With the COVID-19 turmoil causing record job losses across the United States, the government has stepped in to help.
As part of a $349 billion program, the Payment Protection Program (PPP) acts as a protection racket for employees and businesses across America.
Essentially, the funds offered in the program are forgivable loans that small business owners can use to cover payroll costs, as well as some other administrative costs.
The intention of this sweeping program is to encourage businesses not to let their employees go during this period of temporary turmoil.
If you’re a business owner wondering how the paycheck protection program can benefit you, this guide can show you how.
Paycheck Protection: Who Qualifies?
The PPP is designed to bolster existing employee protection law by encouraging employers to retain their staff on the payroll.
As such, the program offers sweeping financial resources that small businesses can access during this current turmoil. Here are the essential criteria you will need to fit in order to access paycheck protection:
- Your business must have 500 or fewer employees
- Your business must belong to one of the named industries
- You must have a valid taxpayer identification number
That’s pretty much all that is allowed. Of course, there are also conditions you must meet to actually continue receiving money and access forgiveness.
You must maintain current employment levels and compensation levels throughout the period that you are in.
In addition, you are obliged to use the funds received to cover payroll for at least 8 weeks following the granting of the loan. These payroll costs must be met before any other costs can be considered.
How Much Can I Get?
Put simply, the PPP is one of the most generous support programs in US history.
Small businesses are eligible to apply for a maximum loan that is equivalent to 2.5 times the average monthly payroll costs for the previous calendar year.
The loan cap is $10 million, meaning that this is the maximum amount that small businesses can receive for now.
The loan amount for payroll costs is also restricted to a maximum of $100,000 per year for a single employee.
How Can I Spend It?
First and foremost, PPP money should absolutely be allocated to covering the payroll costs of employees for the foreseeable future. Payroll costs should be prioritized above all else. However, this is not the only thing that PPP can be spent on. Here is the full list:
- Salary, commissions, and tips for up to $100,000 per year per employee
- Payments for healthcare benefits
- Retirement benefits
- State and local taxes on employee compensation
- Cost of typical employee benefits such as vacation, sick leave, medical leave, and family leave
It is unclear whether voluntary contributions to a state’s unemployment department will be permitted with PPP, but if you are making such contributions in the hope of getting a tax break, PPP will likely not cover it.
In addition, independent contractors are not covered by PPP. Sole traders must apply for a separate program.
Paycheck protection is a boon, but also offers new challenges for businesses when it comes to bookkeeping. To learn more about how to keep your books in order during this crisis, don’t hesitate to get in touch with our team of highly qualified accounting professionals today.