan forgiveness applications. 

3. Payroll Costs Eligible for Loan 

Forgiveness 

a. When must payroll costs be incurred 

and/or paid to be eligible for 

forgiveness? 

In general, payroll costs paid or 

incurred during the eight consecutive 

week (56 days) covered period are 

eligible for forgiveness. Borrowers may 

seek forgiveness for payroll costs for the 

eight weeks beginning on either: 

i. The date of disbursement of the 

borrower’s PPP loan proceeds from the 

Lender (i.e., the start of the covered 

period); or 

ii. the first day of the first payroll 

cycle in the covered period (the 

‘‘alternative payroll covered period’’). 

Payroll costs are considered paid on 

the day that paychecks are distributed 

or the borrower originates an ACH 

credit transaction. Payroll costs incurred 

during the borrower’s last pay period of 

the covered period or the alternative 

payroll covered period are eligible for 

forgiveness if paid on or before the next 

regular payroll date; otherwise, payroll 

costs must be paid during the covered 

period (or alternative payroll covered 

period) to be eligible for forgiveness. 

Payroll costs are generally incurred on 

the day the employee’s pay is earned 

(i.e., on the day the employee worked). 

For employees who are not performing 

work but are still on the borrower’s 

payroll, payroll costs are incurred based 

on the schedule established by the 

borrower (typically, each day that the 

employee would have performed work). 

The Administrator of the Small 

Business Administration 

(Administrator), in consultation with 

the Secretary of the Treasury 

(Secretary), recognizes that the eightweek covered period will not always 

align with a borrower’s payroll cycle. 

For administrative convenience of the 

borrower, a borrower with a bi-weekly 

(or more frequent) payroll cycle may 

elect to use an alternative payroll 

covered period that begins on the first 

day of the first payroll cycle in the 

covered period and continues for the 

following eight weeks. If payroll costs 

are incurred during this eight-week 

alternative payroll covered period, but 

paid after the end of the alternative 

payroll covered period, such payroll 

costs will be eligible for forgiveness if 

they are paid no later than the first 

regular payroll date thereafter. 

The Administrator, in consultation 

with the Secretary, determined that this 

alternative computational method for 

payroll costs is justified by 

considerations of administrative 

feasibility for borrowers, as it will 

reduce burdens on borrowers and their 

payroll agents while achieving the 

paycheck protection purposes manifest 

throughout the CARES Act, including 

section 1102. Because this alternative 

computational method is limited to 

payroll cycles that are bi-weekly or 

more frequent, this computational 

method will yield a calculation that the 

Administrator does not expect to 

materially differ from the actual covered 

period, while avoiding unnecessary 

administrative burdens and enhancing 

auditability. 

Example: A borrower has a bi-weekly 

payroll schedule (every other week). 

The borrower’s eight-week covered 

period begins on June 1 and ends on 

July 26. The first day of the borrower’s 

first payroll cycle that starts in the 

covered period is June 7. The borrower 

may elect an alternative payroll covered 

period for payroll cost purposes that 

starts on June 7 and ends 55 days later 

(for a total of 56 days) on August 1. 

Payroll costs paid during this alternative 

payroll covered period are eligible for 

forgiveness. In addition, payroll costs 

incurred during this alternative payroll 

covered period are eligible for 

forgiveness as long as they are paid on 

or before the first regular payroll date 

occurring after August 1. Payroll costs 

that were both paid and incurred during 

the covered period (or alternative 

payroll covered period) may only be 

counted once. 

b. Are salary, wages, or commission 

payments to furloughed employees; 

bonuses; or hazard pay during the 

covered period eligible for loan 

forgiveness? 

Yes. The CARES Act defines the term 

‘‘payroll costs’’ broadly to include 

compensation in the form of salary, 

wages, commissions, or similar 

compensation. If a borrower pays 

furloughed employees their salary, 

wages, or commissions during the 

covered period, those payments are 

eligible for forgiveness as long as they 

do not exceed an annual salary of 

$100,000, as prorated for the covered 

period. The Administrator, in 

consultation with the Secretary, has 

determined that this interpretation is 

consistent with the text of the statute 

and advances the paycheck protection 

purposes of the statute by enabling 

borrowers to continue paying their 

employees even if those employees are 

not able to perform their day-to-day 

duties, whether due to lack of economic 

demand or public health considerations. 

