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What is the time period for calculating payroll under the Paycheck Protection Program?

Posted by Bonita Hatchett-Bodle

Apr 20, 2020 3:31:27 PM

An applicant may determine the number of employees and payroll by using a 12-month look-back period or by using the information from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in business from February 15, 2019, to June 30, 2019, may use the average monthly payroll costs for the period January 1, 2020, through February 29, 2020. The Small Business Administration (SBA) stated that borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use the SBA’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).

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Topics: payroll costs, Paycheck Protection Program

Do leased employee payments count in determining payroll costs?

Posted by Bonita Hatchett-Bodle

Apr 20, 2020 3:29:40 PM

Yes. The SBA FAQs addressed whether amounts paid to leased employees through a third-party payer such as a payroll provider or a professional employer organization (PEO) in order to process payroll and report payroll taxes constitutes PPP loan payroll documentation. This is important both for determining the amount of the borrower’s maximum loan amount and for documenting how loan proceeds are used for a loan made between February 15, 2020, and June 30, 2020, for loan forgiveness purposes.

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Topics: Paycheck Protection Program, leased employees

May a PPP loan be used to pay for sick leave beginning February 15, 2020, and ending June 30, 2020?

Posted by Bonita Hatchett-Bodle

Apr 20, 2020 3:27:40 PM

Yes, but not for sick leave for which an employer receives a tax credit under the Families First Coronavirus Response Act (FFCRA). The SBA FAQs confirmed that PPP loans may be used during the eight-week period beginning February 15, 2020, and ending June 30, 2020, in order to cover paid sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under Sections 7001 and 7003 of the FFCRA. For this reason, the PPP loan cannot be used to cover the employer’s expense for paid sick and childcare leave under the FFCRA for which the employer is granted a 100% tax credit to cover the expense.

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Topics: sick leave, Paycheck Protection Program

Are independent contractor payments included in payroll costs?

Posted by Bonita Hatchett-Bodle

Apr 20, 2020 3:25:35 PM

No. The Small Business Administration confirmed, consistent with the final interim regulations, that an applicant’s payments to an independent contractor should not be included in calculation of the eligible borrower’s payroll costs. Only employee costs, including leased employee costs, are to be included. However, an independent contractor or sole proprietor is itself eligible to apply for a loan under the Paycheck Protection Program if the individual satisfies the applicable requirements.

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Topics: independent contractors, Paycheck Protection Program

Are federal taxes included in determining payroll costs?

Posted by Bonita Hatchett-Bodle

Apr 20, 2020 3:23:44 PM

The Small Business Administration's FAQs addressed the method borrowers must use in order to account for federal taxes when determining payroll costs for maximum loan determination and for the allowable uses for Paycheck Protection Program (PPP) loan proceeds. The SBA clarified that payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) tax and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax.

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Topics: payroll costs, Paycheck Protection Program, federal taxes

Should a PPP application be refiled to account for changes made by SBA guidance?

Posted by Bonita Hatchett-Bodle

Apr 20, 2020 3:20:12 PM

The Small Business Administration (SBA) recognizes that several individuals applied for Paycheck Protection Program (PPP) loans on April 3, 2020, the date the program opened and prior to the SBA’s issuance of interim final regulations and the FAQs. Notwithstanding all of the clarifications that have been made after the program opened, the SBA indicated that borrowers do not need to take any action based upon the updated guidance. Instead, borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, previously submitted loan applications that have not yet been processed may be revised based upon the clarifications in the FAQs.

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Topics: Paycheck Protection Program, application process

When does the loan forgiveness period begin?

Posted by Bonita Hatchett-Bodle

Apr 20, 2020 3:18:20 PM

The amount of forgiveness of a Paycheck Protection Program loan depends on the borrower’s payroll costs over an eight-week period. The SBA clarified that the eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower, which is no later than ten days after loan approval.

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Topics: Paycheck Protection Program, loan forgiveness

Is an employer with 500 or more employees eligible to apply for a loan under the Paycheck Protection Program?

Posted by Bonita Hatchett-Bodle

Apr 16, 2020 1:05:19 PM

Yes. The Small Business Administration (SBA) clarified that program eligibility is not limited to small businesses with fewer than 500 employees. Instead, small businesses with more than 500 employees are eligible to participate, as long as they satisfy the existing statutory and regulatory definition of a “small business concern” under Section 3 of the Small Business Act, 15 U.S.C. 632, which imposes size standards for different industries. Additionally, a business can qualify as a small business concern if it meets both of the following tests in the SBA’s “alternative size standard” as of March 27, 2020:

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Topics: Small Business Administration, Paycheck Protection Program

Do the SBA affiliation rules apply in determining employer eligibility under the Paycheck Protection Program?

Posted by Bonita Hatchett-Bodle

Apr 16, 2020 1:02:26 PM

The Small Business Administration (SBA) size regulations are used to determine whether an organization is eligible for participation in the SBA’s programs. The rules require that an organization’s affiliates be included in determining whether the business has 500 or fewer employees. Affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses. Under the rules, control may arise through ownership, management, or other relationships or interactions between the parties. The affiliation rules do apply under the program but lenders are not required to make an independent determination regarding applicability of the SBA affiliation rules under 13 C.F.R. 121.301(f). Instead, it is the responsibility of the borrower to determine which entities (if any) are its affiliates and to determine the employee headcount of the borrower and its affiliates. Lenders are permitted to rely on the borrowers’ certifications.

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Topics: Small Business Administration, Paycheck Protection Program

How does a borrower substantiate payroll costs under the Paycheck Protection Act? What are the lender’s obligations?

Posted by Bonita Hatchett-Bodle

Apr 16, 2020 1:00:26 PM

The maximum loan amount under the program is equal to the employer’s average monthly payroll cost during the one-year period prior to the date the loan was made, and then multiplied by 2.5. The lender is not required to replicate or investigate all of the borrower’s calculations but may rely upon the borrower’s attestation of the accuracy of the calculations. The guidance indicates that lenders are expected to perform a good faith review, in reasonable time, of the borrower’s calculations and supporting documents concerning average monthly payroll cost. Further, if the lender identifies errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documentation, the lender is encouraged to work with the borrower to remedy the issue. The documentation that several financial institutions are requiring includes business and sole proprietor tax returns, quarterly payroll reports, reports prepared by third party payroll processors and any other information that supports the applicant’s requested loan amount.

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Topics: payroll costs, Paycheck Protection Program

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