Yesterday evening the House voted to pass the bill (Paycheck Flexibility Act), which would ease some of the restrictions surrounding the PPP loans to small business owners. The potential legislation in its current state would be dramatic for small businesses throughout the country currently struggling to bring back their workforce timely and maximize their forgiveness.
The current bill’s intent is to ease some of those restrictions by implementing the following changes:
- Reducing the payroll allocation for borrowed funds from 75% to 60%
- Extending the original “spend” period from 8-weeks to 24 weeks
- Extending the rehire deadline beyond June 30 for employees
- Allowing deferral of payroll tax for companies who receive forgiveness
It is uncertain if any of the proposed changes above would need to be ratified in order to pass the vote in the Senate. That vote is expected to take place at any time.
PPP-New Insight on “Owner Employee” Compensation and Bonuses
The SBA released more “Interim” guidance on the PPP program earlier this week. While the original statutory language had minimal details on owner compensation restrictions, the SBA is now providing further clarity to ensure owner benefits are contained. The guidance states that the $100k cap ($15,385 prorated over the 8 weeks) applies “in total across all businesses”. This implies that the cap is an aggregate pertaining to all businesses owned by such owner and also intimating the application of affiliation/common ownership rules. This cap applies to an “owner-employee” which is not clearly defined. For example, it is not clear if co-owners or minority owners would be applicable in this case. The new guidance also ties in the fact that compensation paid to “employee owners” counting towards forgiveness cannot exceed the lessor of a) $15,385 or b) 8/52 of their 2019 compensation inclusive of spending on health premiums and retirement match. The Interim rules read as follows :
Are there caps on the amount of loan forgiveness available for owner-employees and self-employed individuals’ own payroll compensation?
Yes, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses. See 85 FR 21747, 21750. In particular, owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf. Schedule C filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit. General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, non-reimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.