This intent is reflected throughout the 

statute, including in section 1106(d)(4) 

of the Act, which provides that 

additional wages paid to tipped 

employees are eligible for forgiveness. 

The Administrator, in consultation with 

the Secretary, has also determined that, 

if an employee’s total compensation 

does not exceed $100,000 on an 

annualized basis, the employee’s hazard 

pay and bonuses are eligible for loan 

forgiveness because they constitute a 

supplement to salary or wages, and are 

thus a similar form of compensation. 

c. Are there caps on the amount of loan 

forgiveness available for owneremployees and self-employed 

individuals’ own payroll compensation? 

Yes, the amount of loan forgiveness 

requested for owner-employees and selfemployed individuals’ payroll 

compensation can be no more than the 

lesser of 8/52 of 2019 compensation 

(i.e., approximately 15.38 percent of 

2019 compensation) or $15,385 per 

individual in total across all businesses. 

See 85 FR 21747, 21750. 

In particular, owner-employees are 

capped by the amount of their 2019 

employee cash compensation and 

employer retirement and health care 

contributions made on their behalf. 

Schedule C filers are capped by the 

amount of their owner compensation 

replacement, calculated based on 2019 

net profit.3 General partners are capped 

by the amount of their 2019 net earnings 

from self-employment (reduced by 

claimed section 179 expense deduction, 

unreimbursed partnership expenses, 

and depletion from oil and gas 

properties) multiplied by 0.9235. No 

additional forgiveness is provided for 

retirement or health insurance 

contributions for self-employed 

individuals, including Schedule C filers 

and general partners, as such expenses 

are paid out of their net selfemployment income. 


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4Further information regarding how borrowers 

will report information concerning rejected rehire 

offers to state unemployment insurance offices will 

be provided on SBA’s website. 

5Section 1106(d)(6) is the sole joint rulemaking 

authority exercised in this interim final rule. All 

other provisions of this interim final rule are an 

exercise of rulemaking authority by SBA, except as 

expressly noted otherwise. 

6Section 1106(d)(5) specifies that this reference 

period is between February 15, 2020 and 30 days 

after the date of enactment of the CARES Act or 

April 26, 2020 (the safe harbor period). 

7This decision to permit seasonal employers to 

use, as a reference period, any consecutive 12-week 

period between May 1, 2019 and September 15, 

2019 is an exercise of the Secretary’s rulemaking 

authority under section 1109 of the CARES Act. 

This reference period is consistent with the interim 

final rule on seasonal employers issued by 

Treasury. See 85 FR 23917 (April 30, 2020). 

4. Nonpayroll Costs Eligible for Loan 

Forgiveness 

a. When must nonpayroll costs be 

incurred and/or paid to be eligible for 

forgiveness? 

A nonpayroll cost is eligible for 

forgiveness if it was: 

i. Paid during the covered period; or 

ii. incurred during the covered period 

and paid on or before the next regular 

billing date, even if the billing date is 

after the covered period. 

Example: A borrower’s covered 

period begins on June 1 and ends on 

July 26. The borrower pays its May and 

June electricity bill during the covered 

period and pays its July electricity bill 

on August 10, which is the next regular 

billing date. The borrower may seek 

loan forgiveness for its May and June 

electricity bills, because they were paid 

during the covered period. In addition, 

the borrower may seek loan forgiveness 

for the portion of its July electricity bill 

through July 26 (the end of the covered 

period), because it was incurred during 

the covered period and paid on the next 

regular billing date. 

