Paycheck Protection Program – Additional Guidance and $250 Billion in Additional Funds Requested
On April 6th and April 7th, the Department of Treasury and Small Business Administration issued additional guidance for the Paycheck Protection Program in the form of “Frequently Asked Questions.” Importantly, these FAQs provide additional clarity on some key terms, and in some respects depart from prior guidance issued by the Department of Treasury and SBA, returning more closely to the original text of the Paycheck Protection Program outlined in the CARES Act.
Among the FAQs:
- The exclusion for employee compensation in excess of $100,000 applies only to cash compensation
- The exclusion in compensation in excess of $100,000 (annualized) applies only to cash compensation and not to non-cash benefits like employer contributions to retirement plans or group health care coverage.
- Prior guidance from the Department of Treasury and the application for the Paycheck Protection Program itself indicated a per employee cap on “payroll costs” (which would include wages and benefits) of $100,000, but the approach of these FAQs is more in line with the text of the CARES Act.
- The period for calculating average monthly payroll costs is the last 12 months or calendar year 2019.
- Borrowers have the option of using either the prior 12 months or calendar year 2019 to calculate average monthly payroll costs. The average monthly payroll costs will then be multiplied by 2.5 to determine the maximum loan amount (with adjustment in certain instances for Economic Injury Disaster Loan recipients).
- Prior guidance from the Department of Treasury, and the application for the Paycheck Protection Program itself, indicated borrowers should use calendar year 2019 to calculate average monthly payroll costs, however, the addition of the option for the prior rolling 12 month calculation is more in line with the text of the CARES Act.
- Borrowers should not deduct employee federal tax withholdings when calculating average monthly payroll costs
- These FAQs clarify that payroll costs are calculated on a gross basis and are not reduced by the taxes required to be withheld from employees.
- Many lenders had struggled with language in the text of the CARES Act which specifically excluded certain federal taxes “imposed or withheld” from certain calculations of “payroll costs.” The initial guidance issued did not assist in clarifying this issue, with such guidance calling for the exclusion from the definition of “payroll costs,” the “income taxes required to be withheld from employees.” These FAQs should address lender concerns.
- An application in process may be updated to reflect the guidance provided in these additional FAQs.
- The FAQs provide that borrowers do not need to take any action in response to the updated FAQs. However, if a borrower has previously submitted an application and it has not yet processed, the borrower may revise its application to reflect the guidance provided in the most recent FAQs.
- The additional clarity and guidance included in these FAQs are likely to increase the maximum loan amount a borrower may be eligible for, therefore, it may be beneficial to review the calculations in your pending application and discuss with your lender. If you have not yet submitted your application, review your calculations to confirm your numbers reflect the most recent guidance.
On April 7, 2020, Senate Majority Leader McConnell, Secretary of Treasury Mnuchin, and President Trump each separately announced that an additional $250 Billion would be requested to fund the Paycheck Protection Program. If approved, this would result in approximately $600 Billion being deployed in the form of forgivable loans to eligible borrowers under the program.
We do anticipate additional FAQs will continue to be posted on the SBA and the Department of Treasury websites. Additional guidance related to the Paycheck Protection Program and associated loan forgiveness continues to be issued on a rolling basis, and the rules remain largely fluid as the government works through administering a program, the scope of which we have never experienced.