Finances and Taxes

Here’s the Latest Guidance on How to Spend Your PPP Loan for Full Forgiveness

Andi Smiles Small business financial consultant 
male Baker working in the kitchen

The deadline for PPP applications has been extended through May 31, 2021, but some experts say funding may run out mid-April.

Learn everything you need to know about the latest PPP legislation here.

Update as of June 26, 5:00 PT: This article has been updated to reflect the latest official guidance on PPP loan forgiveness.

You just got the email that your Paycheck Protection Program (PPP) loan was approved—congrats! Getting this far is a major accomplishment and warrants some serious celebration (homemade frosé anyone?). 

But being approved for a loan is just the start of your PPP journey. Now, it’s time to strategize how you’ll use the funds to keep your business going while ensuring that you qualify for loan forgiveness. Below, we’ve put together a step-by-step guide for how to budget your loan funds and keep your expenses organized so your loan forgiveness application is a breeze.

We’ve even created a calculator that will help you track how much of your loan can be forgiven based on your expenses and team changes:

PPP Forgiveness Allocation Calculator

Now, let’s get started.

Immediately after your loan is approved

Before you do anything with your PPP money, make sure you understand your specific requirements for loan forgiveness.

To qualify for total PPP loan forgiveness, you must use the funds within 24 weeks after your initial loan disbursement or by December 31, 2020—whichever one occurs first—and only for approved costs. At least 60% of the money needs to go towards payroll expenses. If you don’t spend at least 60% of your PPP loan on payroll costs then your loan forgiveness will be reduced.

Note: If you got your PPP loan disbursed before June 5, you can elect to use the original eight-week forgiveness window. This article assumes the full 24-week covered period.

These payroll costs can either be:

  • Real, which means money actually went out to pay these expenses during the forgiveness window; or
  • Incurred, which means the payroll costs were incurred during the forgiveness window but the pay date fell after the end of the forgiveness window.

For incurred payroll costs, only the amount incurred during the forgiveness window is eligible. For example, if your loan forgiveness window ends on June 15, but your current pay period was from June 13 to June 19, only the payroll costs incurred on June 13, 14, and 15 are eligible for forgiveness.

If you want the full loan forgiven, the other 40% of the loan can only be spent on:

  • Business rent
  • Business utility payments (including electricity, gas, water, transportation, telephone, or internet access)
  • Interest on existing debt, including mortgage interest

You must also maintain an average number of full-time equivalent employees (FTEs) and their wages. If you reduce your employees’ wages more than 25% or reduce the amount of FTEs, then you may not qualify for total loan forgiveness. The Paycheck Protection Program Flexibility Act (PPPFA) has added several new exceptions to the requirement to rehire all employees. We talk more about that in Step 2.

So, to qualify for total loan forgiveness, you need to know three numbers:

  • 60% of your total loan amount (this is the portion that you’ll need to spend on payroll costs)
  • Your average full-time equivalent employees (FTEs) 
  • Each employee’s average salary or wage

In addition, under the PPPFA, if your business isn’t able to return to the same level of business activity as on or before February 15, 2020, you will still be eligible for full loan forgiveness if you fulfill the other requirements.

If you manage your payroll with Gusto, we have a report that will do the calculations below for you, help keep you on track for full forgiveness, and help you fill out your loan forgiveness application.

Step 1: Calculate how much of your loan you must spend on payroll costs.

The easiest math of all! Simply multiply your total loan amount by 60%, or 0.6. 

For example, if you received a loan for $45,000, then $27,000 must be spent on payroll costs. 

$45,000 x 0.6 = $27,000

Keep in mind that payroll costs don’t just include employee wages, commissions, and tips. They also include:

  • Employee benefits like health care expenses and retirement contributions 
  • Employee vacation, sick, medical, or parental leave
  • State and local taxes on employee wages
  • Self-employed income (capped at $100,000 annualized)

Also good to know: Spending more than 60% of the loan on payroll costs is a-okay. You can even spend the entire loan on payroll costs; 60% is just the minimum. 

Step 2: Calculate your average FTEs. 

The average number of full-time equivalent employees (FTEs) that you must maintain during the 24-week forgiveness window is based on your FTE count during one of these two baseline periods:

Baseline PeriodNumber of weeks in the period
February 15, 2019 to June 30, 201919 weeks
January 1, 2020 to February 29, 20208 weeks

If you’re a seasonal business, you also have the option of using any of the above periods or any 12 weeks from May 1, 2019 to September 15, 2019.

Choose the period where you had the fewest number of FTEs. Just make sure you’re using the same period consistently throughout your calculations.

If your full-time and part-time employee situation is pretty straight forward (say you had three full-time employees and two part-time employees during all of 2019 ), you can skip the complicated math. Any employee who works 40 hours per week or more is 1.0 FTE, and anyone who works less than 40 hours per week is 0.5 FTE. In our example, you would have 4 FTEs.

But if you have a mixture of full- and part-time employees, or if your employees’ hours fluctuate, you’re going to do some number crunching.