The Administrator, in consultation 

with the Secretary, has determined that 

this interpretation provides an 

appropriate degree of borrower 

flexibility while remaining consistent 

with the text of section 1106(b). The 

Administrator believes that this 

simplified approach to calculation of 

forgivable nonpayroll costs is also 

supported by considerations of 

administrative convenience for 

borrowers, and the Administrator notes 

that the 25 percent cap on nonpayroll 

costs will avoid excessive inclusion of 

nonpayroll costs. 

b. Are advance payments of interest on 

mortgage obligations eligible for loan 

forgiveness? 

No. Advance payments of interest on 

a covered mortgage obligation are not 

eligible for loan forgiveness because the 

CARES Act’s loan forgiveness 

provisions regarding mortgage 

obligations specifically exclude 

‘‘prepayments.’’ Principal on mortgage 

obligations is not eligible for forgiveness 

under any circumstances. 

5. Reductions to Loan Forgiveness 

Amount 

Section 1106 of the CARES Act 

specifically requires certain reductions 

in a borrower’s loan forgiveness amount 

based on reductions in full-time 

equivalent employees or in employee 

salary and wages during the covered 

period, subject to an important statutory 

exemption for borrowers who have 

rehired employees and restored salary 

and wage levels by June 30, 2020 (with 

limitations). In addition, SBA and 

Treasury are adopting a regulatory 

exemption to the reduction rules for 

borrowers who have offered to rehire 

employees or restore employee hours, 

even if the employees have not 

accepted. The instructions to the loan 

forgiveness application and the 

guidance below explains how the 

statutory forgiveness reduction formulas 

work. 

a. Will a borrower’s loan forgiveness 

amount be reduced if the borrower laidoff or reduced the hours of an employee, 

then offered to rehire the same 

employee for the same salary and same 

number of hours, or restore the 

reduction in hours, but the employee 

declined the offer? 

No. Employees whom the borrower 

offered to rehire are generally exempt 

from the CARES Act’s loan forgiveness 

reduction calculation. This exemption is 

also available if a borrower previously 

reduced the hours of an employee and 

offered to restore the employee’s hours 

at the same salary or wages. 

Specifically, in calculating the loan 

forgiveness amount, a borrower may 

exclude any reduction in full-time 

equivalent employee headcount that is 

attributable to an individual employee 

if: 

i. The borrower made a good faith, 

written offer to rehire such employee 

(or, if applicable, restore the reduced 

hours of such employee) during the 

covered period or the alternative payroll 

covered period; 

ii. the offer was for the same salary or 

wages and same number of hours as 

earned by such employee in the last pay 

period prior to the separation or 

reduction in hours; 

iii. the offer was rejected by such 

employee; 

iv. the borrower has maintained 

records documenting the offer and its 

rejection; and 

v. the borrower informed the 

applicable state unemployment 

insurance office of such employee’s 

rejected offer of reemployment within 

30 days of the employee’s rejection of 

the offer.4

The Administrator and the Secretary 

determined that this exemption is an 

appropriate exercise of their joint 

rulemaking authority to grant de 

minimis exemptions under section 

1106(d)(6).5 Section 1106(d)(2) of the 

CARES Act reduces the amount of the 

PPP loan that may be forgiven if the 

borrower reduces full-time equivalent 

employees during the covered period as 

compared to a base period selected by 

the borrower. Section 1106(d)(5) of the 

CARES Act waives this reduction in the 

forgiveness amount if the borrower 

eliminates the reduction in full-time 

equivalent employees occurring during 

a different statutory reference period 6

by not later than June 30, 2020. The 

Administrator and the Secretary believe 

that the additional exemption set forth 

above is consistent with the purposes of 

the CARES Act and provides borrowers 

appropriate flexibility in the current 

economic climate. The Administrator, 

in consultation with the Secretary, have 

determined that the exemption is de 

minimis for two reasons. First, it is 

reasonable to anticipate that most laidoff employees will accept the offer of 

reemployment in light of current labor 

market conditions. Second, to the extent 

this exemption allows employers to cure 

FTE reductions attributable to 

terminations that occurred before 

February 15, 2020 (the start of the 

statutory FTE reduction safe harbor 

period), it is reasonable to anticipate 

those reductions will represent a 

relatively small portion of aggregate 

employees given the historically strong 

labor market conditions before the 

COVID–19 emergency. 

b. What effect does a reduction in a 

borrower’s number of full-time 

equivalent (FTE) employees have on the 

loan forgiveness amount? 

