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Answering five questions contractors have about SBA PPP loans

Apr 13, 2020

On April 23, 2020, the federal government passed a $484 billion package to re-fund the SBA PPP.

Much of the confusion for contractors applying for Small Business Administration (SBA) Payment Protection Program (PPP) loans has centered on the calculation of the allowable costs included in the underlying loan amount. The following are five common contractor-specific questions to consider while working through this calculation.

What is included in payroll costs?

Per the U.S. Treasury’s guidance issued on April 6, 2020, payroll costs include:

  • Gross compensation, including: salary, wages, commissions and tips (capped at $100,000 on an annualized basis per employee).
    • An annual exclusion of $100,000 applies to cash compensation and does not include employee benefits, defined below.
    • Payroll taxes are not netted against gross compensation for calculation purposes.
  • Employee benefits, including: severance pay; cash payments for vacation; parental, family, medical or sick leave; the employer-paid portion of group health care benefits (including vision and dental); payment of any retirement benefits; and the employer portion of state income taxes.
  • Specifically excluded from payroll costs are payments to independent contractors and non-cash vacation, sick, or parental leave, which is assumed to be baked into gross compensation as defined previously.

2. Are union pension and welfare contributions included in total payroll costs?

The Treasury’s guidance specifically defined provision for employee benefits as “employer contributions to defined-benefit or defined-contribution retirement plans” and “payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums.” Given those guidelines, and pending future guidance clarifying otherwise, union pension and welfare contributions should be included in total payroll costs.

3. If I’m the owner of an LLC taxed as a partnership, are guaranteed payments included in payroll costs?

Based on current guidance, it appears a reasonable case could be made for doing so. The Act, as written, broadly defines payroll costs as “any compensation to include items such as salary, wages, and commissions.”

Furthermore, the scope of the definition extends to “payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, net earnings from self-employment, or similar compensation.”

The interim file rule issued by the SBA on April 3, 2020, did not specifically exclude guaranteed payments, nor did the U.S. Treasury’s guidance issued on April 6, 2020.

4. Are vision and dental payments included in healthcare for determining payroll costs?

The interim final ruling specifically references the inclusion of payments “for the provision of employee benefits consisting of group health care coverage, including insurance premiums.”

No further guidance was issued that provided more granular detail of the definition of healthcare coverage. Based on common industry practice and existing Internal Revenue Code regulations, it is a reasonable position to include vision and dental payments as health care costs includable in the total payroll cost calculation.

5. How is the number of full-time equivalent employees determined for the purposes of calculating loan forgiveness?

Per the SBA’s guidelines, full-time employee calculations are based on 30-hour work weeks.

For part-time employees, full-time equivalent equals either a) the aggregate hours worked by part-time employees in a month divided by 120, or b) 1,560 hours annually.

Get help today securing your forgivable loan under the PPP

Our experienced team at Wipfli can help quickly determine your eligibility for a loan under the PPP. If you meet the requirements, we can work with you to complete or determine the best way to complete your loan application. Click here to learn more.


Brad Werner, CPA, MBA
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