You’ll need to calculate your FTEs for the baseline period. The easiest way to figure this out is for each employee:

  1. Add up your employee’s average weekly hours. To do this add up their total hours for the baseline period and divide it by the number of weeks in the period (note: don’t include employee hours that are in excess of 40 hours per week).
  2. Divide each employee’s average weekly hours by 40.
  3. Round to the nearest tenth.
  4. Add up your employee’s FTE number.

Let’s do an example: You use the period of January 1, 2020 through February 29, 2020. Employee A worked an average of 32 hours per week, Employee B worked an average of 22 hours per week, and Employee C worked an average of 13 hours per week.

First, divide each employee’s average weekly hours by 40. 

Employee A: 32 / 40 = 0.8

Employee B: 22 / 40 = 0.55

Employee C: 13 / 40 = 0.325

Next, round to the nearest tenth.

Employee A = 0.8

Employee B = 0.55 → 0.6

Employee C = 0.325 → 0.3

Finally, add up the number of FTEs. 

0.8 + 0.6 + 0.3 = 1.7

You’ll need to maintain an average of 1.7 FTEs to be eligible for total loan forgiveness. 

A few exceptions to reducing your FTEs (including new exceptions under the PPPFA)

  1. Did you reduce your employee headcount between February 15, 2020 and April 26, 2020? If you rehire all those employees (or an equivalent number) by December 31, 2020, then any reduction that may have occurred to your forgiveness will be cancelled out. 
  2. Should you make an offer to rehire an employee for the same wages and number of hours as they previously worked and they reject it, they won’t count against your FTE average, and your forgiveness amount will not be reduced for salary or wage reductions either. More on this in Step 5.
  3. If you terminate an employee for a legal cause, like stealing from your company, then the terminated employee won’t count against your FTE average. 
  4. Did your employee voluntarily resign from their position? Or did they offer to voluntarily reduce their hours? If so, they won’t count against your average FTEs.
  5. If you can demonstrate that you’re unable to hire a similarly qualified employee before January 1, 2021 to replace an employee who was hired before February, 15, 2020, then those FTEs won’t count against your averages.

You’ll need written documentation to support that these scenarios actually occurred, and you can only count them as exceptions if you do not rehire or increase the hours of other folks to make up for their loss during the 24-week period.

Step 3: Calculate how much you must pay each employee.

To qualify for loan forgiveness, you cannot reduce the average wage of any employee by more than 25%. This is based on the total average salary or hourly wage that the employee is paid in the forgiveness period. Employees who earned an annual salary of $100,000 cash compensation or more (that breaks down to $8,333.33 per month) in 2019 are exempt from this rule.

You’ll base your employees’ average salary or hourly rate on what they were paid in the first quarter of 2020. Your payroll history will show this.

Here’s how to figure out how much you must pay each employee.

For salaried employees:

1. Determine your employee’s average salary for the first quarter (for example, $50,000 per year). Again, you can find this information in your payroll history.

2. Calculate 75% of their average first quarter salary. Simply multiply their average salary by 75%. This is the minimum average salary you must pay your employee during the forgiveness window. 

$50,000 x 0.75 = $37,500

3. If you plan to adjust your employee’s pay week to week, then calculating the employee’s minimum forgivable weekly salary will also be helpful. To do this, first divide their average first quarter salary by 52 (the number of weeks in the year). 

$50,000 / 52 = $961.54

4. Now multiply their average weekly salary by 75%. This is an easy baseline to follow if you plan to reduce your employee’s salary. 

$961.54 x 0.75 = $721.15

Note that Step 4 is meant to give you a simple guideline to follow. But, keep in mind that the salary reduction is based on the average salary paid during the forgiveness window. This means that you could reduce your employee’s salary below the baseline in Step 4 for one week and then restore it to the first quarter average for the remaining seven weeks and still meet the 75% threshold. This is where you may need to finesse the numbers, especially if your employees’ salaries will change week to week.

For hourly employees:

1. Determine your employee’s hourly rate during the first quarter of 2020, for example $15 an hour.

2. Calculate 75% of their average hourly rate. Simply multiply their hourly rate by 75%. This is the minimum average hourly rate you must pay your employee during the forgiveness window. 

$15 x 0.75 = $11.25

3. If you plan to pay your employee multiple rates during the forgiveness period, you’ll need to make sure the average of these rates is above the amount you calculated in Step 2. For example, if you plan to pay your employee $10 an hour and $15 an hour during the forgiveness period, you’ll need to calculate the average of the two rates and ensure that it’s above what you calculated in Step 2. 

$15 + $10 = $25

$25 / 2 = $12.50

Also important to know: Individual employees are not allowed to earn more than $15,385 in gross wages during the 24-week forgiveness period. If you pay a single employee more than $15,385 then the excess cannot be included in the forgivable payroll costs.

More happy news: If by December 31, 2020, you restore an employee’s pay to the same wage that they earned as of February 15, 2020, then wage reductions made during the 24-week forgiveness period will not impact your loan forgiveness.

Step 4: Determine how you’ll allocate the funds.

All right, we just did a lot of math. But these numbers are crucial to planning how you’ll allocate your PPP funds for maximum loan forgiveness. 

