SBA issues regulations on Paycheck Protection Program

Beginning Friday, April 3, 2020, the Small Business Administration (SBA) opened the Paycheck Protection Program (PPP) as authorized in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. On Thursday, April 2, 2020, the SBA released regulations explaining the process that businesses affected by COVID-19 would need to follow in order to qualify and apply for relief. While employers can begin applying for PPP loans immediately, it is our understanding independent contractors will not be able to apply before April 10, 2020. Additional guidance is expected from the SBA and the Treasury Department on independent contractors looking to use the loan program.

Key takeaways

• Payroll costs do not include:
  – Compensation for employees outside the U.S.
  – The compensation of an employee in excess of $100,000, prorated as necessary (while there is drafting tension within the statute, we believe the cap pertains to all compensation, not just wages)
  – Imposed or withheld individual federal employment taxes between Feb. 15, 2020, and June 30, 2020, including the employee’s and the employer’s share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
  – Qualified sick and family leave wages for which a Families First Coronavirus Response Act (FFCRA) credit is allowed
• Independent contractor payments do not count as payroll costs for the employer, as they are eligible for their own PPP.
• Borrowers who received a loan from the SBA Economic Injury Disaster Loan Program (EIDL) earlier in 2020 can use the proceeds of the PPP loan to refinance the EIDL loan. If the previous EIDL loan was used for payroll costs, a new PPP loan must be used to refinance the EIDL loan.
• The SBA intends to promptly issue additional guidance with regard to the applicability of affiliation rules to PPP loans.
• At least 75% of the loan proceeds must be attributable to payroll costs, and not more than 25% of any loan forgiveness amount may be attributable to nonpayroll costs.

Background

A PPP loan is a small business loan issued by private lenders and fully guaranteed by the federal government with the principal purpose of helping employers retain their employees. The loans are intended to cover eight weeks of payroll expenses, applied to any payroll period between Feb. 15, 2020, and June 30, 2020.