In general, a reduction in FTE 

employees during the covered period or 

the alternative payroll covered period 

reduces the loan forgiveness amount by 

the same percentage as the percentage 

reduction in FTE employees. The 

borrower must first select a reference 

period: (i) February 15, 2019 through 

June 30, 2019; (ii) January 1, 2020 

through February 29, 2020; or (iii) in the 

case of a seasonal employer, either of 

the two preceding methods or a 

consecutive 12-week period between 

May 1, 2019 and September 15, 2019.7


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If the average number of FTE employees 

during the covered period or the 

alternative payroll covered period is less 

than during the reference period, the 

total eligible expenses available for 

forgiveness is reduced proportionally by 

the percentage reduction in FTE 

employees. For example, if a borrower 

had 10.0 FTE employees during the 

reference period and this declined to 8.0 

FTE employees during the covered 

period, the percentage of FTE 

employees declined by 20 percent and 

thus only 80 percent of otherwise 

eligible expenses are available for 

forgiveness. 

This formula implements section 

1106(d)(2) of the CARES Act, which 

expressly requires that the loan 

forgiveness amount be reduced by the 

amount resulting from multiplying the 

amount that the borrower would 

otherwise receive by the quotient of the 

average FTE employees in the covered 

period divided by the average FTE 

employees in the relevant reference 

period. 

c. What does ‘‘full-time equivalent 

employee’’ mean? 

Full-time equivalent employee means 

an employee who works 40 hours or 

more, on average, each week. The hours 

of employees who work less than 40 

hours are calculated as proportions of a 

single full-time equivalent employee 

and aggregated, as explained further 

below in subsection d. 

The CARES Act does not define the 

term ‘‘full-time equivalent employee,’’ 

and the Administrator, in consultation 

with the Secretary, has determined that 

full-time equivalent is best understood 

to mean 40 hours or more of work each 

week. The Administrator considered 

using a 30 hour standard, but 

determined that 40 hours or more of 

work each week better reflects what 

constitutes full-time employment for the 

vast majority of American workers. 

d. How should a borrower calculate its 

number of full-time equivalent (FTE) 

employees? 

Borrowers seeking forgiveness must 

document their average number of FTE 

employees during the covered period (or 

the alternative payroll covered period) 

and their selected reference period. For 

purposes of this calculation, borrowers 

must divide the average number of 

hours paid for each employee per week 

by 40, capping this quotient at 1.0. For 

example, an employee who was paid 48 

hours per week during the covered 

period would be considered to be an 

FTE employee of 1.0. 

For employees who were paid for less 

than 40 hours per week, borrowers may 

choose to calculate the full-time 

equivalency in one of two ways. First, 

the borrower may calculate the average 

number of hours a part-time employee 

was paid per week during the covered 

period. For example, if an employee was 

paid for 30 hours per week on average 

during the covered period, the employee 

could be considered to be an FTE 

employee of 0.75. Similarly, if an 

employee was paid for ten hours per 

week on average during the covered 

period, the employee could be 

considered to be an FTE employee of 

0.25. Second, for administrative 

convenience, borrowers may elect to use 

a full-time equivalency of 0.5 for each 

part-time employee. The Administrator 

recognizes that not all borrowers 

maintain hours-worked data, and has 

decided to afford such borrowers this 

flexibility in calculating the full-time 

equivalency of their part-time 

employees. 

Borrowers may select only one of 

these two methods, and must apply that 

method consistently to all of their parttime employees for the covered period 

or the alternative payroll covered period 

and the selected reference period. In 

either case, the borrower shall provide 

the aggregate total of FTE employees for 

both the selected reference period and 

the covered period or the alternative 

payroll covered period, by adding 

together all of the employee-level FTE 

employee calculations. The borrower 

must then divide the average FTE 

employees during the covered period or 

the alternative payroll covered period 

by the average FTE employees during 

the selected reference period, resulting 

in the reduction quotient. 