Now it’s time to make a plan. Don’t skip this step or decide to “just wing it.” You’ll be using this plan throughout the forgiveness window to make sure you’re on track. 

In Step 1, you calculated the minimum amount you must spend on payroll costs, so you know how much you have to allocate towards payroll. Now it’s time to make all the numbers work together. 

1. Project your 24-week FTEs. Make a list of all your employees and the number of hours a week they currently work or will work after you rehire them in the 24-week forgiveness window. You can either use the simplified method to calculate your 24-week FTE count or the more complicated method in Step 2. In either case, be sure to add up your total FTEs. Is the number the same or higher than the number you calculated in Step 2? If it’s lower than your average FTEs in Step 2, increase your employee hours. 

2. Project how much you’ll pay each employee during the forgiveness period. This will either be their regular salary or hourly rate or the minimum weekly salary or hourly rate you calculated in Step 3. Remember, if your employees’ rate or salary will fluctuate, you’ll need to ensure that their average pay during the forgiveness period is more than the minimum pay from Step 3. Then, add it all up to calculate your total employee wages for the forgiveness period.

3. Add your additional payroll costs. This includes things like your employees’ health insurance premiums, state and local taxes, etc. See our full list of forgivable payroll costs in our PPP forgiveness overview.

4. Check and adjust your numbers. If your projected costs are less than your minimum payroll allocation (aka your calculation from Step 1), you’ll need to increase your employees’ pay or hours (if they work hourly). If it’s more, you can reduce your employees’ pay (but not below their minimum pay!) or leave it and allocate more than 60% of the loan to payroll. 

5. Allocate the remaining loan. List all of your other approved expenses and project their cost during the forgiveness window. Since you’re only allowed to use 40% of the loan for these costs, you may need to use other sources of capital to cover the difference. 

If you’re confident in a plan to restore your employee headcount or wages by December 31, 2020, or if you know you won’t be able to restore your business to pre-February 15, 2020 operational levels, you can take more liberties with your FTE number and employee pay. But you still need to spend 60% of the loan on payroll costs in order to have the whole thing forgiven. 

Step 5: Notify your employees and rehire them.

Now it’s time to let your employees know what’s happening. Start by telling them that you were approved for a PPP loan (yay!) and then explain any changes that affect them. 

Besides changes to hours and pay, let them know if there are changes to their work duties. For example, if your employees can’t physically go to work due to government restrictions, will you ask them to perform tasks remotely? Will they be working on a special project instead of their regular duties? Be clear with them about your expectations. 

Here’s what to include when you notify your employees:

  • Changes to the number of hours they work
  • Increases or decreases to their wages
  • Changes to the work they perform
  • The date these changes will take effect
  • How long you anticipate these changes to last. It’s okay if you’re not 100% sure yourself, but do try to be honest with your employees about what you’re anticipating so they can also make plans. 

For employees who have been laid off, you’ll also need to let them know:

  • That you’re rehiring them and the date of their rehire
  • That they’ll need to stop collecting unemployment insurance benefits

So what happens if an employee refuses to be rehired? 

First, keep records of communication with the employee and their refusal. You’ll submit these later with your loan forgiveness application. You must offer to rehire the employee at the same hours and wages they originally had before being laid off. 

If the SBA finds that you acted in good faith to rehire the employee and they refused, their hours won’t reduce your FTE averages, and you may still qualify for full loan forgiveness. The employee should note, though, that they will likely forfeit their right to unemployment benefits should they refuse the offer.

Immediately after your loan is disbursed

Step 6: Deposit or transfer funds to a separate bank account (optional but recommended).

While the SBA doesn’t require that you use a separate bank account to hold PPP loan funds, it’ll make tracking the use of the funds more manageable. It’ll also reduce the temptation to use PPP funds for other, non-approved expenses. There’s also the possibility that your lender may require this. Be sure to check in with them in order to understand any requirements like this.

If you plan to keep detailed and meticulous records of how you use your PPP funds, you can skip this step. But if you know that your business finances tend to be a little… er… chaotic, then keeping the funds separate will make your loan forgiveness application less of a headache. 

Step 7: Switch your payroll withdrawal account to the PPP bank account.

If you do decide to keep your PPP funds in a separate bank account, then you’ll also need to switch your payroll withdrawal account to your dedicated PPP account. 

Step 8: Mark on your calendar when the covered period for loan forgiveness ends. 

Thanks to the PPPFA, the covered period was extended from eight weeks to 24 weeks for most borrowers.

You have two choices when it comes to the start and end date of the 24-week covered period for loan forgiveness. The first is to have your start date be the same date as your first loan disbursement. Typically, your first loan disbursement will happen no more than 10 days after your loan is approved. 

If you choose this option then you’ll count out 24 weeks from the disbursement date and mark that on your calendar as the forgiveness period end date. 

The second option is to use the Alternative Payroll Covered Period, which is the first day of your first payroll period after your first loan disbursement. If you choose this option then you’ll count 24 weeks out from the first day of that payroll period. You can only use the Alternative Payroll Covered Period if you have a bi-weekly (or more frequent) payroll schedule.

12 weeks after you receive your first loan disbursement

Step 9: Review your PPP-related expenses.

