Paycheck Protection Loans are Intended to Keep Employees on the Payroll: What Does that Mean?

Paycheck Protection Loans are Intended to Keep Employees on the Payroll: What Does that Mean?

Paycheck Protection Loans are Intended to Keep Employees on the Payroll: What Does that Mean?

The Paycheck Protection Program (PPP) is designed first, to keep your employees employed as well as help your business remain viable, but what does that mean? As you consider that the Paycheck Protection loans are intended to keep employees on the payroll it might make it easier to see how it impacts:

  • The application process and appropriate loan amounts
  • What the funds can be used for
  • How that will impact any future forgiveness

Applying for PPP Loans

The first requirement to apply for a PPP loan is that your business must have been in operation on February 15, 2020 and had employees for whom you paid salaries and payroll taxes. If you are self employed and don’t have any employees, you will also qualify to apply.

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The next part of the application process deals with your payroll. Your potential loan amount is based on 2.5X your annual payroll up to a maximum of $10 million (whichever is less). An employee includes full-time and part-time employees.

Independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of the PPP loan application.

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What Can PPP Funds Be Used For?

As you would likely assume, because Paycheck Protection Loans are intended to keep employees on the payroll, most of the approved uses will be somehow related to payroll. The SBA says loan proceeds can be used for:

  • Payroll costs
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, along with insurance premiums
  • Employee salaries, commissions, or similar compensations
  • Payments of interest on any mortgage obligation (but cannot be used to pay principal or prepay a mortgage)
  • Rent (including rent under a lease agreement)
  • Utilities
  • Interest on any other debt obligations that were incurred before the covered period
  • Refinancing an SBA Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020

This relief is intended to help your business cover these expenses for the next eight weeks. The Treasury and the SBA are already thinking about making additional capital available, but there are no details yet. And, the Congress is contemplating what next steps will be once the crisis is over and thinking about making capital available for stimulus. We’ll keep you updated as things change.

How Will This Impact My Business if I Seek Forgiveness?

You can request forgiveness for the principal portion of the PPP loan for the eight-week period after you get the loan. There are stipulations however. Forgiveness only applies to:

  • Payroll costs
  • Interest on a mortgage
  • Rent 
  • Utilities

You may also receive forgiveness for additional wages paid to tipped workers.

You should be aware that no more than 25% of the forgiven amount can be attributed to non-payroll costs.

In other words, your loan forgiveness will be reduced if you decrease your full-time employee headcount; and, it will be reduced if you decrease salaries and wages by more than 25% for any employees who made less than $100,000 in 2019. 

What if Use PPP Loan Funds for Something Else?

If you use PPP funds for unauthorized purposes, the SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will likely face fraud charges. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, the SBA will have recourse against the shareholder, member, or partner for the unauthorized use. In other words, there are consequences for using these funds for other than the approved uses.

Make sure you’re bookkeeping is up to date and keep good records. Your bookkeeper just became your best friend. Sloppy bookkeeping could prove to be very costly right now.

Keeping Employees on the Payroll: What Should I Do Now?

Avoid the temptation to use these funds for other than payroll purposes. I’ve seen many businesses already committed to keep employees on the payroll by having them crosstrain to tackle other business needs or even continue to pay them to simply be available. Many of the businesses I know don’t have the resources to do that, but they do realize how valuable they will be when things return to normal. The PPP loans will help literally millions of small businesses keep those valuable assets as they navigate the coming weeks.

If you’ve already had to lay off employees, you have until June 30, 2020 to restore employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs and Financial Advisors. To review your real-time funding options with one of Nav’s lending experts, please contact us.

This article was originally written on April 3, 2020 and updated on April 6, 2020.

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Ty Kiisel

Ty Kiisel is a Main Street business advocate, author, and marketing veteran with over 30 years in the trenches writing about small business and small business financing. His mission at Nav is to make the maze of small business financing accessible by weaving personal experiences and other relevant anecdotes into a regular discussion of one of the biggest challenges facing small business owners today.

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49 responses to “Paycheck Protection Loans are Intended to Keep Employees on the Payroll: What Does that Mean?

  1. My supervisor made me go take the covid 19 test because I had shortness of breath. In the meantime I was told to self quarantine and coul not stay in the apartment rented for employees whose hometown is 60 radius miles from the project. So I took the test and came back negative. Anyway everyone who is sent to go get tested is receiving a 40 hours paycheck while they get their results. I was told that I was not going to receive no pay for that week. Im just stunned. I paid hotel to self quarantine and expected that check. Is that legal. The company IS receiving PPP.

