The CARES Act includes a key program, the Paycheck Protection Program, to help businesses continue … [+]
Congress recently passed the unparalleled CARES Act to help individuals and small business owners weather the impact of the coronavirus and the illness it causes, COVID-19. The CARES act contains roughly $2.2 trillion in total, divvied up for various purposes and entities, be it households, individuals or businesses.
The key portion of the federal economic stimulus package that pertains to continuing to pay employees is the Paycheck Protection Program (PPP). This program can be found in Title I—Keeping American Workers Paid and Employed Act. The PPP has been established to allow for loans to small businesses —businesses with fewer than 500 employees — of up to $10 million to be used to defer the costs of keeping employees on the payroll or adding employees and other expenses. Businesses can be eligible to be forgiven for up to 100% of the loan.
Like any government program, there are qualifications, requirements and some limitations. There is also some prioritization in the program’s loans, with loans to small businesses and entities in rural and underserved markets being emphasized. For the full text of the CARES Act, visit Congress’s webpage designated to the act. Here are some of the ways you can use the PPP to retain employees and maintain your payroll in this unprecedented time.
Payroll Costs Paycheck Protection Program Can Be Used to Cover
In total, there is about $350 billion set aside for the PPP. There are some crucial stipulations and limitations on what you can use PPP funds for and who’s eligible. Here are some of the payroll expenses you can utilize PPP loan funds for:
- Salary or wages, payments of cash tips
- Vacation, parental, family, medical and sick leave
- Health and retirement benefits
- State and local taxes
One of the key stipulations is that eligible payroll costs do not include annual compensation in excess of $100,000 for individual employees. The total loan amount also has some limitations. The loan amount is the lesser of the total average monthly payroll costs for the preceding 12 months, which would be March 2019 to February 2020, multiplied by 2.5, or $10 million, which is the maximum amount for these loans.
Another important aspect is that you’ll need to have good faith certification. What this means is that you will need to certify the loan will be used to support ongoing operations and the funds will be used to retain workers and maintain payroll or make mortgage, lease and utility payments.
Paycheck Protection Program Loan Forgiveness
The full amount of the PPP loan can be forgiven based on abiding by some parameters. Basically, the loan is forgivable if you employed the same number of people during the loan period as you did last year. Conversely, the amount of loan forgiveness can be reduced if you cut the number of employees you have versus the prior year. The loan forgiveness amount can also be lowered if you reduce the pay of any employee by more than 25% as of the last calendar quarter. The good news is that, if you who re-hire workers that were previously laid off before June 30, 2020 due to the impact of COVID-19 crisis, you may not be penalized for having a reduced payroll earlier during the relevant period. If you wish to apply for loan forgiveness, you need to submit documentation to your lender, and you’ll receive a decision within 60 days.
The PPP is working on an expedited rate when compared to the usual time to takes to apply and receive funds. SBA-preferred lenders will begin taking applications this week. The whole idea is to get money into the hands of businesses quickly that are struggling. The program plans to disperse the funds within a three-week period.
Beyond the Paycheck Protection Program, another good financing option to seek out are SBA Economic Injury Disaster Loans (EIDLs). The SBA has always offered these loans, but with the devastating impact of COVID-19, the SBA has stepped up their disaster assistance programs. Rates for these disaster loans are fixed and low. Check out the SBA site for its EIDL application.