PPP SBA FAQs

This article was updated on April 7, 2020.  Updates to this article will be made as new information becomes available.

Important Update on the Payroll Protection Program Under the CARES Act

On April 6, 2020, the U.S. Small Business Administration (“SBA”) published Frequently Asked Questions in regards to the implementation of Section 1102 – Paycheck Protection Program (“PPP”) and Section 1106 – Loan Forgiveness Under the CARES Act. 

The following summarizes the key questions addressed:

Q: Are small business concerns as defined in Section 3 of the Small Business Act (“Section 3”) required to have 500 or fewer employees to be eligible under the PPP? 

No.  A business is eligible if it meets EITHER of the following two (2) standards:

1. Meets the definition of a small business concern under Section 3.  To meet this definition, a business must meet ANY (NOT ALL) of the following three conditions:

  • SBA industry standards for employee-based size requirements; OR
  • SBA industry standards for revenue–based size requirements; OR 
  • The alternative size standard.  The alternative size standard requires a business meet BOTH of these two (2) conditions:
    • Maximum tangible net worth of not more than $15 million; AND
    • Average net income after Federal income taxes (excluding carryover losses) for the past full two fiscal years of not more than $5 million.

2. If it employs not more than the greater of 500 employees OR the size standard in number of employees established by the SBA for the industry in which the business operates.

Q: Are borrowers required to apply the SBA’s affiliation rules under 13 C.F.R. 121.301(f)?

Yes, borrowers must apply the affiliation rules set forth in the SBA’s PPP Interim Final Rule.  A borrower must certify on the application that it is eligible to receive a PPP loan, which means that the borrower is a small business concern under Section 3, meets the applicable SBA employee-based or revenue-based size standard, or meets the tests in the SBA’s alternative size standard after applying the affiliation rules.

Q: The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000.  Does that exclusion apply to all employee benefits of monetary value?

No.  The exclusion applies only to cash compensation, not to non-cash benefits including: (1) employer contributions to retirement plans; (2) payment for employee benefits consisting of group health care, including insurance premiums; and (3) payment of state and local taxes assessed on compensation.

Q: What time period should borrowers use to determine their number of employees and payroll costs to calculate maximum loan amounts?

Borrowers can calculate aggregate payroll costs based on the last 12 months or calendar year 2019.  For seasonal businesses, the applicant may use the average monthly payroll between February 15, 2019, or March 1, 2019, and June 30, 2019.  If the applicant was not in business during this time, it may use the average monthly payroll costs between January 1, 2020 and February 29, 2020.

Borrowers can use the average employment over the same time periods methodology to determine their number of employees for the purposes of applying an employee-based size standard.  Alternatively, they can use the SBA’s usual calculation: the average number of employees per pay period in the 12 completed months prior to the date of loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for the prior 12 months)

Q: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included on calculations of the eligible borrower’s payroll costs?

No.

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

Payroll costs are calculated on a gross basis without regard to federal taxes imposed or withheld (including employer and employee FICA and income taxes required to be withheld from employees).  Therefore, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by an employer.  However, payroll costs do not include the employer’s share of payroll tax.

If you need more information, please reach out to any of your contacts at Schneider Downs or contact Joel Rosenthal (jrosenthal@schneiderdowns.com) or Steve Thimons (sthimons@schneiderdowns.com) directly.

Please visit our Coronavirus Resource Center for related content.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on

Reshoring and Manufacturers
Third Party Risk Management Planning During COVID-19
Reflections from the Recent Employee Benefit Plan Season
CARES Act Funding to Help Ohioans Impacted by COVID-19
Using External Data and Process Automation to Enhance Analysis
The Impact of COVID-19 on Community Colleges

Register to receive our weekly newsletter with our most recent columns and insights.

Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us

contact us

Map of Pittsburgh Office
Pittsburgh

One PPG Place, Suite 1700
Pittsburgh, PA 15222

contactsd@schneiderdowns.com
p:412.261.3644     f:412.261.4876

Map of Columbus Office
Columbus

65 East State Street, Suite 2000
Columbus, OH 43215

contactsd@schneiderdowns.com
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102