Disclosures: Foos and Mandell report no relevant financial disclosures.
June 12, 2020
5 min read

Financial guide to re-open practices and seek loan forgiveness

Disclosures: Foos and Mandell report no relevant financial disclosures.
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As practices begin to re-open and resume full activity across the United States, it is time to take a hard look at the financial impact of the COVID-19 shutdown and how practice owners can mitigate long-term effects.

This article outlines a few actions to take and calculations to consider with the Paycheck Protection Program (PPP) loans.

Reach out to vendors and lenders

If your practice extended payment terms with vendors or worked with your bank to change payments on loan obligations, now is the time to recontact those vendors and lenders to resume a more normal payment schedule. In doing so, make sure you are aware of the timing of revenue receipts, so you don’t put yourself in a financial pinch by resuming those payments prior to collecting billings from insurance companies.

It is also a good time to reach out to your certified public accountant (CPA) regarding any revision to estimated tax payments, as well as calculations for any PPP loan forgiveness or FICA tax credits.

General considerations

If your practice received a PPP loan, you should now track the costs that are eligible for forgiveness. As of this writing, the U.S. Senate and House of Representatives have passed the PPP Flexibility Act and President Trump has signed it into law. The PPP Flexibility Act offers those who have already received PPP loans the ability to choose an 8-week period or a 24-week period for forgivable use of the loan proceeds.

Carole C. Foos

We are still awaiting guidance from the SBA in terms of how these changes will affect the calculations of eligible costs for PPP forgiveness. A safe harbor has already been announced for any business whose loan amount was less than $2 million. These businesses will be presumed to have met the good faith certification for needing the loan. Nonetheless, it is still recommended that you document your need for the loan by maintaining financial projections, detailing the drop in practice revenue, and keeping written documentation of any plans to furlough employees or reduce their hours or pay had you not received a PPP loan. The safe harbor protects from penalties, but the SBA could still audit and deny the loan forgiveness, if there was not a valid need.

Payroll considerations

Under the PPP Flexibility Act, the portion of PPP loan proceeds that must be spent on payroll costs was reduced from 75% to 60%. However, without a technical correction to the act, if less than 60% is spent on payroll, there will be no forgiveness. Under the 75% rule, the forgiveness was simply reduced pro rata. Payroll costs paid and incurred during the chosen covered period are eligible for forgiveness.

David B. Mandell

Businesses whose payroll is biweekly or more often may use an alternate payroll period instead of the 8 weeks that began on the day loan proceeds were received. Any payroll paid within the period or incurred within the period and paid on the next payroll date will count toward forgiveness.

Any single employee, including an owner employee, is limited to an annualized salary of $100,000, or to $15,385 for the 8-week period. Owner employees and self-employed individuals are further limited to 8/52 of their 2019 compensation, including employer paid retirement and health insurance, if that is less than $15,385. Partners in general partnerships are limited to the lesser of $15,385 or their 2019 net earnings from self-employment less Section 179 expense and depletion multiplied by 92.35%.

While cash compensation is limited to $15,385 for employees who are not owners, additional costs for employer-paid retirement contributions and health insurance can be included as additional forgivable payroll costs. Owners are limited to the $15,385 regardless of additional health insurance and retirement costs. State and local taxes on compensation, which are paid by the employer, may also be included in the forgivable cost calculation. Upcoming guidance should clarify any changes to these amounts.

Full-time employee calculations and wage reductions

There will be a reduction in the amount of the loan forgiven if the count of full-time equivalent (FTE) employees decreased from either the first 2 months of 2020 or the period between Feb. 15 and June 30, 2019. You may choose which of these periods to use for comparison. In calculating FTE employees, anyone who works an average of 40 hours per week or more will be counted as one. Employees working less than 40 hours per week will be counted as a fraction using average hours worked divided by 40. For example, a 30-hour per week employee will be 0.75.

Alternatively, you may choose to count each employee working less than 40 hours per week as a 0.5 employee. If you restore FTE employees by Dec. 31, then there will not be a reduction in forgiveness based on your FTE count. If you offer to re-hire an employee at the same hours and pay and they refuse the offer, then there will be no reduction for that employee. Similarly, there will be no reduction if you fire an employee for cause or an employee voluntarily resigns. Make sure to have written documentation for these situations.


If any employee making less than $100,000 annually has a wage reduction of more than 25%, there will be a reduction in the loan forgiveness amount, unless wages are restored by Dec. 31. For example, if an employee making $1,000 per week had wages reduced to $700 per week, 25% or $250, of the reduction would be ignored. However, the remaining $50 per week or $400 for the 8 weeks, would be a reduction in your forgiveness amount if the wages are not increased back to $1,000 by Dec. 31. If an employee’s pay reduction is due to reduced hours, it will only count against you once and won’t also cause a reduction in the FTE count.

Mortgage interest and rent

In addition to payroll costs, PPP loan forgiveness amount will include interest on mortgages for both real and personal property paid and incurred in the covered period. Business rent on both real and personal property will also be forgiven.

Utility expenses for electricity, gas, water, phone, internet and transportation are additional includible costs. For these costs, the debt obligation for a lease or mortgage must have been in place prior to Feb. 15, and the service for utilities must have begun prior to that date. As with payroll costs, expenses paid during the covered period as well as those incurred during the covered period and paid by the due date of the next payment will be allowed. Prepayment of mortgage interest will not be allowed. However, the non-payroll costs cannot be more than 40% of the total loan amount under the new PPP Flexibility Act.


Sound confusing? It is. The current forgiveness application and instructions are 11 pages long and there are additional guidance documents from the Small Business Administration. A new, more condensed application is expected, but the guidance seems to be constantly changing.

Now is the time to use your CPA for something other than tax preparation. Reach out for help to ensure you get the full amount of forgiveness to which you are entitled. As your practice gets back to full capacity, it is also a great time to contact your personal financial advisor to revisit your wealth and retirement planning. You may need to adjust goals accordingly or just want some peace of mind that the crisis didn’t set you back financially as much as you first thought.

Additional resources:

The newly published Wealth Planning for the Modern Physician: Residency to Retirement is available free as a PDF or e-book download by texting HEALIO to 555-888 or at www.ojmbookstore.com. Enter code HEALIO at checkout.


David B. Mandell, JD, MBA, is an attorney and partner in the wealth management firm OJM Group. Carole C. Foos, CPA, is also a partner and tax consultant. Seek professional tax and legal advice before implementing any strategy discussed herein. Mandell can be reached at mandell@ojmgroup.com or 877-656-4362.