US Treasury posts additional guidance on Paycheck Protection Program
On April 6, the United States Treasury posted additional guidance on frequently asked questions concerning the implementation of the Paycheck Protection Program established by the CARES Act.
McDonald Hopkins continues to monitor SBA and US Treasury publications and pronouncements, because new PPP-related information continues to be released to address questions related to the Paycheck Protection Program and application process.
Below is a list of certain clarifications set forth in the April 6th Guidance:
- Providing an accurate calculation of payroll costs is the responsibility of the borrower, and the borrower must attest to the accuracy of those calculations. The SBA lender is not required to replicate the borrower’s calculations.
- Small business concerns can be eligible borrowers even if they have more than 500 employees if they satisfy the alternative standards under section 3 of the Small Business Act, 15 U.S.C. 632, if (1) the maximum tangible net worth of the business is not more than $15 million, and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million. In addition, a business is eligible for a PPP loan if the business has 500 or fewer employees whose principal residence is in the US, or the business meets the applicable SBA employee-based size standard for the industry in which it operates if the size standard permits the applicant to have more than 500 employees.
- SBA lenders are not required to make an independent determination regarding the applicability of affiliation rules under 13 C.F.R. 121.103(f) to borrowers.
- If a minority shareholder/member in a business irrevocably waives or relinquishes any existing rights to prevent a quorum or otherwise block action by the management of the business (see 13 C.F.R. 121.103(f)), the minority shareholder/member would no longer be an affiliate of the business (assuming no other relationship that would trigger the affiliation rules.
- The exclusion of compensation in excess of $100,000 annually applies only to cash compensation in the calculation of payroll costs, not to non-cash benefits, including:
- Employer contributions to defined-benefit or defined-contribution retirement plans;
- Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
- Payment of state and local taxes assessed on compensation of employeesi
- In evaluating a seasonal borrower’s eligibility, a SBA lender may consider whether a seasonal business was in operation on February 15, 2020 or for an 8-week period between February 15, 2020 and June 30, 2019.
- Eligible borrowers that use a Professional Employer Organization or similar payroll providers are required under some state registration laws to report wage and other data on the EIN number of the PEO or other payroll provider. In these cases, payroll documentation provided by the payroll provider that indicates the amount of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s employees will be considered acceptable PPP loan documentation. Relevant information from Schedule R (Form 941-Employer’s Quarterly Federal Tax Return) attached to the PEO’s Form 941 should be used if available.
- Employees of the eligible borrower will not be considered employees of the eligible borrower’s payroll provider or PEO.
- Borrowers can calculate their average monthly payroll costs using data either from the previous 12 months from the application date or from calendar year 2019.
- Any amounts that an eligible borrower paid to an independent contractor or sole proprietor should be excluded from the borrower’s payroll costs.
- Lenders may use their own online portals and an electronic form that they create to collect the same information and certifications contained in the PPP application form.
- Borrower’s and SBA lenders may rely on the laws, rules, and guidance available at the time of the relevant application.