You’re halfway through your forgiveness window and it’s time to review your PPP expenses to make sure that you’re using the money appropriately. 

Remember that plan you made way back when? Well, it’s time to whip that bad boy out. You’ll also need records of how you’ve spent the money so far and your payroll totals for the past month. Then, you’ll compare how you planned to spend your PPP funds to how you actually spent them. 

Here’s what you want to ask yourself as you review your PPP spending so far:

  • Have you spent at least 60% of your PPP funds on payroll costs? 
  • Have you maintained your FTE averages? If not, do you meet any of the exceptions we discussed in Step 2?
  • Have you reduced any employee’s wages by more than 25%? If so, do you plan to restore their wages by December 31, 2020?
  • How else have you spent the money? Are these PPP-approved expenses?
  • How much of the PPP funds do you have left? How will you use these funds?
  • Do you need to make adjustments in the next 12 weeks to meet the 60% threshold?

Step 10: Make adjustments to your payroll expenses.

In a perfect world, you’ll review your PPP spending and discover that you’re right on track for total loan forgiveness. But in real life, random, unexpected stuff happens and you’ll probably need to adjust. 

If you’re not on track for loan forgiveness, use your initial plan to calculate what adjustments you need to make. Remember, you only have 12 weeks left of your forgiveness window, so you’ll need to implement changes right away. 

Step 11: Organize your PPP expense records.

Wait—can’t I do this after my 24 weeks are up? You could, but getting a head start on organizing your expense records will make your loan forgiveness application a little easier. 

Here’s what records you need:

  • Payroll reports or bank account statements verifying the number of employees on payroll, their pay rates, and the total amount you paid them during the forgiveness window
  • Payroll reports or bank account statements verifying the number of employees on payroll, their pay rates, and the total amount you paid them during the baseline period 
  • Payroll tax filing for the IRS
  • State income, payroll, and unemployment insurance filing
  • Documents verifying how much you paid for employee benefits
  • For business mortgage payments, copies of the amortization schedule from your lender or copies of your lender account statements
  • For rent payments, copies of your current lease agreement
  • Records of payments for other PPP approved expenses, including receipts, invoices, and ACH drafts 
  • Statements for interest paid for debt obligations incurred before February 15, 2020
  • Copies of any employee job offers and refusals, firing for cause, voluntary resignation, or requests by employees for reduction in work hours

24 weeks after you receive your first loan disbursement (or December 31, 2020, whichever occurs first)

Step 12: See if you qualify for loan forgiveness. 

It’s the moment of truth: Will all (or some) of your PPP loan be forgiven? To find out, you’ll need to check the following:

  • Did you use at least 60% of the total loan on payroll costs? To figure this out, divide your total payroll costs during the forgiveness window by the total loan. 

If you answer no to this question then your forgiveness amount may be reduced. If you answered yes, check the following:

  • Did you maintain your monthly average FTEs? Use the calculation method from Step 2 to calculate your FTE for the forgiveness window. Then compare your average FTE to your 24-week FTE.
  • Did you pay each of your employees at least 75% of their average wage? Refer back to each employee’s minimum wage (you did this in Step 3), and then look at the total you paid them during the forgiveness window. Did you pay them more than their minimum wage? Remember, you may need to average their salary or wages during the 24-week forgiveness period. 

If you answered yes to both of these questions, then you’ll likely qualify for full loan forgiveness. If you answered no to one or more of these questions, then check to see if you meet the following exceptions:

  • Did you restore (or do you plan to restore) your employee headcount and wages back to their February 15, 2020 levels by December 31, 2020?
  • Are you unable to rehire employees who were employed on or before February 15, 2020 before January 1, 2021?
  • Are you unable to hire similarly qualified employees before January 1, 2021?
  • Were you unable to return to the same operational level as on or before February 15, 2020?

If you answered yes to any of these exception questions, you’ll likely qualify for loan forgiveness. 

If, answering all of the questions above, you know that your loan forgiveness will be reduced, it’s now time to calculate the forgiveness reduction. The forgivable amount of the reduction is proportional to:

  • The monetary adjustment needed to ensure 60% of the forgiveness request consists of payroll costs. This is a little complex, so hang in there. Let’s say you received a $45,000 loan and used 55% ($24,750) of your loan for payroll costs and 45% ($20,250) for other approved costs. To calculate the loan reduction you would divide the amount of the loan you used for payroll costs by 0.60 ($24,750 / 0.6 = $41,250). The forgivable loan amount is $41,250, which is now adjusted to ensure payroll costs make up 60% of the forgiveness request.
  • The percentage of employees you reduced from your FTE-based averages. For example, if your baseline FTE average is 1.7 and your FTE average during the forgiveness window is 1.5, that’s a 12% reduction. Your loan forgiveness will be reduced by 12%.
  • The dollar amount that you reduced any employee’s salary. For example, if you should have paid an employee a minimum of $4,200 during the forgiveness window and you only paid them $3,500, your loan forgiveness will be reduced by $700. 

