Paycheck Protection Program
The Payroll Protection Program has been a real blessing for many of our congregations. The first step was to apply, but a second, equally important step, is to document the disbursements so that the maximum amount of the loan can be converted to a grant that does not have to be repaid. 

This is a summary of some suggestions of how to approach this important second step. Jeremiah 1:17 (KJV) offers some good advice in preparing for this process. There will likely be more guidance provided by the SBA or your lender in the coming weeks, so be on the alert. You may find ambiguities and even contradictions in the material that is being shared on-line, so we advise that you seek legal advice or research the matter on governmental websites when in doubt. The SBA puts out FAQs almost daily. Here is a link to a good article that has been useful for us at the diocese:  
Some payroll companies have developed reports that will help with many of the documentation requirements. If yours does not, or you do your own payroll, here are some of the items you’ll need:

  • Verification of the full-time equivalents, hours worked, rates of pay for the eight-week period and base period mentioned below. These need to be detailed to the employee level, so if the payroll company report provides an aggregate church report, you’ll need to provide more detailed information by employee;
  • Invoices, cancelled checks, payment receipts for rental or mortgage interest payments and utilities;
  • Certification by the vestry (or the diocese for missions) that the loan proceeds were used to retain employees, make payments for mortgage interest, rent, and utilities or a combination of these;
  • Anything else the SBA administrator deems necessary.

A helpful way to approach this is to set up a spreadsheet and make sure that you have documentation that supports each number.

Sample Worksheet for PPP loan forgiveness

List payroll costs per person incurred during the covered period (eight weeks following the first disbursement or funding of the loan). This period may not coincide with your pay periods, so you’ll need to calculate which part of the pay period falls within the eight-week period. 

The payroll costs include the following. See the link above for payroll items specifically excluded from the calculation: 

  • Salaries, wages, vacation/sick pay/parental/family/medical leave, and severance pay (see NOTES 1 and 2 below);
  • Group health insurance (the amount paid by the employer);
  • Retirement benefit costs (also, only the employer-paid portion);
  • State and local taxes on employee compensation (FICA and SECA are federal taxes, and as such, are not included).

NOTE 1 : There has been discussion about whether to include clergy housing allowances or not. The legal advice we received is if the allowance is paid out in cash to the clergy person, it should be included. It is compensation; it is designated a housing allowance for tax purposes only. If, however, the clergy person lives in church-provided housing, the value assigned to that benefit would not be included.

NOTE 2 :  Eligible employee pay is capped at $100,000. If a person makes over that, you’ll need to reduce the amount you submit for conversion to a loan. For example, the employee makes $120,000, or $5,000 per pay period (assuming 24 pay periods in a year). The maximum allowed is $4,167 ($100,000 / 24 pay periods), so use $4,167 for that person, not $5,000.

The non-payroll costs included in the eight-week period are as follows. Mortgage and rent payments include only obligations that were in existence on or before February 15, 2020:

  • Utilities (electricity, gas, water, telephone and internet);
  • Rent;
  • Interest on covered mortgages (note, do not include the principal amount).

These non-payroll costs are capped, however. Determine 25% of the total loan amount you received. That will be the maximum amount of the non-payroll costs that you can claim as a grant.


The following area provides required adjustments to the provisional loan forgiveness number shown above. They have to do with the number of employees measured in full-time equivalents (FTE’s) and compensation reduction. The amount to be converted will be adjusted downward if you have decreased either the number of employees or the amounts you paid your employees as measured to a base period.

Number of Employees Adjustment

Determine the monthly average FTE for the covered period (eight weeks following loan origination). To determine FTE, divide the number of hours worked by the total hours in a work week. A person working 15 hours a week is 0.38 FTE (15 / 40 = .38). Add all those up to get the total FTE for the church or school ( see NOTE 3 ).

