The Small Business Administration issued FAQs last night, April 6th, in response to demands from banks and borrowers to provide greater clarity as to what information is required for purposes of obtaining a Paycheck Protection Program loan. Many of these FAQs address how a business should determine its payroll costs.
Among other questions answered, the FAQs clarify that:
• Businesses should not include payments made to independent contractors in their payroll costs;
• The $100,000 per-employee compensation cap only applies to wages and salaries paid. Retirement and health care benefits, and state and local payroll taxes, are added in on top of the $100,000 salary limit for purposes of determining a business's payroll costs with respect to an employee;
• An employer may choose between two lookback periods for purposes of determining their average monthly payroll costs and number of employees:
o 2019; or
o The 12-month period prior to the date of application;
• Payroll costs are not reduced by taxes imposed on an employee, and are required to be withheld by the employer such as income tax withholding and the employee's share of FICA. However, you do not increase the payroll costs by the Federal payroll tax paid by the employer. You will use gross wages. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes were withheld, would count as $4,000 in payroll costs. There is no addition for the employer-side Federal payroll taxes imposed on the $4,000. (Note: This guidance is contrary to previous guidance, and what was included in the act, so it possible we will see further clarification on this issue – it has changed twice since last Friday);
• If a borrower applied using guidance that had been previously released, they are not required to adjust their applications to reflect these changes. Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application.
The FAQs are available at:
https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequenty-Asked-Questions.pdf
Payroll companies like ADP and Paychex are revising their PPP custom reports for new guidance. Please be sure to check with your respective payroll company on the status of their updated report.
Overall, the PPP has been ridden with complications due to the speed of its release and lack of clarifying details. This has caused many banks to stop accepting applications until guidance is clear as their loans would be reckless otherwise.
This makes us uneasy about giving additional advice on calculating your loan amount. Some clients may decide to press on with the uncertainty, so they secure their place in line with the funding that is allocated. At this point, we suggest your top priority is to connect with your preferred lender and get in their queue. Then, be flexible for changing calculation requirements as new guidance is issued. If you do not have a lender you work with that is accepting applications, please reach out to our office for some recommendations. You also may want to look at the SBA Economic Injury Disaster Loans on the SBA website. This may be an option for you prior to, and in supplement of the PPP.