What counts as “employees” for Paycheck Protection Program loans? (updated for 2021)

Important PPP update for 2021

On December 22, 2020, Congress passed a bill renewing funding under the CARES Act, including an additional $284 billion earmarked for America’s struggling small businesses. The rules and application process for PPP loans and forgiveness have been modified, with more businesses eligible for PPP loans, more expenses forgivable, and a simplified application process.


In this 3-minute read:

  • What counts towards payroll costs for PPP loan?
  • Do independent contractors count as employees?
  • What if we only have owners and no other employees?

Are you unsure if the non-traditional employees you’ve hired count towards payroll for the Paycheck Protection Program (PPP) loans? Or are you owner-operators of a mom-and-pop shop with no other employees? We’ll go over what counts as an “employee” for your PPP loans and also discuss what you need to do to have your loan forgiven in 2021.

Womply has made email marketing truly automatic for busy small business owners and all types of independent contractors. Learn more, plus get free reputation monitoring and customer insights when you sign up for Womply Free!

First, let’s define what an “employee” means under the Paycheck Protection Program. An employee is any member of your company that receives compensation through your payroll, with the exception of independent contractors (more on this shortly). 

This means that if you take a salary (pay yourself) as a business expense, that counts as legitimate “payroll costs” and you can apply for a PPP loan to cover that and other legitimate expenses for the 8- to 24-week period following receipt of your PPP funding.

This also means that if you use your PPP loan funds to pay yourself and for other approved expenses and apply for loan forgiveness with the appropriate documentation, you won’t have to pay your PPP loan back.

Read more: How can I get my PPP loan forgiven?

You may also like: FAQs about the PPP loan for W2 employees

What counts towards payroll expenses under the PPP?

In order to have your PPP loans forgiven, or at least partially forgiven, the majority of the payout has to go towards your payroll expenses and maintaining your staff. 

For full details on how you should spend your PPP loan, go here

All of the following count towards your approved payroll expenses:

  • Salary, wages, commissions, or tips (this is capped at $100,000 based on annual pay for each employee)
  • Employee benefits, including paid time off for vacation, family, medical, or sick leave
  • Payments for healthcare benefits for employees
  • Payments for retirement benefits
  • State and local taxes on employee compensation
  • As of 2021, PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures

owner operator business owner writing payroll check

What if I use independent contractors? Can I pay them with my PPP loan?

Independent contractors do not count as employees under the Paycheck Protection Program. You can still pay them with your loan, as they qualify as a legitimate expense, but that portion you spend on them will not qualify for loan forgiveness if it is used to pay independent contractors. 

The reason for this is that independent contractors are self-employed and, thus, can apply for their own PPP loans (as of April 10, 2020) to cover the pay they would have received and other expenses. You should let your contractors and other 1099 workers know that they can and should apply directly for their own PPP loans. It’s free to apply, and it could mean thousands of dollars in forgivable income for them. 

Similar to traditional employers, independent contractors can receive loans and use them toward their own payroll costs (meaning to pay themselves). Payroll costs can include wages, commissions, income, or net earnings from self-employment. This is also capped at $100,000 on an annualized basis for each individual. 

What if we’re a “mom-and-pop shop” with the owners as the only staff members? Do we count as “employees” for a PPP loan?

If you are the sole owners and staff of your business, you can still receive PPP loans and use them towards your payroll costs. You are an employee of your business, so you can use your loans to pay yourselves. 

What if I don’t have any employees? Can I still qualify for a PPP loan?

Similar to independent contractors, you are a sole proprietor or self-employed person and can use your PPP loan to cover wages, income, and net earnings for you as an individual, again capped at that $100,000 per employee in annual earnings. 

What if I have other questions about Paycheck Protection Program loans or the application process?

We recommend you read our full PPP loan FAQs here.


The Treasury released a new IFR and an “easy” version of the PPP loan forgiveness application on June 17, 2020. Please read the full details here.

Here’s how borrowers decide which forgiveness application to use. You may use Form 3508EZ if:

  • You are self-employed and have no employees; OR
  • You did not reduce the salaries or wages of employees by more than 25%, and did not reduce the number or hours of employees; OR
  • You experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of employees by more than 25%.

If you don’t fit into any of the above conditions, you will need to complete and submit the full PPP loan forgiveness application.

Win new customers and build loyalty with your existing customers with Womply Email Marketing

Womply has made Email Marketing truly automatic for busy small business owners, independent contractors, and sole proprietors. Womply helps you turn customers into regulars and get more repeat business with targeted emails that send automatically when customers transact with you. Build customer loyalty and revenue, and get more repeat business with just a few clicks! 

Learn more, plus get free reputation monitoring and customer insights when you sign up for Womply Free!

Recent Articles

9 Atlanta area events that can be great for your small business in 2022

In this 5-minute read: 9 events in Atlanta, GA in 2022 that your business should know about Start your year …

Read More

25 free business listing websites every small or local business should be on (Updated for 2022!)

Be sure to claim your company’s free listings on these sites so more customers can find your business. 

Read More

9 events that every Houston, TX area small business should know about in 2022

In this 5-minute read: 9 local events that Houston small businesses should take advantage of this year Attending events, business …

Read More

Small business events in Chicago: 8 ways to grow and market your business in 2022

In this 5-minute read: 8 Chicago events to add to your 2022 business calendar Wherever your business is located, you …

Read More

10 2022 Washington DC area events that can be great for your small business

In this 5-minute read: 10 events that Washington DC area businesses need to know about this year Which DC events …

Read More

5 Orlando area events in 2022 your small business should take advantage of

In this 5-minute read: 5 2022 events in Orlando, FL that your business needs to know about Which events may …

Read More

See why Womply is the #1 marketing and CRM solution used by 500,000+ businesses.