The loan forgiveness reduction is based on the smaller of the following numbers:

  • Your salary reduction plus the FTE reduction
  • The monetary adjustment needed to ensure 60% of the loan is used for payroll costs 

Here’s an example using the numbers above: You receive a $45,000 loan and only use 55% ($24,750) for payroll costs. The adjusted forgivable amount is $41,250. 

You also reduce one employee’s salary $700 below the 75% average pay threshold and reduce your FTEs by 12%. First you would subtract the salary reduction from your total loan amount spent on payroll expenses and approved expenses:

$45,000 – $700 = $44,300

Next, you would divide your forgiveness period FTEs (1.5) by your average FTEs (1.7).

1.5 / 1.7 = 0.88

Then, you’ll multiply this amount (0.88) by the loan amount that includes the salary reduction ($44,300). 

$44,300 x 0.88 = $38,984

Finally, you compare the adjustment to meet the 60% payroll expense requirement ($41,250) to the amount based on a reduction to salary and FTEs ($38,984) and choose the smaller of the two. This is the amount that is forgivable. 

In the above example, the forgivable amount is $38,984, and you would need to pay back $6,016.

Step 13: Organize your remaining PPP expense records.

It’s time to compile the rest of your PPP documents (see Step 11 for what you need). Aren’t you glad that you already got a head start?

Step 14: Complete your application for loan forgiveness.

After your 24-week forgiveness window is up, it’s time to submit your forgiveness application to your lender.  

If you plan to restore your employee headcount or wages by December 31, 2020, wait until after you do this restoration to apply for loan forgiveness. Then include documentation, like your payroll report, that verifies you’ve completed this restoration. 

Under the PPPFA you now have 10 months from the end of your covered period or December 31, 2020, whichever occurs first, to submit your application for loan forgiveness. Your loan payments will begin after your loan forgiveness is determined.

After you submit your loan forgiveness application

Step 15: If you haven’t received a determination, check with your lender.

Your lender is required to give you a forgiveness determination within 60 days of receiving your loan forgiveness application. If you don’t hear from them after 60 days, reach out and request a determination.

Real talk time: This is a lot, we know. Unlike a traditional business loan, a PPP loan requires an extra level of planning, tracking, and organization. The payoff? If done right, a PPP loan can amount to “free” government money to keep your business afloat and your employees paid. But a bigger payoff means a longer to-do list.

Ultimately, we still think the extra work is worth it to give your business a few extra months of relief while keeping your awesome team paid.

If you’re worried about accidentally committing bank fraud with your PPP loan, we have a few suggestions for that, too. Need help with your loan forgiveness application? Here’s a step-by-step guide.

Andi Smiles
Andi Smiles Andi is a small business financial consultant and coach who teaches business owners to take control of their finances. She’s helped hundreds of self-employed folx organize and understand their business finances, while also uncovering their emotional relationship with money.


  • William Sanders

    If your PPP Loan is under $50k, has there been a deadline determine on when you must apply for forgiveness?

  • Jeff Patterson

    Hello! We received an $80,000 PPP loan in late April. If our company only spends 50% of our PPP funds on payroll, but spends the full 40% of funds for rent/utilities during the 24 week period, will the full amount of the PPP loan be forgiven if we return to pre-covid employment levels by December 31? In other words, is the forgiveness still reduced if you return to full employment by December 31?

    • Gusto Editors

      Hi Jeff — if you do not spend at least 60% of your loan on payroll costs, your full loan amount will not be forgiven. If you spend less than 60% on payroll costs, you will still remain eligible for partial forgiveness, but the total forgiven amount will be reduced regardless of whether you return to full employment headcount levels before December 31st.

      There are various factors considered for forgiveness, and maintaining headcount alone will not guarantee full forgiveness. Maintaining headcount while spending less on payroll costs can indicate a significant reduction in the average wage of employees. As seen in Step 3, to qualify for full forgiveness, you also cannot reduce the average wage of any employee beyond 25%.

  • Heather

    Is there any guidance on how long I need to keep the PPP specific bank account open for? There is a minimum balance requirement (to avoid paying a fee) – once I spend all the PPP money, I’d like to close the account so that I don’t have to keep the minimum balance.

    • Gusto Editors

      Hi Heather, thanks for reaching out! You’ll want to work with your lender to understand your requirements around keeping your PPP-specific bank account open.

  • Joel

    If I expend the PPP loan on just salaries and the loan is fully spent at 12 weeks, do I have to wait until the 24 week period is up to show that the average FTE wasn’t reduced — or can I calculate the average FTE over the 12 week period the loan was used before it was depleted?

    • Gusto Editors

      Hi Joel, thanks for writing in! We’ve heard this question from other small business owners and while we wait for the SBA to provide clarity, we recommend you check with your lender to see if you can apply for forgiveness early. Let us know if you need any further support!

  • Holly


    If a business has been approved for 50K ppp and used it all for payroll purposes, however, financially the business wasn’t affected and continued to earn as usual, would the PPP still be forgiven since it was used for payroll even though business has been strong as usual?

  • KO

    Blog was so helpfulllll!! Cant express how happy I am that I found this. Everything was clearly explained in simple terms. Thank you!

