As usual, this is a long blog. Sorry! There’s just so much to share with you. Take a few minutes and read through this please – it’s important stuff, especially if you haven’t filed your PPP loan application yet.

It’s a gross understatement to say that the CARES Act and the Interim Final Rule lacked clarity. Goodness! We’ve all been trying to make the best out of a very confusing situation.

The Treasury Department finally answered some much-needed questions. Here is the link to their FAQs if you care to read through them all:

Before we address some of the FAQs, let’s address the matter of independent contractors. Here is the skinny (as of 3:16pm, April 8):

• FAQ #15 finally makes it clear that a PPP borrower cannot include payments made to independent contractors in their “Payroll Costs” for purposes of calculating Average Monthly Payroll Cost and the Maximum Loan Amount (UGH!);
• Treasury sees this as a double dip since these same independent contractors will be able to apply for their own PPP loan beginning this Friday, April 10th;
• So what does that mean for you, as the owner of a company who pays independent contractors? Great question – glad you asked!
• The point of the PPP loan program is to keep “normal” payroll/compensation funds flowing through the economy. It is not to create distinct winners and losers.
• Many small business owners will strike an arrangement with their independent contractors that looks like this:
  • Independent Contractor (“IC”) applies for the PPP loan,
  • When IC is approved for the PPP loan and receives the funds,
  • The business owner will discontinue paying the IC,
  • This saves the business owner money,
  • Avoids having the IC get paid twice – once by the business owner, and once by the PPP loan,
  • The IC will pay its bills and expenses using the PPP loan funds instead of the funds they were receiving from the business owner
  • No financial harm comes to the IC
  • Business owner can continue business operations longer
• Not every business owner will see this situation this way, and some ICs will not apply for the PPP loan. The process is SO difficult, many ICs may give up before completing the process.
• BUT, since business owners can’t include IC payments in their PPP loan amount, they need to communicate with the ICs that the IC should apply because payments from the business owner could be discontinued during this very weird time frame.

If you have thoughts, questions, or strategies you want to share about how to handle ICs, please post on our Facebook link here:

Ok – back to the FAQs. I’ll summarize the more relevant ones for small business owners here:

7. Question: The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?

Answer: No. 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.

10. Question: What if an eligible borrower contracts with a third-party payer such as a payroll provider or a Professional Employer Organization (PEO) to process payroll and report payroll taxes?

Answer [Tembo summary]: The eligible borrower (not the PEO) are eligible to apply for the PPP loan. The borrower (you) needs to provide payroll documentation provided by the PEO, which would include Schedule R of the 941 or other similar payroll statement that documents the wages specifically allocable to the eligible borrower.

14. Question: What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?

Answer: You can use the “previous 12 months” as specified in the CARES Act, or the calendar year 2019.

Lastly – I spoke to a local lender at Wells Fargo who did confirm that they are “back in the game” and taking applications again. So, if you are a Wells Fargo customer, you can go to the WF website and follow their directions there to apply.

One more thing, we are getting lots of questions about rent, mortgage interest and utilities. It’s important to know that the Maximum Loan Amount is only based on Payroll Costs. Rent, interest and utilities are not included in the Maximum Loan Amount calculation. After you receive your loan, then we have to focus on what portion of the loan will be forgiven. That will be dependent on what you spend in the eight weeks following receiving the loan on Payroll Costs, Rent, Interest, and Utilities – this is where rent, interest, and utilities come into play – after you receive the loan. We’ll be writing a lot more about how to maximize the forgivable portion of your loan (Goal = 100%) in future emails.

Stay tuned!