What Should Be Included in the PPP Loan

The application and implementation of the Paycheck Protection Program (PPP) has been an extremely fluid process. Navigating these unprecedented times can be somewhat challenging and downright confusing at times. Now that we have heard from Small Business Administration (SBA) on what should and should not be included in the Program application — we now have more clarity on what expenses we can apply to applications and what is considered accepted payroll expenses. 

Some of the items that people have included on their original application before we got clarification, were payroll reports in total. And so a lot of our clients had reached out to their payroll providers–they got actual reports–and then they just did the two and a half times (2.5x) the total on the monthly average and submitted that as their application.

What we’ve discovered since then is some of those reports included 1099 vendors, which should not be included. Some of those reports did not include benefits that are includable as payroll cost—employer-paid health insurance, employer-paid retirement benefits, state and local taxes were not included in those amounts.

So there’s the potential that that calculation could have been short or even over, if you just use something that someone sent you without the actual columnar approach to “this is our monthly average, these are add-backs, and this is our new total”.

On Tuesday, April 14, the Small Business Administration (SBA) issued several important clarifications to its rules regarding the Paycheck Protection Program (PPP) in respect to the following:1. Partners in a partnership may not submit separate PPP applications as self-employed individuals, but must file on behalf of the partnership.2. Calculation of maximum loan amount for self-employed individuals and payroll/net monthly profit documentation.3.Use of PPP loan proceeds by self-employed individuals.4. Documentation for loan forgiveness by self-employed individuals.5. Rule change allowing PPP loans to the businesses of an outside director or holder of less than 30% of the shares of the lender.6. Officers and inside directors are still precluded from securing a PPP loan from the lender with which they are associated. Unfortunately, the clarifications did not address close relatives of officers and inside directors.

Payroll Considerations

One of the main items that we have seen included, that should be withheld, is the payroll reports submitted in total. In this situation, they would go to their payroll providers and gather the 2.5 x the total of the payroll monthly average, but that picture is incomplete. Now with the clarifications from the SBA, we know that some items should have been withheld or included. Some of these reports submitted have included 1099 vendors, which should have been excluded. Some of the reports did not include benefits that are includable as payroll costs such as employer-paid health insurance, employer-paid retirement benefits, state and local taxes were not included in those amounts.With that said, there is a potential that the original loan calculation could have been short or even over. Using a report that someone generated without applying the columnar approach could put you at risk when it comes time to go for loan forgiveness.