PPP Loan - Complying with Loan Provisions


The Payroll Protection Program and Health Care Enhancement Act was signed into law last Thursday. While we were hoping for Congress to “clean up” parts of the CARES Act that related to the Payroll Protection Program, this new bill focused mainly on new appropriations without giving us more guidance. That leaves us with unanswered questions even though the clock is running on the 8-weeks for many. Our perspective continues to evolve as we grapple with the practical issues facing you. Here are some remaining questions regarding loan provisions and our take:


Must I spend 75% of the loan proceeds on payroll costs? Put differently, how do I balance the business’ uncertain long-term financial needs with the PPP rules governing the use of the funds?

Pundits go both ways on this. A strict reading of the SBA regulations published in the Federal Register would indicate yes, but that wasn’t part of the original CARES Act. We believe that the safest course is to rehire employees with the goal of making the 75% threshold. So, if you received a loan for $100,000, at least $75,000 should be spent on payroll costs during the 8-week post funding period. Payroll costs include wages at a maximum of $15,385 per employee (including owners), group health insurance premiums, and related retirement plan expenses.


What counts as related retirement plan expenses?

While there is no guidance on this, we believe that the “safest” approach is to compute the retirement plan contributions based on the wages paid during the 8-week period. We recommend you fund 2020 with the minimum retirement plan benefit. We will assist with these calculations.


What can I spend the money on?

You should restrict spending the loan proceeds to allowable payroll costs, rent for your space, and utilities such as phone, internet, electric, and gas. Make sure you retain enough money at the end of the eight weeks to show you’re not using the loan proceeds for unauthorized expenses.


If I rehire employees, must the amounts I pay them be consistent over the remainder of the eight weeks, or can I “backload” the pay?

We have found nothing to answer this either way, so guidance from the SBA would be helpful. Bonuses may have to be justified to the bank, such as describing them appropriately as hazard pay. The “safest” way to ensure compliance with the PPP would be to call back employees and  start paying them in order to meet the 75% threshold.


How do I communicate the restoration of payroll to employees?

Our suggestion is that you notify employees that the Paycheck Protection Program requires the business to restore jobs and payroll. Every business will need to develop a plan for rehiring staff and restoring hours based on their expectations for each employee. In some cases, you may choose to delay rehiring certain employees so that the timing of that employee’s return corresponds with the business’ needs.


What if an employee prefers to stay on unemployment?

Remind them that you are subject to the terms of the Payroll Protection Program which require that you rehire employees. It is our understanding that because they would be employed to their previous hours, they would be ineligible for unemployment compensation. It is also our understanding that should the unemployment office discover through the required quarterly reporting that the employee has received unemployment benefits while receiving a paycheck, the unemployment office will see recoupment of the extra benefits paid and may take further action.


Must if rehire employees before they are needed?

If you choose to rehire employees before the business fully re-opens, and based on their normal job description there is nothing for them to do, now is the time to develop your wish list of things for them to accomplish. Match special projects to employee skills. At the very least, consider having them each provide you two ideas a day on how to improve the office, optimize workflow, increase collections, improve the patient experience, etc. This way you may at least get something useful while pulling the team together.


Can I hire my relatives?

There is no guidance on this. However, tax law is replete with provisions that attribute the benefit of related parties to the principal. It is quite possible the pay of a spouse or children will simply be attributed to the owner, putting them over the pay threshold. Relatives who have been employed for a period up to the crisis are almost certainly safe from this, though bonuses may be questioned.



We will continue to give you our take as guidance is provided. We will offer a Q & A on the forgiveness computations, including partial computations, in a future edition. Stay tuned!

Back to PBM Update

leave us a review on