What counts as “employees” for Paycheck Protection Program loans?
April 08, 2020
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.
Womply is acting as a facilitator to connect American small businesses to SBA-authorized lenders to get emergency loans for COVID-19 relief. Start your free application here, or call us at 855-208-8813 for a free consultation.
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 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?
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
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 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.
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 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?
Ready to apply for a PPP loan?
If you haven’t applied for your PPP emergency stimulus loan yet, there’s still time, but you have to act fast. Millions of businesses are applying and many banks are simply overwhelmed. Womply is a verified loan agent that can help you apply and get connected with right SBA-approved lender for your loan.
Want to learn more? Click here or call us today at 855-208-8813 for a free consultation.
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