  • Ann

    My business has no rent and a small payroll. What other expenses can be included for the other 40% loan proceeds. The lender said we can’t use it for accounts payable. I’m a gas station selling convenience items. What are other use of funds which will allow for forgiveness? Can people get raises? Do I need to hire even more people?

    • Gusto Editors

      Hi Ann — non-payroll expenses can include rent, mortgage interest, utility payments, and owner compensation. Currently, the PPP does not provide guidance around raises or around paying new hires. Keep in mind that even if you don’t hit the 60% minimum for spending the PPP loan on payroll, you can still get partial PPP loan forgiveness.

  • Ida

    You say in the article that “Individual employees are not allowed to earn more than $15,385 in gross wages during the 24-week forgiveness period.” However, $15,385 would be the amount that an employee who earns $100,000 a year makes over 8 weeks, not 24-weeks. Now that we have a 24-week forgiveness period instead of 8 weeks, should that number be increased to $46,153?

    • Gusto Editors

      Hi Ida — that is correct! The PPP allows for loan forgiveness for payroll costs equivalent to the earnings of an employee making $100,000 annually. This translates to $15,385 per individual over the eight-week period and $46,154 per individual employee under the 24-week plan.
      Be sure to check with your lender to confirm whether the eight or 24-week plan applies to you. If you received your loan after June 5, 2020, your Covered Period will be 24 weeks. If your loan was disbursed before June 5, you can elect either 24 weeks or the original eight-week Covered Period.

  • John

    How do you pay an employee who is on 100% commission that is in an outside sales role? Do I need to pay them no less than 25% their average monthly 2019 commissions?

    • Gusto Editors

      Hi John — so long as an individual’s average rate or salary in the lookback period doesn’t decrease by more than 25% in the covered period, there will be no reduction in forgiveness.

  • Rebecca

    I have mostly full-time employees and one part-time employee (11-16 hours / week). I let the part-time employee go. Do I have to hire them back to get loan forgiveness or is it ok to only keep full time employees?

    • Gusto Editors

      Hi Rebecca — to qualify for full loan forgiveness, you’ll want to maintain the same number of full-time equivalent employees. However, your loan amount eligible for forgiveness will not decrease if you can, in good faith, document an inability to rehire the individuals who were employed by your business on or before February 15, 2020 and an inability to hire similarly qualified employees by December 31, 2020.

  • John N. Hodgin

    I was a CPA for 20 years and am now a retired business owner. This is the BEST most CLEAR summary of PPP I have seen! I am referring it to the accountants in our business. Great Job

  • Debra Francis

    I am an independent contractor and received a PPP loan for $14,420.00, which will be used solely on my payroll. Is it true that I only will qualify for 60% forgiveness of the loan amount? If that is correct, could I pay myself the max $15,385 and receive forgiveness for 60% of that number?

    • Gusto Editors

      Hi Debra — the requirement is that you use *at least* 60% of your loan on payroll expenses to qualify for loan full forgiveness. This means you can spend up to 100% of your loan on payroll expenses and receive forgiveness on the entire loan.

  • elizabeth

    Hi, I received a PPP loan and was able to hire back my 5 employees. They are on salary and expected to work 40 hours a week – however, we have lost about 80% of our clients so most are only averaging 20-25 hours per week. Since they are not putting in a full 40-hour week, but I”m paying them their 40 hour a week salary, am I allowed to bank those hours and have them continue working after the PPP loan/8 week period is done? Treating it as an advance with hours owed?

  • Marianella Grieco

    Can you pay mid year bonuses and include those as part of payroll costs and loan forgiveness calculation? Also what kind of backup should we provide for owner guaranteed payments if they are not W2 employees.

    • Gusto Editors

      Hi Marianella — the SBA has not provided clarity on including bonuses as payroll costs. We’ll be sure to provide updates if there are any.

  • Mary

    I am the administrator of a hospital. We have used contract nursing labor for years to fill vacancies we can’t fill locally. Can we use their salaries for this PPP funding?

    • Gusto Editors

      Hi Mary — PPP funds cover only part-time and full-time employees, not contractors.

  • Elizabeth Harder

    Hi there! Thanks for the great report. I am the owner of the business (100%) – does my pay count in the forgiveness and FTE count?

    • Gusto Editors

      Hi Elizabeth — your pay will be included in the new report and is part of the total payroll costs that are eligible for forgiveness (for the 8-week period, you’ll be capped at $15,385 max just like every other individual). However, you will not be considered for the FTE count.

  • Cathy DiCarlo

    Our loan was received on May 8, 2020. Do we have to start the payroll immediately after that…we have one employee retiring/quitting (she let us know in February that she was retiring in June) and one employee who is currently under quarantine for 9 more days due to a relative with covid. If our payroll starts 2 weeks after May 8, 2020 will that be sufficient as long as we use 75% with in 8 weeks? Due to the retirement we had planned on giving raises to two other employees. Do we need to wait until after the 8 week period for the raises to be added? Thank You in advance for your time!

    • Gusto Editors

      Hi Cathy — there is no current guidance on when you have to run payroll after receiving the loan disbursement and start the forgiveness period, so long as you spend at least 75%+ of the funds on payroll. There is also currently no guidance on raises to employees during the 8-week period, so we recommend you reach out to a CPA for guidance on this specific situation.

