General • Published 4/08/2020 Treasury FAQ Update on Paycheck Protection Program

Last updated on 4/8/2020

On Friday, April 3, 2020, lenders began accepting applications for the Paycheck Protection Program. While the program is up and running, there are still some questions that require further clarification. On April 6, 2020, the Treasury released a new FAQ related to some of the outstanding questions, and we have summarized a few key points below.

If I have already filed, do I need to resubmit a new application based on the updated guidance?

No, you may rely on the laws, rules, and guidance available at the time of your application. However, pending loan applications may need to be revised to reflect recent clarifications.

Are borrowers or lenders required to make a determination regarding applicability of affiliation rules?

It is the responsibility of the borrower to determine which entities (if any) are its affiliates and determine the employee headcount of the borrower and its affiliates. Lenders are permitted to rely on borrowers’ certifications.

What period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amount?

In general, borrowers can use either the previous 12 months or calendar year (seasonal and new businesses have other options) for determining average monthly payroll costs. Borrowers may use average employment over the same time period – suggesting borrowers can choose either calendar year or previous 12 months, but should use the same method for determining average payroll costs and number of employees.

Are small business concerns required to have 500 or fewer employees to be eligible for the PPP?

No. In general, a business can qualify if it meets the employee-based or revenue-based requirements defined by the SBA (www.sba.gov/size).

Does a small business concern have to have 500 or fewer employees in order to participate in the PPP?

This is where we get a little more confusion from intended clarity by the Treasury. The answer according to the SBA is “no.” A business is eligible for a PPP loan if it has 500 or fewer employees or fewer than the number of employees in the SBA’s size standards for its industry if such number is greater than 500. In addition, a business will qualify if its industry does not have an employee size standard but the business concern is within the size standard for its industry based on gross receipts. Even though the FAQ addresses the gross receipts size standard, what the SBA’s response does not specify is whether businesses previously listed as ineligible by the SBA are now considered eligible for the PPP (i.e. casinos, banks, finance companies, pawn shops, etc.). Based on our current understanding, we believe previously listed ineligible businesses are still ineligible to participate in the PPP, unless specifically stated in guidelines by the SBA. For example, non-profits were previously listed as ineligible, but the PPP guidelines were expanded to include certain non-profits.

Are lenders required to verify the borrower’s calculations of payroll?

No, the borrower must attest and is responsible for the accuracy of the calculations. Lenders are expected to perform a good faith review of the information submitted.

What is the definition of “any employee compensation in excess of an annual salary of $100,000” as it relates to payroll costs?

The exclusion of compensation in excess of $100,000 annually ($8,333 per month) applies only to cash compensation, not to non-cash benefits, such as retirement, health care coverage, insurance premiums, and state and local taxes assessed on the employee.

How should a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven?

Payroll costs are calculated on a gross basis without regard to federal taxes imposed or withheld (no addition or subtraction of employee withholdings). Accordingly, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. In other words, employee portion of payroll costs are already considered to be in gross wages (included in loan amount), and employer portion of payroll costs are not considered in gross wages (excluded in loan amount).

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As the CARES Act is finalized, future legislation is developed, deadlines are updated, and additional challenges and opportunities are uncovered, P&N’s dedicated professionals are committed to understanding and applying this information to help our clients. Please contact us or connect with your P&N advisor to discuss your organization’s questions, concerns, and priorities.