  2. I know of a business that got they PPLoan but didn’t use it for his employees, he kept the money for himself and when employees went back to work they worked for 2 weeks WITHOUT pay..hummm doesn’t seem right to me. What can this employee do about this. Any help would be greatly appreciated. Thank you

  3. How !ong was employees supposed to get paid on this my boss only paid us for 4 weeks he said that is all that he got for us and was it supposed to be taxed

  4. My employer received the PPP and instructed all staff
    to stop filing for unemployment benefits. They promised to pay us our average earnings (based on Jan-March pay) for the next 8 weeks. I have continued to work part time, with the expectation to receive the PPP pay regardless of hours worked.
    I received the first 4 weeks with no issue at the end of May, but didn’t receive any for June. Aside from my very part time hours worked. They are now saying they do not have to pay the second round of funds and there is no money left. Is this ethical?

  5. My employer got the PPP loan a few weeks ago. I’ve received three checks. The first two were an average of what I normally made in the last few months. But my last check was less than $20. This is nothing close to what I was making before. When I confronted him about it, He said they changed the rules and that he was just spreading the money out more. I couldn’t live off a paycheck like that. So I had to put in my two weeks. Is this legal? It seems like he’s just trying to keep as much money as possible, and not take care of his employees.

    1. Deni – There is no obligation for employers who get PPP to pay employees a certain amount. They may face reduced forgiveness for reduced hours and/or wages. Did you consider filing for unemployment instead of quitting?

  6. The company I work for received their PPP loan and used it properly. We never had lay-offs and worked the best to our ability to keep up and running. For us employees that did receive the PPP loan in our salary and the 8 week period is over so we have to May that amount back to our employer?

  7. Hello I have a question the company my husband works. They were told they couldn’t use vacation pay for 80 days. Is that due to the loan they receive and they were told they are supposed to work a 40 hour week but 2 times this pay week they were sent home early so now he is a day short in pay that messes with our bills. But are they still supposed to get paid a 40 hour week. See 2 weeks ago he was short like$5 in his pay because they were told to clock out.

  8. I have been told that I will no longer receive a PPP check for the period I was laid off. I applied for unemployment right after my job closed down. I was told I qualified. However, I never received a penny, when others I worked with did get unemployment money! When we opened back up, I received a check (PPP check) and a letter stating I would get a check for 8 weeks, which coincidently we were closed that long! I got 4 PPP checks but have been told that since I am now working, I will not get another; however there is a small amount extra added in to my check from the PPP program. I used most of the little savings I had when this started just to keep my head above water paying monthly rent, car payments, and eating! I tried to help by talking to credit card companies and getting my payments stopped until this was over but was then hit with a monthly payment at least double what it was before corona started! And my credit limit was lowered on one card! I had used it to pay for food since I was getting no other money! I seem to have been royally screwed in this whole plandemic scam! So I guess my employer gets to keep the PPP loan money to pay his expenses during those 3 months but again I get to scramble around and try to catch up on mine! Doesn’t seem quite right – does it? Once again the government sticks it to individuals. Oh, and the $1200 stimulus check couldn’t even touch my monthly rent for one month!

  9. So pandemic began in March.. my employer laid us off for 1 week and brought us back only to work 15 hours a week. So we applied for unemployment, we were approved. My employer just received a PPP loan which is great BUT we are still at 15 hours a week and doesn’t want us filing for unemployment… Can our employer do that?

    1. If you are not receiving your normal wages, check with your state unemployment office to find out whether you can apply/quality for unemployment. If you have questions you can also contact your state Department of Labor.

  10. I work in a small more than 11 employees. As an employee I was under the impression that when my boss received the PPP loan, we would be paid our average hours for the next 8 weeks. We are currently back at work, but not working a full 8 hour day. Our schedule has been reduced to a 6-7 hours per day. When our first check on the PPP loan came out, we were all paid our average. Second check, was missing 14 hours of pay. Third check, I was told I am only getting paid for the hours I worked. Again, I’m a full time employee whose office is not open a full day because my county is still in the Yellow phase. So my paycheck once again is short 14 hours. Can you please provide any insight? Am I wrong for thinking I was entitled to my average number of hours worked?

    1. The PPP doesn’t require employers to pay employees their normal pay. Employers may receive a reduction in forgiveness if they reduce hours and/or wages however. You may want to check with your state Department of Labor and/or unemployment agency to see if you may qualify for partial unemployment.

  11. My employer received a PP Loan – however we were notified over the weekend that due to the lay off – we would have to reapply, interview, and audition in order to be rehired. Considering we have to reapply, interview and audition to be rehired that sounds like a termination not a lay off. No one received notification that we were terminated, and the company is back dating the termination. Is there anything as employees we can do, since the PP loan was obviously not to retain the employees?

  12. The restaurant I work at was furloughed and just received the ppp. They said they would pay my my average paycheck but not to clock in. They only asked a few people to come in while others get to stay home and still get paid. Is it ok for me not to clock in?

    1. Amanda – if your employer states you don’t have to clock in then it makes sense to follow their guidance. Keep in mind that PPP can help employers pay workers even if they aren’t coming into their workplace.