  • Max

    Can you clarify the 75% required for forgiveness. I used a PPP calculator through quickbooks and it gave me an amount of $6500, so I applied for that amount. After reading your article I calculated my payroll for 8 weeks (2 biweekly paychecks) and it will be $4800, but in order for it to be 75% it would need to be $4875 correct? Does that mean I won’t qualify for forgiveness since it’s 1% shy of 75%?

    • Gusto Editors

      Hi Max — to qualify for *full* loan forgiveness, you must spend 75%+ on payroll expenses. However, even if you don’t meet that threshold, you’ll still have a portion of the loan forgiven. The amount forgiven will be proportionally reduced based on your payroll or headcount reductions.

  • Spencer

    Is this designed to pay full time employees for their full regular 40hr work week even though they were able to get anywhere from 10-30 hours in the week? My employer first told me I would be receiving a full 40hr work week check but now that the loan has been obtained I’m now being told that it’s only to cover the hours that I have worked. I’m asking this here because every time I try to talk to my employer about this they get frustrated and don’t tell me anything besides I’m only getting paid for what hours I worked. Not for nothing but my now 10-30 hour work week helps but for someone like me 40hrs is crucial for me and my family. Thank you for your time!

    • Gusto Editors

      Hi Spencer — so long as an individual employee’s average wage rate or salary from January 1, 2020 to March 31, 2020 does not reduce more than 25% in the covered or alternative covered period, there will be no reduction in forgiveness for the employer.

      Your employer will have to complete the Salary/Hour Wage Reduction column (in the application) only for employees whose salaries or hourly wages were reduced by more than 25% during the Covered Period or the Alternative Payroll Covered Period as compared to the period of January 1, 2020 through March 31, 2020.

  • Kate

    I believe your dates are off for FTE calculation – January 20, 2020 to February 29, 2020. It should be January 1, 2020 to February 29, 2020 according to PPP instructions.

    • Gusto Editors

      Thanks for the catch, Kate! We’ve updated this.

  • Paul Phoenix

    Thanks so much for writing this amazingly easy to digest article!

    We are currently open but doing 30% of normal sales volume with about 30% of our normal staff (laid off the other 70%). I’m thinking about rehiring all my employees back the last available date before June 30th where they would be on one payroll to meet the headcount requirement. Would raises to current employees qualify in counting towards the 75% to be used on payroll? Is there a limit to how much I can give?

    • Gusto Editors

      Hi Paul — to qualify for full loan forgiveness, you’ll want to rehire the same number of employees at the same rate of pay and same hours.

  • Joan Consani

    The loan is good for 8 weeks, right? We received our loan on 5/4. We pay payroll monthly, last day of the month, so the second payroll will be after the 8 weeks is over. How do we report that? We are keeping all of our employees during this time.

    • Gusto Editors

      Hi Joan — to qualify for full loan forgiveness, you’ll want to spend at least 75% of your loan *within* the 8-week forgiveness period.

  • Don

    In the PPP Loan Forgiveness Application that was released on Friday, 5/15, the 75% for payroll costs relates to the maximum forgivable amount, which represent the total eligible expenses during the covered period, and not 75% of the loan amount. In addition, the calculation of FTE and average weekly pay are defined as well as other clarifications. So, you will need to update the article which I’m sure you will be doing shortly.

    • Gusto Editors

      Hi Don — we are aware of the most recent guidance from the U.S. Treasury and SBA, and we will be updating ASAP.

  • Evan Mather

    Hi – How do I calculate my FTE using the 2/15 to 6/30 baseline period when it’s only May 16? My PPP loan got dispersed today and my business is still closed and likely to be closed in the near future, however, we still have several employees working minimal hours. Their hours have steadily decreased since closing in early March thus reducing our FTE count, which will continue to go lower as time goes on. Thanks.

  • Samantha Silver

    If an employer receives a PPP loan, are they required to pay all employees of the business with these funds, or is the employer able to pick and choose employees to pay as long as they spend 75% of the loan on payroll? Note – all employees except owner and office manager are considered part time employees. Also, if the PPP loan was discussed during the loan application process but now funds are not being given to all employees, can an employee retroactively file for unemployment (no hours worked)? And what if the employee is now back to work with reduced hours since there was such a delay in figuring all of this out but now the shelter in place has been lifted so working reduced hours? Thanks so much for your help!

    • Gusto Editors

      Hi Samantha — in order to qualify for full PPP loan forgiveness, you’ll want to maintain the employee headcount the same and rehire all employees at the same rate of pay and hours.

  • Cynthia J Reimers

    I own a child care center that was open with 90 children, we will open on 5/18 with 9 children, I have called back 3 employees. Do I need to call back all staff?

    • Gusto Editors

      Hi Cynthia — to receive full PPP loan forgiveness, you’ll need to rehire all your employees and spend at least 75% of your loan on payroll (even if there may not be enough work for all the employees). The purpose of the PPP is to keep all your employees on payroll.

