Confused About the Paycheck Protection Program Under the CARES Act?

We can help! My law partners Paul Economon and Jess Bahs and I penned this summary of the basic provisions of Title I of the Paycheck Protection Program (“PPP”) under the CARES Act. I bequeath it to you here, with a little extra from me.


CARES creates a new Business Loan Program category for the period February 15, 2020 to June 30, 2020, allowing the U.S. Small Business Administration (SBA) to provide 100% federally-backed loans (from the SBA or in cooperation with private sector lenders) up to a defined maximum amount to eligible businesses to help pay operational costs like payroll, rent, health benefits, insurance premiums, utilities, etc.

Employers, check with your banks to see if they have begun providing these loans. If your bank is not an SBA-approved lender, you can contact the SBA to find one.

These new loans are different from and in addition to the SBA Economic Injury Disaster Loans Program of up to $2M per business, which I wrote about here ICYMI, authorized under the Families First Coronavirus Response Act (FFCRA) (which I told you about here). Additionally, a loan made under the SBA’s Disaster Loan Program on or after January 31, 2020, may be refinanced as part of a covered loan under this new program as soon as these new loans are made available.

These new CARES loans basically will be large enough to cover 2.5 months of payroll costs. Amounts used during the eight-week period following the origination of the loan for payroll, rent, mortgage interest, and utilities will be eligible for loan forgiveness without tax costs on the reduced amount. This has the effect of converting the forgiven part of the loan into a tax-free grant.

No collateral or guaranties are needed for the new loan program; provided, however, that company owners can be personally liable to the extent loan proceeds are not actually used for allowed purposes (see below). The interest on the remaining loan balance after forgiveness cannot exceed 4%.


In addition to “small business concerns,” as currently defined by the SBA, eligible businesses for the new program include any business concern, nonprofit organization, veterans’ organization, or Tribal business if it employs not more than the greater of 500 employees (includes full-time, part-time, and those employed on other bases) or, if applicable, the size standard in number of employees established by the SBA for the industry in which the entity operates. In addition, sole proprietors, independent contractors, and certain self-employed individuals (as identified in FFCRA) are eligible for CARES loans, subject to documentation requirements.

There are very few borrower requirements to obtain a loan under the new program, but requirements include a good-faith certification that:

  1. The loan is needed to continue operations during the COVID-19 emergency;
  2. Funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments;
  3. The applicant does not have any other application pending under this program for the same purpose;
  4. From February 15, 2020 until December 31, 2020, the applicant has not received duplicative amounts under this program;
  5. Borrower was operating on February 15, 2020 and had employees or independent contractors for whom the borrower paid.


A whopping $350 billion is dedicated to prevent layoffs and business closures while workers must stay home during this pandemic. Small business concerns that maintain their payroll and payroll expenses during this time can receive funds worth up to 10 weeks of payroll costs and assistance. If employers maintain payroll, the portion of the loans used during the first 8 weeks for covered payroll costs, mortgage interest, rent, and utilities would be forgiven.  This is essentially a paycheck protection program for small employers who maintain their payroll with 100% federally guaranteed loans.

The covered period of access to the loans is February 15, 2020 through June 30, 2020.

The maximum loan amount is the lesser of (up to $10 million):

(A)     2.5 times average total monthly payroll costs incurred in the one-year period before the loan is made (or for seasonal employers the average monthly payroll costs for the 12 weeks beginning on February 15, 2019, or from March 1, 2019 to June 30, 2019) [PLUS any outstanding amount of a loan made under the SBA’s Disaster Loan Program between January 31, 2020 and the date on which such loan may be refinanced as part of this new program];

– OR-

(B)     For businesses that were not in existence during the period from February 15, 2019 to June 30, 2019: 2.5 times the average total monthly payroll payments from January 1, 2020 to February 29, 2020 [PLUS any outstanding amount of a loan made under the SBA’s Disaster Loan Program between January 31, 2020 and the date on which such loan may be refinanced as part of this new program].

If you have a current or pending SBA disaster loan, you can still get a loan through the PPP as long as the loans are applied to different cost centers.