The Administrator, in consultation 

with the Secretary, determined that 

because the Act does not define the term 

FTE employee, this approach to 

measurement of FTE is a reasonable and 

appropriate exercise of the 

Administrator’s rulemaking authority, 

as it balances the need for a reasonable 

measurement of FTE employee 

headcount with the need to limit 

borrower compliance burdens and 

ensure administrative feasibility. 

e. What effect does a borrower’s 

reduction in employees’ salary or wages 

have on the loan forgiveness amount? 

Under section 1106(d)(3) of the 

CARES Act, a reduction in an 

employee’s salary or wages in excess of 

25 percent will generally result in a 

reduction in the loan forgiveness 

amount, unless an exception applies. 

Specifically, 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 forgiveness amount by 

the total dollar amount of the salary or 

wage reductions that are in excess of 25 

percent of base salary or wages between 

January 1, 2020 and March 31, 2020 (the 

reference period), subject to exceptions 

for borrowers who restore reduced 

wages or salaries (see g. below). This 

reduction calculation is performed on a 

per employee basis, not in the aggregate. 

Example: A borrower reduced a fulltime 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 

percent 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). 

The provision implements section 

1106(d)(3) of the CARES Act, which 

provides that ‘‘the amount of loan 

forgiveness shall be reduced by the 

amount of any reduction in total salary 

or wages of any employee [who did not 

receive, during any single pay period 

during 2019, wages or salary at an 

annualized rate of pay in an amount 

more than $100,000] during the covered 

period that is in excess of 25 percent of 

the total salary or wages of the employee 

during the most recent full quarter 

during which the employee was 

employed before the covered period.’’ 

f. How should borrowers seeking loan 

forgiveness account for the reduction 

based on a reduction in the number of 

employees (Section 1106(d)(2)) relative 

to the reduction relating to salary and 

wages (Section 1106(d)(3))? 

To ensure that borrowers are not 

doubly penalized, the salary/wage 

reduction applies only to the portion of 

the decline in employee salary and 

wages that is not attributable to the FTE 

reduction. 

The Act does not address the 

intersection between the FTE employee 

reduction provision in section 

1106(d)(2) and the salary/wage 

reduction provision in section 

1106(d)(3). To help ensure uniformity 

across all borrowers in applying the FTE 

reduction provision and the salary/wage 

reduction provision, the Administrator, 

in consultation with the Secretary, has 

determined that the salary/wage 

reduction applies only to the portion of 

the decline in employee salary and 

wages that is not attributable to the FTE 

reduction. This approach will help 


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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations 33009 

8 In light of the flexibility the Act provides to 

borrowers with respect to their selection of the 

reference time period for any potential reduction in 

loan forgiveness, and the statutory authority for 

SBA and the Department of the Treasury to grant 

de minimis exemptions from this requirement, if 

the borrower meets the requirements for the FTE 

reduction safe harbor, it will not be subject to any 

loan forgiveness reduction based on a reduction in 

FTE employees. 

ensure that borrowers are not doubly 

penalized for reductions. 

Example: An hourly wage employee 

had been working 40 hours per week 

during the borrower selected reference 

period (FTE employee of 1.0) and the 

borrower reduced the employee’s hours 

to 20 hours per week during the covered 

period (FTE employee of 0.5). There was 

no change to the employee’s hourly 

wage during the covered period. 

Because the hourly wage did not 

change, the reduction in the employee’s 

total wages is entirely attributable to the 

FTE employee reduction and the 

borrower is not required to conduct a 

salary/wage reduction calculation for 

that employee. 

The Administrator considered 

applying the salary/wage reduction 

provision in addition to the FTE 

reduction in situations similar to the 

example above because section 

1106(d)(3) refers to reductions in ‘‘total 

salary or wages’’ in excess of 25 percent. 

