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U.S. Treasury Provides Further Guidance to PPP Borrowers and Lenders

BRYAN JOHNSON
APRIL 8, 2020


The Small Business Administration’s (SBA) Paycheck Protection Program (PPP) authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act has been active for less than a week, and already the consensus among borrowers and lenders alike is that the program is confusing and lacks clarity and certainty. Having apparently heard the rumblings, the U.S. Treasury, which is administering the PPP with the SBA, has issued additional guidance to address borrower and lender concerns.

The Treasury’s FAQs—released on April 7—are available here. Michelman & Robinson summarizes the most relevant clarifications.

Q: The CARES Act excludes from the definition of payroll costs any employee compensation in excess of $100,000. Does that $100,000 cap include all employee benefits of monetary value?

A: No, the $100,000 cap contemplates cash compensation only. Non-cash compensation (e.g., employer contributions to retirement plans, health insurance premiums, and payment of state and local taxes on employee compensation) does not count against the $100,000 cap.

Q: May borrowers contract with third-party payers, such as a payroll provider or Professional Employer Organization (PEO), to process payroll and report payroll taxes?

A: Yes, they can. The SBA recognizes that borrowers using PEOs or similar payroll providers may be required under state registration laws to report wage and other data on the Employer Identification Number (EIN) of the PEO. In these cases, such information can be submitted by borrowers for purposes of PPP loan payroll documentation. If relevant information from a borrower’s Schedule R (Form 941) and Employer’s Quarterly Federal Tax Return is unavailable, the borrower should obtain a statement from the payroll provider documenting the amount of wages and payroll taxes.

Note, a borrower’s employees will not be considered employees of the borrower’s payroll provider or PEO.

Q: May lenders use their own online portals and electronic forms to collect the same information and certifications as in the PPP’s Borrower Application Form?

A: Yes, lenders may use their own online portals and electronic forms for purposes of information gathering and borrower certifications; however, they are still required to send the collected data to the SBA using the SBA’s interface.

Q: When determining their payroll costs and number of employees to calculate maximum loan amounts, what time periods should borrowers use?

A: Generally, borrowers should use data either from (i) the previous 12 months or (ii) from calendar year 2019. Seasonal businesses may use average monthly payroll for the period between February 15, 2019, or March 15, 2019, and June 30, 2019. Applicants that were not in business between February 15, 2019 to June 30, 2019 may use the average monthly payroll costs from the period between January 1, 2020 to February 29, 2020.

Borrowers may use the same time periods to determine their number of employees. Alternatively, they can elect to use the SBA’s usual calculation: “the average number of employees per pay period in the 12 completed calendar months prior to the date of the 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 12 months).”

Q: Are payments made by a borrower to an independent contractor or sole proprietor included in calculations of the borrower’s payroll costs?

A: No, these payments should be excluded from the borrower’s payroll costs. Parenthetically, independent contractors and sole proprietors may themselves be eligible for loans under the PPP.

Q: When determining its payroll cost for purposes of obtaining the maximum loan amount, allowable uses of PPP loan proceeds, and the amount of loan forgiveness, how should a borrower account for federal taxes?

A: Under the CARES Act, payroll costs are calculated on a gross basis, without regard to federal taxes imposed or withheld. Therefore, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer. That being said, payroll costs do not include the employer’s share of payroll taxes.

The Treasury provides an example: where an employee earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, $4,000 would be counted 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 CARES Act.


We are working diligently to keep our clients up to date on coronavirus-related developments. Nevertheless, these developments are changing daily and, in some cases even hourly, so it is important that you make sure you are dealing with the most current information. That being said, this alert is not offered, and should not be relied on, as legal advice. You should consult an attorney for guidance and counsel regarding any specific concern or situation.