Brian A. Haskel, Alan E. Sherman, Jason L. Sobel, Lori M. Waldron
April 07, 2020
This alert updates, clarifies and supersedes all prior
publications and communications from our firm on the subject matter
discussed below, based on updated guidance as of April 6, 2020; and it is
likely that there will be additional guidance in the future from the SBA
and other government agencies that may change or enhance prior guidance.
On the evening of April 6, 2020, the SBA released
additional guidance in the form of frequently asked questions. For the full text of the guidance and other Q&A that might be relevant to you, click here.
Some of the more pertinent guidance is as follows:
Question: Are small
business concerns (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) required to have 500 or fewer employees to be
eligible borrowers in the PPP?
Answer: No. Small
business concerns can be eligible borrowers even if they have more than 500 employees, as long as they satisfy the existing statutory and
regulatory definition of a “small business concern”
under section 3 of the Small Business Act, 15 U.S.C.
632. A business can qualify if it meets the SBA employee-based or revenue-
based size standard corresponding to its primary industry. Go to
www.sba.gov/size for the industry size standards.
a business can qualify for the Paycheck Protection Program as a small business concern if it met both tests in SBA’s “alternative size
standard” as of March 27, 2020: (1) maximum tangible
net worth of the business is not more than $15 million; and (2) the average net income after Federal income taxes (excluding any
carry-over losses) of the business for the two full fiscal
years before the date of the application is not more than $5
business that qualifies as a small business concern under section 3 of the
Small Business Act, 15 U.S.C. 632, may
truthfully attest to its eligibility for PPP loans on the Borrower Application Form, unless otherwise ineligible.
Question: Does my
business have to qualify as a small business concern (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) in order to
participate in the PPP?
Answer: No. In
addition to small business concerns, a business is eligible for a PPP loan if the business has 500 or fewer employees whose principal place of
residence is in the United States, or the
business meets the SBA employee-based size standards for the industry in which it operates (if applicable). Similarly, PPP loans are
also available for qualifying tax-exempt nonprofit
organizations described in section 501(c)(3) of the Internal
Revenue Code (IRC), tax-exempt veterans organization described in section 501(c)(19) of the IRC, and Tribal business concerns described in
section 31(b)(2)(C) of the Small Business Act that
have 500 or fewer employees whose principal place of residence
is in the United States, or meet the SBA employee-based size standards for the industry in which they operate.
Question: 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?
Answer: No. The
exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:
- employer contributions to
defined-benefit or defined-contribution retirement plans;
- payment for the provision of
employee benefits consisting of group health care coverage,
including insurance premiums; and
- payment of state and local
taxes assessed on compensation of employees
Question: What time
period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?
general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. For
seasonal businesses, the applicant may use average
monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in
business from February 15, 2019 to June 30, 2019 may
use the average monthly payroll costs for the period
January 1, 2020 through February 29, 2020.
may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an
employee-based size standard. Alternatively,
borrowers may elect to use 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).
payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible
borrower’s payroll costs?
Answer: No. Any
amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible
business’s payroll costs. However, an independent contractor
or sole proprietor will itself be eligible for a loan
under the PPP, if it satisfies the applicable requirements.
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
Answer: Under the
Act, payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes
imposed or withheld, such as the employee’s and
employer’s share of Federal Insurance Contributions 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 payroll costs do not include the employer’s share of payroll tax.
For example, an employee who earned $4,000
per month in gross wages, from which $500 in federal
taxes was withheld, would count as $4,000 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.
Question: I filed
or approved a loan application based on the version of the PPP Interim Final Rule published on April 2, 2020. Do I need to take any action
based on the updated guidance in these FAQs?
Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, borrowers whose
previously submitted loan applications have not
yet been processed may revise their applications based on clarifications reflected in these FAQs.
This Client Alert has been prepared by Sills Cummis & Gross P.C. for informational purposes only and does not constitute advertising or solicitation and should not be used or taken as legal advice. Those seeking legal advice should contact a member of the Firm or legal counsel licensed in their state. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. Confidential information should not be sent to Sills Cummis & Gross without first communicating directly with a member of the Firm about establishing an attorney-client relationship.