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This article first appeared in the Boston Business Journal website.
The Small Business Administration’s paycheck protection program is now up and running – at least for some lenders – and it comes with new rules about how much small businesses can pay their employees while still getting a full pardon.
Small businesses are still limited to a salary cap of $ 100,000, annualized over the period in which the business spends the P3 loan proceeds. But the period covered, which was once a choice between eight weeks or 24 weeks, is now any number of weeks between eight and 24, meaning every small business will need to carefully monitor its spending.
Experts agree that the maximum amount a company can pay an employee is $ 46,154, or 24 weeks’ salary for an annual paycheck of $ 100,000, according to Sonia Desai, director of forensic and litigation services at Munsch. Hardt Kopf & Harr PC. But that means if a small business runs out of P3 funds at week 16, for example, the maximum it could pay an employee while getting a full pardon is no more than $ 30,769.
In short, employee compensation is capped at $ 1,923 per week, for a maximum of 24 weeks. And this rule applies to both first-time PPP loans and so-called “second draw” PPP loans for the most affected companies that already received an initial loan last year. Businesses still need to spend at least 60% of loan proceeds on labor costs to get full rebate.
As for the business owners themselves, they still operate with a lower salary cap that was set in the first round of the PPP last year, according to Vijay Khetarpal, president and CEO of Integrity Financial Group, a financial consulting company. This lower cap is $ 20,833. This means that if the PPP loan is spent quickly, say eight weeks, that cap decreases to $ 15,385, or $ 17,308 for a nine-week period.
According to Christina Moore, a partner at law firm Taylor English Duma LLP, based in Atlanta but with offices across the country, small business owners should keep these caps in mind when figuring out how to spend the proceeds of everything. new PPP loan. “They should think about homeowners’ compensation caps like they did with the first round of P3 loans,” Moore said.
As with the first round of PPP loans, bonuses and additional remuneration are allowed, as long as the limits are not exceeded. And small business owners should note that it’s not just salary that is included in total compensation – it includes payment for vacation, parental, family, medical or sick leave, as well as severance pay. , social benefits such as health or group life insurance, retirement benefits, and even national and local taxes assessed on employee compensation.
Although the SBA issued guidelines before rolling out the program, Desai advised small businesses to follow whenever the SBA may update its guidelines or change aspects of the program. “The SBA has indicated that additional rules for second-draw PPP loans will be released separately, so the forgiveness rules for second-draw loans may or may not change from what we know now,” he said. she declared.
The reopened PPP window allows small businesses to apply for their first PPP loans, largely under the program’s rules of origin when it debuted last year, including a loan cap of $ 10 million and a limit of size of about 500 employees, although this may change depending on the type. of commerce and industry. PPP borrowers can spend up to 40% of loan proceeds on business expenses such as mortgage interest, interest payments, rent, and a wider set of costs including property damage, mortgage costs, suppliers and personal protective equipment.
Small businesses with up to 300 employees who have experienced a reduction in their quarterly revenue of at least 25% in 2020 compared to the same quarter in 2019 will also be able to apply for a second PPP loan of up to $ 2 million. dollars, as directed by the agency. The program has also expanded to include news agencies, destination marketing organizations, and nonprofits classified in the 501c (6) category, which includes local chambers of commerce and professional organizations.
We’ve already detailed some of the ins and outs of this upcoming PPP round and who qualifies. This is in addition to a separate $ 15 billion grant program for performance halls and theaters – applicants can only apply and receive funding from one or the other.
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