      1. I was in the same situation. We were closed 100% and have been now for 5 months. We were offers jobs and signed if we accepted or denied. There were no details on the terms on paper. They wanted us to come in and clean “get paid to do nothing” according to boss. We cleaned and did a few projects for 5 weeks back in May. We were paid double the hours we actually went in for. We stopped going in when nothing was left to do and when we went back on full time unemployment while we waited for them to decide to reopen. Now we are getting ready to reopen 3 months after we have been off payroll. They are having us come in to re-clean and set up things to prepare to open but we aren’t getting paid because they say we owe them for the hours they paid us for with the ppp back in May. Can they do this?

  13. My employees are all part time – and with the PUA and Unemployment, they are making double being on this assistance. I was just approved for PPP loan and no one wants to come back to work. What do I do? HELP!

    1. Traci – PPP is designed primarily to help keep employees on payroll. You’ll have to decide whether it’s the right fit for your business. The Department of Labor reminds unemployment claimants who have been placed on temporary layoff or furlough related to COVID-19 that they must return to work if called back by their employer. Refusal to return to work, when being offered the normal rate of pay and number of hours per week, may result in the termination of unemployment benefits and the need to repay certain benefits.

  14. I averaged 28.5 hours per week in 2019, however although my job is non essential as an esthetician, my employer has required me to work 40 hours per week just sitting in the office finding busy work in order to collect my average pay from 2019 when I worked only 28.5 hours per week. Is this legal?

  15. My employer is paying out our wages as an upfront payment for the next 8 weeks, but is going to reduce our commissions after the forgiveness to reclaim the payroll money to pay other bills. Is this allowed after the forgiveness?

  16. I have a question I know that my employer got the PPP loan. And he is not using it to pay payroll. He’s keeping it. He doesn’t care if he hast to pay it back with interest but he is not paying any of his employees. Also all of the employees got denied unemployment insurance benefits. So I think that this was a bad idea because the people that really need the money are NOT getting it. I feel like my boss is doing really shady stuff, in order to keep the money and not do what he supposed to do with it. I know that this is correct because I am the person who does the payroll. I have not been paid since mid March. What happens if that is correct

  17. Everyone’s answering question for employers but what about employees who are just being left in the dark to know if they are being given all information correctly or mite have any questions …

  18. Im a Dental Assistant and our Office has been shut down except for emergencies. My employer is approved for a PPP loan. This means all of the employees will go off unemployment and she will pay us. Can the Dentist make us work in the office if is is non-essesial? Doing menial jobs?

  19. I am A PT employee if there is no work for me am I still included for the PPP loan of my employer? If the employer can find something for me to do are they required to bring me back to work? Thank you.

  20. Is an employer allowed to “bank” hours that you don’t work and have you pay them back later if they pay you your full 40 hr weekly amount but you do not end up working all those hours in a week due to the fact that your business is either not busy enough or that you can’t say keep proposer social distancing with your co-workers?

    1. I work in the restaurant business and my boss had us come in to clean and repaint all week and said we had to do this in order to get our payroll protection check

  21. So I am an employee working for a company that has been approved and accepted the ppp loan. I used to work 50-55 hours a week and now am reduced to no more than 40. Does my employer acceptance of this loan make it so they now have to pay me that difference. What about the people at my company that also have hours reduced. Would they have to pay them in full??

  22. if my employees are straight commission and I pay them 75% with payroll protection. Do I have to pay them commissions?

  23. I like Jill am a restaurant worker with a low hourly wage, I depend solely on tips. The restaurant closed in March and now my employer has contacted me to come back to work in order to clean and do online training. (Not exactly what I was hired for)The rate is more than min wage but a lot less than I typically would make including my tips. If I’m collecting unemployment am I required to return to work and forfeit that?
    Thanks in advance!

  24. I work in accounts payable. The last 3 weeks my hours have started to dwindle. I am now only working 3 days a week. I have been using my personal/vacation time to compensate the loss. My employer received the ppp. Do I keep using my personal time to cover lost hours? Or does the ppp cover that? I only have 4 days left to use.

  25. What are the steps to prove I used the money for what it was attended for. Besides keeping receipts. Do I send copies somewhere?

  26. I am a restaurant worker who makes a low hourly rate plus tips. My company is going to do the PPP loan. How will i be paid for my rate plus tips? What does my weekly paycheck look like for those 8 weeks as a server?

  27. I have applied for the loan my business has almost no people coming in the door. I’m a small vet clinic that only does vaccines and spay/neuter No emergency medicine whatsoever for pets. I also am in a state where stay at home order is in place . Can i keep my staff home and just pay them using the loan or do they have to be sitting at work to be able to get the funds ? I can have them clean more but they have already been doing that. I just want to keep them safe and at home but be able to pay them until we come off the stay at home order . Please help

  28. We have employees that are unresponsive to requests for what kinds of tasks they are able to do and if they are available. Are we required to pay them anyway, even though we have other employees willing to continue to work?