- Posted by Jessica Waltman
- On April 24, 2020
The Small Business Administration recently released three interim final regulations to govern the Paycheck Protection Program (PPP) loans authorized by the CARES Act. The Paycheck Protection Program is designed to help small and mid-sized businesses keep their workers insured and on the payroll during these challenging economic times. The first interim final rule provides implementation information for traditional borrowers and lenders, and separate but complementary measure covers sole proprietor eligibility, certifications, and loan specifications. A final interim rule clarifies affiliation rules for eligible borrowers, specifically concerning faith-based organizations.
The most comprehensive of these three new interim regulations covers information about PPP loan eligibility, loan specifications, how borrowers and lenders define payroll costs, PPP loan forgiveness and acceptable fund uses, and lender requirements, among other things. It is written in FAQ-style. Some points of note include:
- Businesses involved in illegal activities according to federal/state/local laws are ineligible to obtain PPP loans, which excludes the entire cannabis industry.
- When determining payroll costs, employers may include “payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums and retirement.” If an employer should include employee contributions (pre or post-tax) when determining premium amounts isn’t specified, but the rule seems to imply the employer does include the total amount paid for group health insurance premiums. There is a list of specific exclusions in the calculation of payroll costs, and employee contributions to group health coverage and retirement benefits are not explicitly excluded. Two notable items it does exclude are:
- Federal employment taxes imposed or withheld between February 15, 2020, and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
- Concerning forgiveness/acceptable loan uses for forgiveness purposes, the employer needs to spend 75% of the loan funds on payroll costs. These are defined to include “payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums and retirement.” However, interestingly, when outlining acceptable uses of PPP loan funds, in addition to payroll costs, the rule separately notes “costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave and insurance premiums.”
A separate measure clarifies affiliation rules for eligible borrowers, specifically concerning faith-based organizations. Generally, a business qualifies if it, combined with its affiliates (as defined in 13 CFR § 121.301), it meets the size eligibility criteria outlined in the CARES Act and first interim final rule. However, when it comes to faith-based organizations, the hierarchical structure of many religions and the Religious Freedom Restoration Act make application of the affiliate rules problematic, if not prohibited. Therefore, the SBA will not apply the affiliation rules to faith-based organizations, but consider them on an entity basis.