The SBA Paycheck Protection Program (PPP) seems to be the most attractive option for small businesses experiencing hardship created by the Coronavirus. Due to the rushed legislation, there has been a lot of follow-up clarification to provide more specific guidance.
Here’s our list of FAQs employers have been asking.
How do I apply for loan forgiveness?
Read our list of FAQs regarding PPP loan forgiveness.
Do I need Form 941 to apply for a PPP Loan?
No, page 6 of the Interim Final Rule (IFR) does not specify requiring Form 941. It states:
“You must… submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099- MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.”
The PPP Application language has also been revised to omit anything about a Form 941 requirement.
What is the procedure to apply for a PPP loan?
Applicants must submit SBA Form 2483, along with proper documentation. The IFR specifies “such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings[…]. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.”
Stratus.hr clients already have this information but may need to portray it in a way their lender requests. The below image explains the data encompassed in each section of the spreadsheet sent to clients. All other lender-requested information can be found in the user dashboards of the Stratus.hr System.
Do independent contractors (1099s) count as employees for purposes of PPP loan calculations and/or forgiveness?
Pages 11 and 15 of the IFR state: “No, independent contractors have the ability to apply for the PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation… [or] a borrower’s PPP loan forgiveness.”
What is included in employer payroll costs?
Page 10 of the IFR specifies payroll costs as compensation to employees who live in the US that include:
- Salary, wages, commissions, or similar compensation;
- Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
- Payment for vacation, parental, family, medical, or sick leave;
- Allowance for separation or dismissal;
- Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement;
- Payment of state and local taxes assessed on compensation of employees.
Is workers’ comp or payroll admin fees included in “payroll costs”?
There is no specific clarity on this. At this point, it appears unlikely either of these will be forgivable.
What is the interest rate and maturity of a PPP loan?
While this has changed several times since the legislation was first released, page 11 of the IFR states the final interest rate is 1% with a maturity of 2 years.
When I calculate my loan amount, are there any rent and utilities factored into the loan amount or is it just based on salary?
The loan amount is determined entirely off of an estimated monthly payroll cost (average monthly payroll costs X 2.5). The forgiveness component takes into account the actual 8-week period from loan origination and includes payroll costs, rent, utilities, etc. Page 14 of the IFR specifies that not more than 25% of the loan forgiveness amount may be used for nonpayroll costs if you’re seeking 100% forgiveness, as the core purpose of the loan is to keep employees paid and insured. In other words, if you have an expensive rent lease, you may not have that amount entirely forgiven if it exceeds more than 25% of the loan amount.
Can we waive employee benefits and receive the PPP loan?
No, page 15 of the IFR specifies the proceeds of a PPP loan are to be used for “i. payroll costs (as defined in the Act and in 2.f.); ii. costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums…” Remember that the purpose of this emergency loan is to keep employees paid and insured.
I have a couple employees that make more than $100k. How is the cap applied?
The SBA seems to make a flat $100k cap for everything, including benefits, but more clarification is needed in this regard.
What if an employee quits; does that count against me with the loan forgiveness?
The statute doesn’t really account for employees that quit; it is strictly based on employee headcount. Consider hiring a replacement to maintain your headcount, as the forgiven amount will be reduced if your headcount decreases.
If I termed my employees last week, can I hire them back and not be penalized?
Yes, this is written into the statute to account for this. You can cure any previous reduction in staff if you do so by June 30, 2020 to qualify for full loan forgiveness.
I heard the PPP loan is first come, first serve. Is that true?
Yes! If your business needs the added help, don’t wait to apply!
We anticipate further guidance to be issued regarding loan forgiveness and will provide more details as we receive them. If you have questions about this loan, please email email@example.com.