However, the Administrator determined 

that, based on the structure of section 

1106(d)(2) and section 1106(d)(3), 

Congress intended to distinguish 

between an FTE reduction on the one 

hand and a reduction in hourly wages 

or salary on the other hand. This 

interpretation harmonizes the two loan 

forgiveness reduction provisions in a 

logical manner consistent with the 

statute. 

g. If a borrower restores reductions 

made to employee salaries and wages or 

FTE employees by not later than June 

30, 2020, can the borrower avoid a 

reduction in its loan forgiveness 

amount? 

Yes. Section 1106(d)(5) of the CARES 

Act provides that if certain employee 

salaries and wages were reduced 

between February 15, 2020 and April 

26, 2020 (the safe harbor period) but the 

borrower eliminates those reductions by 

June 30, 2020 or earlier, the borrower is 

exempt from any reduction in loan 

forgiveness amount that would 

otherwise be required due to reductions 

in salaries and wages under section 

1106(d)(3) of the CARES Act. Similarly, 

if a borrower eliminates any reductions 

in FTE employees occurring during the 

safe harbor period by June 30, 2020 or 

earlier, the borrower is exempt from any 

reduction in loan forgiveness amount 

that would otherwise be required due to 

reductions in FTE employees.8

This provision implements section 

1106(d)(5) of the CARES Act, which 

gives borrowers an opportunity to cure 

reductions in FTEs, salary/wage 

reductions in excess of 25 percent, or 

both, using the applicable methodology 

set forth in section 1106(d)(5). The Act 

provides that the reduction in FTEs or 

the reduction in salary/hourly wages 

must be eliminated ‘‘not later than June 

30, 2020.’’ This does not change or 

affect the requirement that at least 75 

percent of the loan forgiveness amount 

must be attributable to payroll costs. 

h. Will a borrower’s loan forgiveness 

amount be reduced if an employee is 

fired for cause, voluntarily resigns, or 

voluntarily requests a schedule 

reduction? 

No. When an employee of the 

borrower is fired for cause, voluntarily 

resigns, or voluntarily requests a 

reduced schedule during the covered 

period or the alternative payroll covered 

period (FTE reduction event), the 

borrower may count such employee at 

the same full-time equivalency level 

before the FTE reduction event when 

calculating the section 1106(d)(2) FTE 

employee reduction penalty. The 

Administrator and the Secretary have 

decided to exempt such employees from 

the calculation of the FTE reduction 

penalty. 

Section 1106 is silent concerning how 

to account for employees who are fired 

for cause, voluntarily resign, or 

voluntarily request a reduced schedule. 

The Administrator and the Secretary 

have determined that such an 

exemption is de minimis, because a 

limited number of borrowers will face 

an FTE reduction event during the 

covered period or the alternative payroll 

covered period. Further, borrowers 

should not be penalized for changes in 

employee headcount that are the result 

of employee actions and requests. 

Borrowers that avail themselves of this 

de minimis exemption shall maintain 

records demonstrating that each such 

employee was fired for cause, 

voluntarily resigned, or voluntarily 

requested a schedule reduction. The 

borrower shall provide such 

documentation upon request. 

6. Documentation Requirements 

What must borrowers submit for 

forgiveness of their PPP loans? 

The loan forgiveness application form 

details the documentation requirements; 

specifically, documentation each 

borrower must submit with its Loan 

Forgiveness Application (SBA Form 

3508 or a lender equivalent), 

documentation each borrower is 

required to maintain and make available 

upon request, and documentation each 

borrower may voluntarily submit with 

its loan forgiveness application. Section 

1106(e) of the Act requires borrowers to 

submit to their lenders an application, 

which includes certain documentation, 

and section 1106(f) provides that the 

borrower shall not receive forgiveness 

without submitting the required 

documentation. For purposes of 

administrative convenience for both 

lenders and borrowers, the 

Administrator, in consultation with the 

Secretary, has determined that requiring 

borrowers to submit certain 

documentation, maintain certain 

documentation, and choose whether to 

submit additional documentation will 

reduce initial reporting burdens on 

borrowers and reduce initial 

recordkeeping burdens on lenders. 