  • Aaron

    What happens if an employee quits to take another job somewhere else? Will that be counted as a reduction in FTE?

  • Kelly

    hi I have contacted a cpa who did not give me a clear answer on this. My business was out of work for 6 weeks. The 2nd week back open we got ouR ppp loan. Everyone is back and getting paid again. Is the ppp loan for the time we were out? Does it get dispersed along with regular payroll? Do employees now get two checks a week? Or does it replace the checks the business would be providing for the next 8 weeks.

    • Gusto Editors

      Hi Kelly — your 8-week forgiveness period will begin as soon as the first PPP loan disbursement hits your bank account, and to qualify for full loan forgiveness, you’ll want to use more than 75% of the loans on payroll. The intent of the PPP loan is to help keep your employees on payroll.

  • ryan

    is an employer allowed to withhold tips while having their employees on ppp?

    • Gusto Editors

      Hi Ryan — to ensure maximum PPP loan forgiveness, you’ll want to spend at least 75% of your loan on payroll. Payroll costs include salary, wages, commissions, or tips.

  • john thiel

    Will the loans ( forgivable or not) be counted as income to the business at the end of the year? Or really “free” money?

    • Gusto Editors

      Hi John — currently, the PPP amount forgiven will likely be taxable. If guidance changes, we’ll provide more updates.

  • Liz Sytsma

    Hi! What do I do if my PPP loan is less than what I would need to cover the reduced salary (based on your super easy to follow instructions in this article, thanks!) when it comes to pulling payroll from the funds in a separate bank account. If that account only has PPP funds it will overdraw because the calculator has me needing to pay out more than I received (because you are using Q1 2020 for me to determine the salary requirement but PPP used a different period to determine my loan amount, a period with less salary). Also, could I use a period other than Q12020 to determine the salary requirement. Thanks!

    • Gusto Editors

      Hi Liz — we see you’re a Gusto customer. Please reach out to our team at 720-547-1647 so we can walk you through your options!

  • Amber

    If i had a payroll. Then receive the funds after the date of payroll. Can we still use the PPP for it? We were approved before the payroll date.

    • Gusto Editors

      Hi Amber — to qualify for full PPP loan forgiveness, you’ll want to spend 75%+ of the funds on payroll expenses *after* the loans are disbursed to your bank account.

  • Adam Ward

    It seems like health insurance premiums are also covered in the eligible expenses list for PPP. Should we also link the direct payment for these premiums to the new PPP bank account that we created?

    • Gusto Editors

      Hi Adam — you’ll want to reach out to your lender for clarification on what they’ll need to assess your loan forgiveness qualification!

  • Jennifer Gabriel

    Our PPP amount was calculated using the worst months of 2019, and is therefore very low. Can we disperse the PPP funds in less weeks, making for bigger paychecks? (Example: use the PPP funds entirely for payroll but use them up completely in 4 weeks instead of 8 weeks.)

    • Gusto Editors

      Hi Jennifer — we recommend you consult a CPA or tax advisor for specific guidance.

  • Bill

    Payroll contains federal * state * fica * futa * sui taxes. Are these not eligible payroll expenses?

    • Gusto Editors

      Hi Bill, the latest guidance is that state and local taxes are eligible, but you may not be able to get forgiveness for the employer’s share of FICA, RRTA, or federal income taxes reported on Form 941.

  • susan kaplan

    How would the following work: I receive a $100K PPP loan. I spend only $50K on payroll. I only hire back 50% of my workers and spend nothing on rent etc. Would I be eligible for forgivenenss on half of $75K (the amount that could be applied to payroll) or half of $50K (the amount that was applied to payroll)? I cannot find this distinction anywhere.

  • Dana

    Thank you for the info. Do you know if you have to pay your employees an average weekly salary or can you wait to pay the employees once you open? Also, do you have to pay the same employees or can you hire a new employee during this time and pay them?

    • Gusto Editors

      Hi Dana — regardless of whether or not your business has opened, once you receive the loan disbursement, you are expected to spend at least 75% of it on payroll over the next 8 weeks. If your business is closed because of shelter-in-place orders, you (and your employees) can still benefit from a PPP loan. Currently, there is no stipulation on the cadence of running payroll. Just make sure you run a payroll with any rehired employees during that eight-week window.

    • Gusto Editors

      The spirit of the law is to “keep” folks employed, so it is likely safer to rehire the same employees. While there’s been no official guidance on this topic, the SBA has indicated that if some employees don’t want to come back to work, you can hire others to replace them.


      My loan funded April 14, so my 8 week period ends June 9. To receive payroll forgiveness, do I have to fully rehire by June 9 or June 30? We are currently running 1/3 staff due to shelter in place.

      • Gusto Editors

        Hi Charles — to qualify for full PPP loan forgiveness, you’ll want to rehire all your employees at the same rate of pay and hours, and maintain employee headcount even through the 8 weeks. To qualify for loan forgiveness, you just need to keep employees on payroll. There’s no stipulation that your business should be open or that your employees must perform specific tasks.

  • Henley

    This article was written for me! Understandable and laid easily for anyone to understand. I can now work through our PPP spending and do it right.


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