The following is an update of recent developments of the Paycheck Protection Program (PPP) offered through SBA approved lenders.
As you are aware, Congress laid out the framework of the new PPP under the CARES Act on March 27, 2020. Please see our overview of the program by clicking here. Since then we have been receiving further guidance on the specific parameters of these loans and how they will operate.
Here is what we have learned since the initial passage of the bill:
- The SBA released an application to apply for the loan which provides insight into the information needed to obtain for the loan.
- “Average Monthly Payroll” is average monthly payroll for 2019, See below for included payroll.
- Season businesses may elect to use average monthly costs for the period between February 15, 2019 and June 20, 2019
- New businesses may use the period from January 1, 2020 to February 29, 2020
OPINION! We believe head count on the application is the average monthly headcount based on the method used above. We anticipate further guidance.
- Each trade or business will separately file an application outlining covered wages.
OPINION! We believe that each business that reports wages under its employer identification number (EIN) would separately file
- The Department of Treasury issued an information sheet for borrowers which provides more details. Here are the major highlights of the specifics details that were clarified:
- Small businesses and sole proprietorships can apply and receive loans starting April 3rd
- Independent contractors and self-employed individuals can apply and receive loans starting April 10th
- Payroll documentation will need to be provided to the lender
- We are waiting on further guidance regrading documentation requirements
OPINION! We assume this will be W-2s, proof of insurance payments, proof of employer retirement funding, etc.
- What counts as payroll costs?
- Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal;
- payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
- State and local taxes assessed on compensation; and
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
OPINION! Our original interpretation of the law was that this would allow a business to include payments made to independent contractors and reported on 1099-MISC. This appears to have been dropped from the guidance.
We believe all payroll costs as outlined above are limited to $100,000 annualized per employee. We interpret this to mean that an employee earning over this amount in wages would be precluded from adding additional benefits such as health and retirement benefits.
We are unclear if this includes payments to staffing agencies and PEOs
- It is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
- The loans term will be 2 years at an interest rate of .5%
We will continue to monitor important developments through this crisis and communicate accurate and timely information when available. We strongly encourage you to leverage our expertise during these trying times. We have a deep understand and broad view of the economic climate which can add significant value during these uncertain times. We are committed to assisting you in successfully managing through the rapidly changing economic environment.