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3 Paycheck Protection Program Questions Clarified

On May 3, the Small Business Administration (SBA) issued a new round of guidance regarding the Paycheck Protection Program (PPP). They addressed three issues for which business owners have requested clarification, including:

1. Laid-off employee refusing to be rehired. What is the impact on the borrower’s PPP loan forgiveness amount?

If the borrower attempts to rehire laid-off employees at the same salary/wages and number of hours, but the employees refuse, the employees may be excluded from the CARES Act’s loan forgiveness reduction calculation. Both the proposal for rehire and the employees’ rejections of the offer must be documented. Additionally, the refusal of the rehire may void the employees’ eligibility for unemployment. For further guidance on this matter, look for an additional issuance from the SBA and Treasury that is forthcoming.

2. Can a seasonal employer make the required certifications for the Borrower Application Form using a different time period than specified on page 3 of the form?

Seasonal borrowers may elect to use a different base period for calculating their PPP loan amount. The Treasury’s interim final rule on seasonal workers allows seasonal employees to choose 12 weeks between May 1, 2019, and September 15, 2019.

3. Does the CARES Act consider nonprofit hospitals exempt from taxation (per section 115 of the Internal Revenue Code) to be “nonprofit organizations?”

If the hospital can show it fits the qualifications of a 501(c)(3) (and is, therefore, exempt from taxation under section 501(a) of the Internal Revenue Code), then it can qualify as a “nonprofit organization” as defined by the CARES Act. This allows qualifying hospitals to be eligible for PPP loans.

For further details on these three clarifications, see questions 40-42 of the SBA’s PPP loans FAQ

QUESTIONS Regarding PPP Guidance?

Contact Smith Schafer for further discussion and guidance.