With the recent roll-out of the Payroll Protection Program (PPP), many small business owners (as well as accountants and bankers), are confused as to what qualifies as “Payroll costs” used in the calculation to determine the amount to be funded to the small business.
Here is what the CARES Act defines as Payroll Costs:
- The sum of payments of any compensation with
respect to employees that is a:
- Salary, wage, commission, or similar compensation
- Payment of cash tip or equivalent
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment required for the provisions of group health care benefits, including insurance premiums
- Payment of any retirement benefits
- Payment of State or local tax assessed on the compensation of employees
AND
- The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as prorated for the covered period.
The CARES Act specifically EXCLUDES the following as Payroll Costs:
- The Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period
- Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period
- Any compensation of an employee whose principal place of residence is outside of the United States
- Qualified sick leave wages for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act (Public Law 116-127)
OR
- Qualified family leave wages for which a credit is allowed under Section 7003 of the Families First Coronavirus Response Act (Public Law 116-127)
As you can see, the definition of Payroll Costs under this legislation is very ambiguous and open for interpretation. We have found that various financial institutions are interpreting these guidelines in different ways as well. For consultation and guidance through the entire Payroll Protection Plan application process, contact Evolve Financial directly at (847) 749-1851 or at info@evolvefinancialservices.com.
