Breaking Down the Paycheck Protection Program

This is the first in a multi-part blog series discussing the theme Staffing Your Business During a Global Health Pandemic. Many businesses are in distress due to the economic downturn brought on by the broad government-mandated closure of “non-essential” businesses. You may have heard by now about various programs that federal and state governments are in the process of rolling out. This article discusses some of the basics of the federally funded Paycheck Protection Program, available to most small businesses and self-employed individuals. 

What is it?

The Paycheck Protection Program is a loan for small businesses intended to cover about 8 weeks of payroll costs. This program is a lucrative option for many because the amount of the loan is potentially 100% forgivable (principal and interest).

Who qualifies?

Businesses with fewer than 500 employees qualify for this program. However, “gig economy” workers, freelancers, self-employed individuals, sole proprietors, and “1099” contractors are also eligible to apply.

How much is the loan?

The maximum amount of the PPP loan is 2.5 times a business’s average monthly payroll costs, up to a maximum of $10 million. “Payroll costs” include: employee compensation and wages, cash tips or equivalents, payment for regular leaves of absence, dismissal or separation compensation, group health insurance payments, retirement benefits payments, and employee salaries up to $100,000.

How can I make sure the loan is forgiven?

PPP loan forgiveness is based on three main categories: (1) How you spend the money; (2) Layoffs; and (3) Pay cuts. 

  1. Of the allowable uses of PPP loan proceeds, the following are costs that qualify for forgiveness: payroll costs (discussed above), covered rent obligations, and covered utility payments. In order to be covered, rent and utility obligations must have arisen prior to February 15, 2020. 
  2. The amount of loan forgiveness will be reduced in proportion to your reduction in the number of full-time employees. 
  3. The amount of loan forgiveness will also be reduced by the amount of pay cuts in excess of 25% (only counting employees who made less than $100,000 during 2019). 

I had to lay off workers and implement pay cuts, is there any way I can still qualify for loan forgiveness?

YES! But don’t wait until to it’s too late to talk through this situation with a qualified professional

Many employers were forced to make tough decisions early on, well before government assistance was available. However, if you bring your full-time employees back and/or eliminate pay cuts in excess of 25%, then you may still qualify for loan forgiveness. 


The business attorneys at Fausone Bohn, LLP have been assisting businesses with cash flow and staffing decisions during this unprecedented time, and we stand ready to assist with your needs. Contact me by clicking this link or calling or texting me at (734) 956-0113 to see how I can help your business with its business and employment law needs.

Interested in more information?

Attorney Brandon Grysko discusses the basics of Economic Injury Disaster Loans and the Paycheck Protection Program with Dan West on CityScape: Cyber Edition, Episode 2, brought to you by the Livonia Chamber of Commerce. Click below to check it out!

P.S. As a business owner during an economic downturn, I’m sure you’ve got more than just payroll on your mind– what’s a business to do about payments owed under  promissory notes, leases, and land contracts? Click to find out more.

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