Calculate the monthly average FTE for one of the following two periods (calculate both periods and use the lower amount):
a.        February 15-June 30, 2019
b.       January 1 to February 29, 2020

Determine the percent reduction in FTEs by dividing the FTE number in item #1 above by the lesser number in item #2 above. For example, if item #1 is 5.5 and item #2 is 6.25, then the reduction is 12% (1 – (5.5/6.25)). More specific guidance is provided in the link provided above, about halfway through the document.

Apply this percentage to the total of the payroll and non-payroll costs above. For example, if the payroll costs were $39,300 and non-payroll $5,500 for the eight-week period, the total amount proposed to be converted is $44,800. However, there was reduction in the number of FTE’s from last year to this covered period, and that reduction as calculated above was 12%. The $44,800 needs to be reduced by 12% ($5,376), so the adjusted total to be converted is $39,424. 

NOTE 3 : A reduction in FTE’s between February 15 and April 27, 2020, may be disregarded if the reduction is eliminated by June 30, 2020. For example, if the FTE calculation is 5.5 under item #1 above, but you were able to rehire an additional person on June 29, 2020, thereby bringing the total up to 6.5, which is where you were for the period February 15-June 30, 2019, then there’s no reduction calculation.

NOTE 4:  What happens if you try to rehire an employee at the same rate and number of hours as before and they do not wish to return to work? The SBA has proposed an interim final rule (as of this writing), that if the employer has made a good faith, written offer to rehire, and it was rejected, the former employee can be excluded from the calculation. Important to note, employees can very well jeopardize their unemployment checks if they are offered a reasonable job and reject it. Make sure this rule has been finalized before applying it.

Salary and Wage Reduction Adjustment

Determine which employees had a reduction of compensation in the eight-week period when compared to the most recent full quarter of employment prior to the loan origination (for most of us, that will be Jan-Mar 2020). Exclude any employee who made $100,000 or more (annualized).

Compute the amount by which the salary reduction exceeds 25% for each employee. This amount needs to be subtracted from the amount that you seek to have converted to a grant.

The table below can help with the decision process. It comes from the link at the beginning of this article, about two-thirds of the way down. Employee 1 makes over $100,000, and is thus excluded from the calculation. Employee 2 had pay reduced, but in the fifth numerical column, the calculation was less than 25%, so it is also excluded from the calculation.
Employee 3 had pay reduced, and it was over 25%, so it needs to be part of the calculation. Here’s how to determine that. During first quarter 2020, the employee made $18,750. For all of 2019, the employee made $72,750. The rate of pay for the eight-week period is $13,125.  IMPORTANT :  this is a rate of pay, not the actual pay. If the person had worked the entire quarter at the same rate of pay he or she worked during the eight weeks, what would it have been? The result in this case is a reduction of 30% (1-(13,125/18,750)).  To see what the actual dollar amount of the adjustment for loan forgiveness would be, take what would have been made in the first quarter 2020 based on the eight-week period rate of pay and subtract what was actually made. The result above is $576.92 that can not be forgiven, so it remains a loan.

NOTE 5:  This is confusing as all get-out. Look at the example in the link and see if it makes a little more sense. Your lender or the SBA will hopefully provide additional information about the conversion in the weeks to come, so perhaps things will become clearer, such as how you calculate the quarterly rate of pay based on the eight-week period. You’ll get different answers if you use a daily or weekly basis.

There are two options you have if the amount you borrowed is greater than the allowable amount to be converted. The first is to pay back the extra amount. The second is to keep the amount as a loan. The rate is 1% and the period in which you must pay it back is two years. If this option is used, the Standing Committee will need to provide approval.

Additional Things to Consider
  • The amount for an Economic Injury Disaster Loan (EIDL) loan that was rolled into a PPP will not be part of the loan forgiveness amount;
  • You must use at least 75% of the loan proceeds for payroll costs;
  • Wages paid to an employee under the Expanded Family Medical Leave Act or Emergency Paid Sick Leave Act for which the church or school received allowable credit can not be converted to a grant;
  • It may take sixty days or longer to find out what part of the loan has been converted to a grant.

The Episcopal Diocese of San Diego
2083 Sunset Cliffs Blvd., San Diego, CA 92107