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.

See How Much SBA Loan Money You Qualify For

See How Much SBA Loan Money You Qualify For

Use our CARES Act SBA loan calculator to see how much money your business may qualify to get.

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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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ABOUT AUTHOR

Ty Kiisel

Ty Kiisel

Ty has been writing about small business and the business finance topics that impact a business’ bottom line for almost 20 years. With over 35 years in the trenches as a Main Street business evangelist, author, and marketing veteran, he makes the maze of small business finance accessible by weaving personal experiences and other anecdotes into a regular discussion of some of the biggest challenges facing small business owners today.

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

  1. 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?

  2. 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.

  3. 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.

  4. 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?

  5. 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?

  6. 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

  7. 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 …

  8. 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?

  9. 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.

  10. 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

  11. 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??

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

  13. 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!

  14. 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.

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

  16. 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?

  17. 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

  18. 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?