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Best Practices for Maximizing PPP Forgiveness for Construction Contractors

By Richard Bigham, on May 11th, 2020

Congratulations! You received your CARES Act Paycheck Protection Program (PPP) loan, now what? Many construction contractors have received their loan proceeds which starts the 8-week tracking period for debt forgiveness. While the U.S. Small Business Administration (SBA) is still regularly providing guidance on the program, there are best practices to assist businesses in navigating the requirements to maximize debt forgiveness.

At this point we all know that the CARES Act specifically states that debt forgiveness is equal to the sum of payroll costs, interest on a mortgage obligation, payments on any rent obligation, and utility payments incurred and paid during the 8-week covered period. The SBA has provided guidance to clarify the definition of each of those costs.

SBA guidance states that 75% of PPP funding must be used towards payroll costs. In addition to regular salaries, these costs include employer contributions to retirement plans, group health care coverage, insurance premiums, and state and local taxes assessed on the compensation of the employee (such as unemployment taxes). Due to a $100,000 salary limitation, gross pay to an employee cannot exceed $15,385 for the 8-week period, however, this only applies to cash compensation and not retirement and health insurance fringe benefits.

The remaining 25% of PPP funding can be used for mortgage interest, rent and utility costs which are more self-explanatory, however, it is worth noting that the SBA examples for qualifying costs include mortgage interest and/or rent for a warehouse to store business equipment and an auto loan for a vehicle used for business purposes. Qualified utility costs include electricity, gas, water, transportation, telephone, and internet access. The mortgage obligation, rental agreement, and utility services must have commenced prior to February 15, 2020.

Now that the eligible costs are defined more clearly, the big question is: how do businesses document that the loan proceeds are being used for those specific costs in order to maximize debt forgiveness? In order to meet the forgiveness obligations, it is anticipated that companies will be required to submit evidence clearly demonstrating the payment of payroll, rent, utility, and interest from the borrowed funds during the covered period.

With this in mind, contractors should consider the following:

Keep PPP Funds Separate

Deposit all PPP proceeds in a separate bank account and ensure that PPP loan proceeds are used only for expenditures that are eligible for forgiveness. Keep all related support to corroborate disbursement of such funds.

For payroll funding, only payroll for amounts within the forgiveness parameters should be funded from the PPP segregated account. Ideally, transfers to the payroll account would exclude wages of employees in excess of the maximum threshold of $1,923 per week. It is key to understand that the $100,000 annual salary limit per employee is on gross compensation, so associated applicable employee withholding taxes should be paid from these funds.

PPP Loan Recordkeeping

Good recordkeeping will be critical for loan forgiveness. Over the eight-week period, keep track of eligible expenses and their accompanying supporting documentation. Lenders will likely require these documents in digital format, so take the time to scan any paper documents and keep backups of the digital records. The documentation should include:

  • Payroll registers or ledgers.
  • Health insurance invoices and payments.
  • Payments for retirement amounts.
  • Support for rent expense (lease and canceled checks/ACH evidence).
  • Support for interest paid on debt obligations.
  • Evidence of utilities paid including invoices.

Maintain Employee Data

Maintain a headcount of all full and part-time employees on the payroll. Your company will need to account for the average number of full-time equivalent employees per month during the eight-week period beginning with the receipt of loan proceeds.

The Act also permits companies to avoid any reduction in the potential forgiveness in connection with reductions to headcount or salary levels by (i) rehiring by June 30, 2020, any staff that were terminated between February 15 and April 26 and (ii) restoring their pay to required levels by June 30. However, these cures do not impact the requirement that the funds be properly spent in the 8-week period following loan funding.

To date, PPP regulators have focused on providing guidance on PPP loan eligibility and the application process. As the forgiveness feature is central to the purpose of the program and susceptible to borrower abuse, it is expected that the SBA will soon provide detailed guidance on the forgiveness process, including relevant forms and documentation requirements for submission.

The SBA has published several frequently asked questions (FAQs) here. The guidance is evolving daily and should be reviewed by your accounting personnel routinely.


The legislation provides specific items that a borrower will need to submit to the lender in order to have amounts forgiven. The lender then has 60 days to issue a decision. The key to maximizing your loan forgiveness is to maintain detailed electronic records that can easily be reviewed for program compliance by your lender and/or SBA.

If you have any questions on how COVID-19 impacts your specific situation, please contact your Bonadio Construction Team for more information.

Other Consideration for Construction Contractors

Are you properly classifying your construction employees for workers compensation? NYS has approved a new classification code: code 8873, Telecommuter Reassigned Employees. The rate for this code could be significantly less than the employees previously assigned workers compensation classification code. Be sure to discuss the classification of any temporarily reassigned employees with your insurance agent.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.

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Charlie Wood April 2020
Charlie Wood
Practice Lead, FoxPointe Solutions
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The Bonadio Group