Payroll Costs Defined
The current regulations state that applicants should not include independent contractors in their payroll cost calculations; the regulations state that "independent contractors have the ability to apply for a PPP loan on their own."
Other exclusions
from payroll cost calculations:
federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee's and employer's share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; compensation for employees based outside the U.S; compensation in excess of $100,000 (prorated); and qualified paid leave under the
Families First Act
.
Consult your lender; the best and latest guidance is flowing from SBA to lenders directly.
Current SBA guidance on payroll costs is as follows: "Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of 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; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation."
Calculating Payroll Costs
The rule lays out a five-step process for calculating payroll costs for purposes of PPP loans:
- Aggregate payroll costs (see above) for last 12-months;
- Subtract pay from each employee in excess of $100,000;
- Divide step 2 total by 12 months to get the monthly average;
- Multiply step 3 total by 2.5; and then
- Add any outstanding amount from an EIDL loan received between 1/31/2020 and 4/3/2020, “less the amount of any ‘advance’ under an EIDL COVID-19 loan (because it doesn’t have to be repaid).
75%-25% Rule for Forgiveness
SBA will limit how much of a loan can be forgiven based on how the borrower spends the money. Loan forgiveness requires at least 75 percent of the loan amount be spent on payroll and no more than 25 percent on other eligible expenses (rent/mortgage, utilities). This restriction isn’t in the statute but SBA says it is imposing the restriction to promote employment.
Interest Rate
Contrary to earlier announcements from SBA, the interest rate for PPP loans has now been set at 1 percent, up from the 0.5 percent that was reported earlier.
Lender Scrutiny
The regulations state: “The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs. The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower.”
Application
Borrowers must complete the
SBA Form 2483
(Paycheck Protection Program Application Form) and provide payroll documentation.