7. Additional Information 

SBA may provide further guidance, if 

needed, through SBA notices that will 

be posted on SBA’s website at 

www.sba.gov. Questions on the 

Paycheck Protection Program may be 

directed to the Lender Relations 

Specialist in the local SBA Field Office. 

The local SBA Field Office may be 

found at https://www.sba.gov/tools/ 

local-assistance/districtoffices. 

Compliance With Executive Orders 

12866, 12988, 13132, 13563, and 13771, 

the Paperwork Reduction Act (44 

U.S.C. Ch. 35), and the Regulatory 

Flexibility Act (5 U.S.C. 601–612) 

Executive Orders 12866, 13563, and 

13771 

This interim final rule is 

economically significant for the 

purposes of Executive Orders 12866 and 

13563, and is considered a major rule 

under the Congressional Review Act. 

SBA, however, is proceeding under the 

emergency provision at Executive Order 

12866 Section 6(a)(3)(D), based on the 

need to move expeditiously to mitigate 

the current economic conditions arising 

from the COVID–19 emergency. This 

rule’s designation under Executive 

Order 13771 will be informed by public 

comment. 

Executive Order 12988 

SBA has drafted this rule, to the 

extent practicable, in accordance with 

the standards set forth in section 3(a) 

and 3(b)(2) of Executive Order 12988, to 

minimize litigation, eliminate 

ambiguity, and reduce burden. The rule 

has no preemptive or retroactive effect. 


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33010 Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations 

Executive Order 13132 

SBA has determined that this rule 

will not have substantial direct effects 

on the States, on the relationship 

between the National Government and 

the States, or on the distribution of 

power and responsibilities among the 

various layers of government. Therefore, 

SBA has determined that this rule has 

no federalism implications warranting 

preparation of a federalism assessment. 

Paperwork Reduction Act, 44 U.S.C. 

Chapter 35 

SBA has determined that this rule 

will impose a new reporting 

requirement on borrowers who request 

forgiveness of their PPP loan. SBA has 

developed Form 3508, Paycheck 

Protection Program—Loan Forgiveness 

Application, for use in collecting the 

information required to determine 

whether a borrower is eligible for loan 

forgiveness. SBA obtained approval of 

Form 3508 from the Office of 

Management and Budget (OMB) as a 

modification to the existing PPP 

collection of information (OMB Control 

Number (3245–0407). This collection of 

information was approved under 

emergency procedures to facilitate 

immediate implementation of the PPP 

and expires on October 31, 2020. 

Regulatory Flexibility Act (RFA) 

The Regulatory Flexibility Act (RFA) 

generally requires that when an agency 

issues a proposed rule, or a final rule 

pursuant to section 553(b) of the APA or 

another law, the agency must prepare a 

regulatory flexibility analysis that meets 

the requirements of the RFA and 

publish such analysis in the Federal 

Register. 5 U.S.C. 603, 604. Specifically, 

the RFA normally requires agencies to 

describe the impact of a rulemaking on 

small entities by providing a regulatory 

impact analysis. Such analysis must 

address the consideration of regulatory 

options that would lessen the economic 

effect of the rule on small entities. The 

RFA defines a ‘‘small entity’’ as (1) a 

proprietary firm meeting the size 

standards of the Small Business 

Administration (SBA); (2) a nonprofit 

organization that is not dominant in its 

field; or (3) a small government 

jurisdiction with a population of less 

than 50,000. 5 U.S.C. 601(3)–(6). Except 

for such small government jurisdictions, 

neither State nor local governments are 

‘‘small entities.’’ Similarly, for purposes 

of the RFA, individual persons are not 

small entities. The requirement to 

conduct a regulatory impact analysis 

does not apply if the head of the agency 

‘‘certifies that the rule will not, if 

promulgated, have a significant 

economic impact on a substantial 

number of small entities.’’ 5 U.S.C. 

605(b). The agency must, however, 

publish the certification in the Federal 

Register at the time of publication of the 

rule, ‘‘along with a statement providing 

the factual basis for such certification.’’ 

