Dear Clients and Friends,
Yesterday (April 6) the Treasury Department released an FAQ document to both borrowers and lenders, providing additional guidance to some of the Payroll Protection Program’s (PPP) most pressing questions to aid in alleviating vagueness between the PPP Application and previous guidance issued the week prior. The responses provided in the FAQ make it abundantly clear that the onus of support, accuracy, and methodology fall upon the borrower of a PPP loan. Lenders are responsible for providing a “good faith review” of the documentation and working with borrowers to clear errors within calculations and applications. However, borrowers are responsible for computing the necessary payroll cost calculations in accordance with the rules and guidance issued to date.
Below is a highlight of the key provisions of the new FAQ guidance:
- Are banks/lenders responsible for recalculations? – No. Providing an accurate calculation of payroll costs is the responsibility of the borrower, and the borrower must attest to the accuracy of those calculations. Lenders are expected to perform a good faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning average monthly payroll cost.
- Are banks/lenders responsible for independent confirming affiliates? – No. It is the responsibility of the borrower to determine which entities (if any) are its affiliates and determine the employee headcount of the borrower and its affiliates. Lenders are permitted to rely on borrowers’ certifications.
- What amounts are included in determining the $100,000 threshold for employees? – The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:
- employer contributions to defined-benefit or defined-contribution retirement plans;
- payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
- payment of state and local taxes assessed on compensation of employees.
This guidance deviates from information we have been previously providing to you, our clients and friends. Therefore, total compensation per employee for purposes of the PPP loan could rise above $100,000 for the items listed above.
- What if an eligible borrower contracts with a third-party payer such as a payroll provider or a Professional Employer Organization (PEO)? – The eligible borrower should obtain a statement from the payroll provider documenting the amount of wages and payroll taxes. In addition, employees of the eligible borrower will not be considered employees of the eligible borrower’s payroll provider or PEO.
- What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts? – In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. Borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard.
- How should a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven? – Payroll costs are calculated on a gross basis without regard to federal taxes imported or withheld. Gross payroll is not reduced by taxes imposed on an employee and required to be withheld by the employer. Borrowers should not include the employer’s share of payroll tax.
- I filed or approved a loan application based on the version of the PPP Interim Final Rule published on April 2, 2020. Do I need to take any action based on the updated guidance in these FAQs? – Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, borrowers whose previously submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these FAQs.
Please contact us if you have any questions or require any assistance with the application.
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