Interim Rule

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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
U.S. Small Business
Administration; Department of the
Treasury.
ACTION: Interim final rule.
AGENCY:

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

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SUMMARY:

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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 [email protected].
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

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

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

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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
2 Payroll 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.

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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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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

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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

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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

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$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.

3 See

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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.

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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

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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
4 Further information regarding how borrowers
will report information concerning rejected rehire
offers to state unemployment insurance offices will
be provided on SBA’s website.
5 Section 1106(d)(6) is the sole joint rulemaking
authority exercised in this interim final rule. All

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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
other provisions of this interim final rule are an
exercise of rulemaking authority by SBA, except as
expressly noted otherwise.
6 Section 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).
7 This 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).

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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.

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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

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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

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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
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.

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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
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

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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
reduction safe harbor, it will not be subject to any
loan forgiveness reduction based on a reduction in
FTE employees.

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33009

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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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.

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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

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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
U.S. Small Business
Administration.
ACTION: Interim final rule.
AGENCY:

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

SUMMARY:

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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 [email protected].
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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