LGA has been taking a very pragmatic and common sense approach to how to interpret the various provisions and conflicting interpretations resulting from the passing of the Paycheck Protection Program (PPP). The SBA has provided an updated Q&A to borrowers and lenders to alleviate some of the confusion that continues to swirl around the PPP and the definitions and calculations within.
The positions that we have been taking and the advice that we have been providing to clients and nonclients has been validated by this most recent guidance. We wanted to highlight the responses to 6 of the most common areas of confusion as of this morning:
- The SBA will accept the calculation of average payroll costs using either the full calendar year 2019 payroll OR the 12 months preceding the loan application. Please check with your bank to confirm if they are agreeable to either as well.
- When determining eligible payroll costs, the $100,000 cap on compensation only applies to CASH compensation, and does not include non-cash benefits such as health insurance premiums, retirement plan contributions, and state and local taxes on compensation.
- For purposes of calculating compensation, businesses will use GROSS wages, with no adjustments for any employee tax withholdings.
- The calculation of payroll costs EXCLUDES the employer portion of FICA.
- Independent contractors can NOT be included in a business’s payroll costs, since they will be eligible to apply on their own.
- Businesses that use PEO’s (Professional Employer Organizations) DO qualify to participate in the PPP, assuming they satisfy the other eligibility criteria.
We hope this helps to ease the minds of those who have been reading and hearing conflicting guidance. Click here to download the full version of the most recent SBA Q&A. We will continue to keep you updated as more guidance is released.
by John Geraci, CPA, MST