Quick Guidance - Review of SBA Interim Rule Paycheck Protection Program

April 3, 2020

By Robert T. Smith

The Small Business Administration last night (Thursday, April 2, 2020) issued an interim final rule that provides additional implementation guidelines and requirements for its Paycheck Protection Program to aid small businesses hit hard by the COVID-19 crisis.

Application of $100,000 cap on compensation

In defining “payroll costs” the CARES Act refers to “any compensation to employees that is” salaries, wages, health care benefits, retirement benefits, etc.

  • So ALL of those things are deemed to be “compensation”

The interim rule (example on page 8) – states that you subtract “any compensation paid to an employee in excess of an annual salary of $100,000.”

My read is that the $100k is a cap on TOTAL comp for any employee. The only angle you could argue otherwise would be to say that benefits, for example, are not “paid to” an employee – which I do not believe to be a correct interpretation.

Eligibility of certain entities

Banks are not eligible for a PPP loan.

The treatment of Churches is less clear. The regulation cited in the rule excludes “businesses principally engaged in teaching, instructing . . . religion or religious beliefs.” A Church is arguably not a business for this purpose. The CARES Act then authorizes participation by nonprofit corporations described in Section 501(c)(3) – which would include a Church.

Payments to Independent Contractors

An applicant may NOT include any payments to independent contractors in determining payroll costs.

“Gross” v. “Net” Payroll Calculation

Federal taxes (payroll and income tax withholdings) can be included in determining payroll until the period beginning February 15, 2020.

 For most borrowers determining their average monthly payroll, they would use a gross payroll calculation for the period April 1, 2019, through February 15, 2020, and a net payroll calculation for the period February 15, 2020, through March 31, 2020.

Beginning of 8-week covered period

 The rule refers to the 8-week covered period as “following the date of the loan." I interpret this to be the date on which the loan is closed.

Use of PPP loan funds for non-payroll costs

The provision that not more than 25 percent of loan proceeds be used for non-payroll uses is now a condition for forgiveness (not simply a certification that it is “anticipated” by the borrower).

Robert T. Smith heads the Finance and Commercial Transactions Practice Group.His diverse corporate practice focuses on representing companies and financial institutions in general business, transactional, securities and regulatory matters. 

Disclaimer: The information included here is provided for general informational purposes only and should not be a substitute for legal advice nor is it intended to be a substitute for legal counsel. For more information or if you have further questions, please contact one of our Attorneys.