Bruce Claassen

April 7, 2020

The Department of the Treasury issued updated guidance on the Paycheck Protection Loan Program  last night in the form of some Frequently Asked Questions, which can be found here:

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequenty-Asked-Questions.pdf

 

Highlights:

• Confirms that it is the responsibility of the borrower to calculate the "average monthly payroll costs," and provide adequate documentation so the lender can perform a "good faith review" of those calculations. 

• Clarifies the size of business that is eligible for a PPP loan.  It now appears that businesses with more than 500 employees are eligible, as long as they satisfy the existing statutory and regulatory definition of a "small business concern."

• Clarifies how the SBA "affiliation rules" apply to loan eligibility.  These rules are pretty involved, but if you are an owner of multiple businesses (even if less than 50%), you may want to call us to discuss this if you feel your ownership may make your businesses ineligible to apply.

• Confirms that when applying the $100,000 compensation limitation to payroll costs, that the $100,000 limit only applies to cash compensation.  Non-cash benefits will be allowed, even if they push the total compensation above $100,000.

• Confirms that businesses using a Professional Employer Organization (PEO, which is essentially an employee leasing arrangement) is eligible to apply and the payroll of the business' leased employees will be included in payroll costs.  It also gives guidance to the type of payroll documentation this business will need to provide to the bank.

• It allows only one individual to sign the loan application rather than requiring all owners of the business.

• Clarifies the period that should be used to calculate average payroll costs:

  • If you were in business all of 2019, then you can use either calendar year 2019, or the 12 months prior to when you apply for the loan.  (Prior to this statement, the law instructed you to use the prior 12 months, but the application told you to use calendar year 2019.  This clarifies that they will allow you to choose, which may help some businesses)

  • Seasonable employers are still supposed to use either 2/15/19 or 3/1/19 and 6/30/19.

  • If a business was not in business for the above periods, then they will use 1/1/20 through 2/29/20.

• Clarifies that payments you make to independent contractors/sole proprietors are not included in payroll costs (these individuals will be able to apply for a PPP loan on their own).

• Clarifies that Federal payroll taxes should neither be added to nor subtracted from the calculation of average payroll costs for the purposes of determining the loan amount.  
  It looks like you'll have to reduce your payroll costs by employer FICA tax when you calculate the amount of debt forgiveness you're eligible for.  We will hopefully get more guidance on this aspect, later.

• Due to all of the changes, the Treasury Department said that if you've already applied, you will be held to the guidance that was in place at the time you applied.  If you previously submitted an application for a PPP loan, you can revise your application based on the new guidance, but are not required to.

As you can see, there were many things that they've clarified, and this information comes well after the fact for many small businesses.  If you have any questions about these items, please give us a call to discuss.  We are here to help you through this.

Stay safe!