If the agency head has not waived the 

requirements for a regulatory flexibility 

analysis in accordance with the RFA’s 

waiver provision, and no other RFA 

exception applies, the agency must 

prepare the regulatory flexibility 

analysis and publish it in the Federal 

Register at the time of promulgation or, 

if the rule is promulgated in response to 

an emergency that makes timely 

compliance impracticable, within 180 

days of publication of the final rule. 5 

U.S.C. 604(a), 608(b). Rules that are 

exempt from notice and comment are 

also exempt from the RFA requirements, 

including conducting a regulatory 

flexibility analysis, when among other 

things the agency for good cause finds 

that notice and public procedure are 

impracticable, unnecessary, or contrary 

to the public interest. SBA Office of 

Advocacy guide: How to Comply with 

the Regulatory Flexibility Act, Ch.1. p.9. 

Accordingly, SBA is not required to 

conduct a regulatory flexibility analysis. 

Jovita Carranza, 

Administrator Small Business 

Administration. 

Michael Faulkender, 

Assistant Secretary for Economic Policy, 

Department of the Treasury. 

[FR Doc. 2020–11536 Filed 5–28–20; 8:45 am] 

BILLING CODE 8026–03–P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 120 

[Docket Number SBA–2020–0033] 

RIN 3245–AH47 

Business Loan Program Temporary 

Changes; Paycheck Protection 

Program—SBA Loan Review 

Procedures and Related Borrower and 

Lender Responsibilities 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Interim final rule. 

SUMMARY: On April 2, 2020, the U.S. 

Small Business Administration (SBA) 

posted an interim final rule announcing 

the implementation of the Coronavirus 

Aid, Relief, and Economic Security Act 

(CARES Act). The CARES Act 

temporarily adds a new program, titled 

the ‘‘Paycheck Protection Program,’’ to 

the SBA’s 7(a) Loan Program. The 

CARES Act also provides for forgiveness 

of up to the full principal amount of 

qualifying loans guaranteed under the 

Paycheck Protection Program (PPP). The 

PPP is intended to provide economic 

relief to small businesses nationwide 

adversely impacted by the Coronavirus 

Disease 2019 (COVID–19). SBA posted 

additional interim final rules on April 3, 

2020, April 14, 2020, April 24, 2020, 

April 28, 2020, April 30, 2020, May 5, 

2020, May 8, 2020, May 13, 2020, May 

14, 2020, May 18, 2020, and May 20, 

2020, and the Department of the 

Treasury (Treasury) posted an 

additional interim final rule on April 

27, 2020. SBA and Treasury posted an 

interim final rule on Loan Forgiveness 

contemporaneously with this interim 

final rule on May 22, 2020. This interim 

final rule supplements the previously 

posted interim final rules in order to 

inform borrowers and lenders of SBA’s 

process for reviewing PPP loan 

applications and loan forgiveness 

applications, and requests public 

comment. 

DATES:

Effective date: This rule is effective 

May 28, 2020. 

Applicability date: This interim final 

rule applies to loan applications and 

loan forgiveness applications submitted 

under the Paycheck Protection Program. 

Comment date: Comments must be 

received on or before July 1, 2020. 

ADDRESSES: You may submit comments, 

identified by number SBA–2020–0033 

through the Federal eRulemaking Portal: 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

SBA will post all comments on 

www.regulations.gov. If you wish to 

submit confidential business 

information (CBI) as defined in the User 

Notice at www.regulations.gov, please 

send an email to ppp-ifr@sba.gov. 

Highlight the information that you 

consider to be CBI and explain why you 

believe SBA should hold this 

information as confidential. SBA will 

review the information and make the 

final determination whether it will 

publish the information. 

FOR FURTHER INFORMATION CONTACT: A 

Call Center Representative at 833–572– 

0502, or the local SBA Field Office; the 

list of offices can be found at https://

www.sba.gov/tools/local-assistance/ 

districtoffices. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

On March 13, 2020, President Trump 

declared the ongoing Coronavirus 

Disease 2019 (COVID–19) pandemic of 

sufficient severity and magnitude to 

warrant an emergency declaration for all 

States, territories, and the District of 


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