Changes to Paycheck Protection Program

Paycheck Protection ProgramThe U.S. Small Business Administration (SBA) has issued interim regulations under the Paycheck Protection Program (PPP). These regulations have changed some aspects of the program.

Independent Contractors

Even though the PPP expressly allows the inclusion of payments of any compensation to or income of an independent contractor in the definition of payroll costs, the regulations expressly exclude independent contractors from the loan amount calculation. The regulations expect the independent contractor to apply for his/her own loan under the program. You can fine the PPP Loan Application here.

Includable and Excludable Payroll Costs

Business must compile their payroll costs from the last 12 months (most Applicants will use the average monthly payroll for 2019), which should include:

  • Compensation in the form of salary, wages, commissions, or similar compensation, as well as cash tips or the equivalent, paid to employees whose principal residence is in the United States;
  • 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; and
  • Payment of local and state taxes assessed on the compensation of employees

After adding up the items above, you must subtract from those amounts:

  • Compensation of each individual employee in excess of $100,000 annually;
  • For the period February 15, 2020 to June 30, 2020, all Federal employment taxes imposed including the employee and employer share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
  • Qualified sick and family leave wages for which is a credit is allowed under the Families First Coronavirus Response Act.

Loan Forgiveness and Reduction of Forgiveness

The loan amount and all interest are forgivable if spent on the following:

  • Employee and compensation levels are maintained
  • At least 75 percent on payroll costs (accounting for all of the includable and excludable items)
  • No more than 25 percent for non-payroll costs consisting of:
    • Rent payments for leases dated before Feb. 15, 2020;
    • Mortgage interest obligations incurred before Feb. 15, 2020;
    • Utility payments under service agreements dated before Feb. 15, 2020;
    • Interest on any other debt obligations incurred before Feb. 15, 2020; and
    • Refinancing a SBA Economic Injury Disaster Loans (EIDL) loan made between Jan. 31, 2020 and April 3, 2020.

Interest Rate and Repayment Terms of the Loan

The loan interest rate will be 1 percent with a maturity of two years. Repayment of the loan is deferred for six months, although interest will accrue during that deferment period.

Misuse of Loan

Use of the loan for unauthorized purposes will require repayment. Anyone who knowingly uses funds for unauthorized purposes, will be subject to additional liability such as fraud charges. The SBA will have recourse against shareholders, members, partners, etc. if funds are used for unauthorized purposes.

Stay Tuned

The SBA is expected to issue more guidance in the coming days. You can find an additional PPP resource below. KRS professionals are available and happy to assist with loan and grant applications. We continue to update our Coronavirus Resources Page. Please contact us if you have any questions, concerns, or need advisement during this unprecedented time.

PPP Fact Sheet