Updated FAQs on Paycheck Protection Program
Wednesday, April 8, 2020, the Treasury Department and SBA released an updated FAQ relating to the Paycheck Protection Program, highlighting seven (7) key questions.
- Annual Salary over $100,000 and Benefits
- The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, meaning that, in addition to the $100,000, you can pay and be forgiven for the following items in addition to an employee’s $100,000 compensation: (1) employer contributions to retirement plans; (2) payment of group health care coverage, including insurance premiums; and (3) payment of state and local taxes assessed on the compensation of employees.
- Authorized Signatures
- Lenders may accept signatures from a single individual who is authorized to sign on behalf of the borrower, even if there are multiple owners of the small business.
- Federal Taxes and Payroll Costs
- Only the employer’s share of the payroll tax is excluded when calculating the payroll cost. You do not have to deduct the employee’s or employer’s share of FICA, or income taxes required to be withheld from employees.
- Under the Act, payroll costs are calculated on a gross basis without regard to federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contribution Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but the payroll costs do not include the employer’s share of the payroll tax.
- Example: An employee who earned $4000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.
- Calculating Number of Employees and Payroll Costs
- Borrowers can calculate their aggregate payroll costs using data from either the previous 12 months prior to the loan or from the entire 2019 calendar year.
- Reliance on Laws and Relevant at the Time of Application
- Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the borrower’s application.
- Independent Contractors and Sole Proprietors
- Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’ payroll costs.
- When does the eight-week period begin?
- The eight-week period begins on the date the lender makes the first disbursement of the Paycheck Protection Program loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.
Sources: Small Business Administration, Treasury Department
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