The Paycheck Protection Program is up and running. So why can't anyone agree on how much a business is eligible to borrow?
Free money is hard to pass up, and so last week, businesses were clamoring for Friday to arrive so they could grab their piece of the pie.
In the past few days, I’ve spoken or emailed with hundreds of accountants, who in turn have sent me hundreds of different “payroll cost calculators” that they or their clients have received from lending institutions. And there are HUGE differences between the methodologies being employed. Read it a few more times, however, and you realize that this paragraph is defining the payroll costs of the. When looked at through that lens, the above wording provides that the payroll cost of a self-employed taxpayer who has no employees of his or her own is comprised of any payments of compensation he or she has received, be it a wage, commission, or net earnings from self-employment.
Case closed, right? After all, this is the correct result. Otherwise, businesses would be able to borrow based in part on what they paid to independent contractors, and then in turn, those contractors would be able to borrow based on what they were paid by businesses. This avoids double dipping.sample PPP calculationThis is a sample that was sent to me, pre-populated by a bank that shall remain nameless.
The first debate that erupted around this language was whether an employee earning in excess of $100,000 was completely eliminated from consideration, or if only the compensationwas excluded from the formula. While the CARES Act is far from clear on the topic, logic dictated that it was the latter; otherwise, a cliff effect would be created where one employee earning a $98,000 salary would be counted in full while another earning $102,000 wouldn’t count at all.
It’s easy to reach the latter conclusion from the text of the CARES Act. On the top of page 11, it defines payroll costs as the “sum of payments of,” with compensation then further defined as including not only wages and salary, but also health care, retirement, and state income tax costs, among others. Then, page 12 limits the “compensation” of any one employee to $100,000.
The source of the problem is found in the CARES Act. When listing the items excluded from payroll costs, the bill added: In fact, Senator Marco Rubio, who was intimately involved with the CARES Act as it made its way through the Senate, confirmed this thinking on Saturday in a tweet:But before we just conclude that payroll costs are intended to be gross, rather than net, we have to acknowledge the language in the legislative text. But perhaps it means something different than we originally thought?
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