New Paycheck Protection Program Loan FAQ

New Paycheck Protection Program Loan FAQ

The SBA and the Treasury Department just released new Paycheck Protection Program (PPP) Loan FAQ for additional information on this option available from the CARES Act – click here to view it.

The FAQ document includes guidance on how to properly calculate payroll costs for the loan. Many large payroll providers shared tools over the past few days to help with the calculation – but it turns out most used incorrect methodology. So if you are filling out your application, or your application is still pending with your bank, double-check your calculations to make sure they match with the latest guidance.

Important aspects of the Paycheck Protection Program loan to note:

Do not reduce gross wages by employee federal tax withholding. When the SBA sent out the last guidance document, there was some weird language about not including employee tax withholdings for a certain period in the calculation of payroll costs. Some payroll providers took that to mean they should use the employee net check amount instead of gross wages. This latest document confirms that gross wages should be used (and then adjusted for benefits and employer state payroll taxes).

Do not include employer federal payroll taxes. Some payroll providers went the other direction and assumed that not only can we use gross wages, but we can add employer payroll taxes to the calculation for payroll costs. The SBA FAQ says no to that – so don’t include the employer-portion of federal payroll taxes.

The $100,000 compensation limit is for wages, but benefits can be added to that. In the calculation of payroll costs for the loan, you can only include up to $100,000 in wages for any one individual. But, if you pay additional health insurance or retirement benefits for the individual, this can be added to the $100,000 in wages. Some payroll providers were limiting the total amount to $100,000, and thus the eligible loan amount was lowered.

What timeframe should be used to calculate the average monthly payroll? Most banks have told their applicants to use calendar year 2019 as the basis for their calculation of payroll costs. But the FAQ specifically says that you can use 2019 or you can use “the previous 12 months”. You may also use a different time period if you are a seasonal business or a new business. For most growing businesses, the previous 12 months of payroll would be higher than calendar year 2019, so be sure you are using the time period that makes the most sense for your business.

This is probably not the last time they send out information about these loans as there are still many unanswered questions on the loan forgiveness calculations. We will share updates on this blog and social media when new guidance is released.

Check out our COVID-19 resource page for more blog posts, videos and helpful information for businesses during the Coronavirus pandemic.


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