Businesses may use the loans for:

  • Payroll costs:
    • Including compensation to employees, i.e., salary, wage, commissions, cash, etc.; paid federal or state leave (like FFCRA leave!); severance payments; payment for group health benefits, including insurance premiums; retirement benefits; state and local payroll taxes; and compensation to sole proprietors or independent contractors (including commission-based compensation) up to $100,000 in 1 year, prorated for the covered period;
    • Excluding prorated individual employee compensation over $100,000 per year; certain federal taxes; compensation to employees who live outside of the US; and federal sick and family leave wages allowed under the FFCRA;
  • Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • Payments of interest on mortgage obligations in place prior to February 15, 2020;
  • Rent and/or lease agreement payments in place prior to February 15, 2020;
  • Utilities for services that stated prior to February 15, 2020; and
  • Interest on any other debt obligations in place prior to February 15, 2020.



The CARES Act provides that businesses that were operating on February 15, 2020 and that have a pending or approved loan application under this program are presumed to qualify for complete payment deferment relief for principal, interest, and fees.

In other words, deferment is automatic.

Specifically, indebtedness is forgiven (and excluded from gross income) in an amount (up to the principal amount of the loan) equal to the following costs incurred and payments made during the 8 week period following origination of the loan:

  • Payroll costs;
  • Interest payments on mortgages in place prior to February 15, 2020;
  • Rent on leases in place prior to February 15, 2020; and
  • Utility payments.

However, CARES reduces forgiveness amounts for any employee cuts or reductions in wages (the reduction is fairly proportional to the number of employees compensated less than $100,000 annually who are no longer employed; a formula looks at the number of employees during certain date ranges). For reductions in wages, the forgiveness reduction is a straight reduction by the amount of any reduction in total salary or wages of any employee during the covered period that is in excess of 25% of the employee’s salary/wages during the employee’s most recent full quarter of employment before the covered period. There is relief from these forgiveness reduction penalties for employers who rehire employees or make up for wage reductions by June 30, 2020.


Companies with more than 500 employees are eligible for payroll tax credit benefits and can receive refundable tax credit equal to 50% of qualified wages paid to employees during a calendar quarter. This 50% credit applies to the first $10,000 of wages per employee (thus functionally up to $5,000 per employee) and to the employer’s share of the Social Security payroll tax obligations for any calendar quarter, with any excess credit refundable to the employer.

To qualify, the employer must have conducted a business during calendar year 2020, and either (i) was required by a governmental authority to fully or partially suspend its operations due to COVID-19, or (ii) experienced a significant decline in gross receipts.

A business is deemed to experience a significant decline in gross receipts where such are less than 50% of its gross receipts in the same calendar quarter of its prior year and ending in the first calendar quarter thereafter where its gross receipts recover to equal more than 80% of its gross receipts for the corresponding calendar quarter of its prior year. That’s a mouthful—I know.

The definition of qualified wages eligible for the 50% credit depends on the size of the employer. For employers that employed more than 100 FTE employees in 2019, qualified wages are those paid to employees during the applicable period when did not provide services due to COVID-19-related circumstances. For eligible employers that employed 100 or less FTE employees in 2019, all employee wages qualify for the credit during the period in which the employer remains an eligible employer.

The Bill also allows for payment of an employer’s portion of Social Security payroll taxes calculated on wages paid in 2020 to be delayed—50% of an employer’s portion would not be due until December 31, 2021, with the remaining 50% deferred until 2022. (Self-employed individuals would similarly benefit by deferment of 50% of the Social Security portion of self-employment tax.)

The payroll tax credit and deferral option above would not apply to companies that receive a loan discussed above to assist with payroll costs.


Here are summaries of the Bill’s taxunemploymentsmall business, health, and “distressed” industries policies, and brief summaries of provisions of Title II—Assistance for American Workers, Families, and Businesses, which includes unemployment insurance and tax relief:

  • Direct Payments:  Americans will receive a one-time direct deposit of up to $1,200, and $2,400 for married couples, plus an additional $500 per child. The payments will be available for incomes up to $75,000 for individuals and $150,000 for married couples, even for those who have no income, as well as those whose income comes entirely from non-taxable, means-tested benefit programs, such as Social Security.
  • Use of Retirement Funds: waiver of the 10% early withdrawal penalty for distributions up to $100,000 for Coronavirus-related purposes, retroactive to January 1, 2020.
  • UnemploymentThe program’s $250 billion extended unemployment insurance program expands eligibility and offers workers an additional $600 per week for 4 months, on top of what state programs pay. It also extends unemployment benefits through December 31 for eligible workers. This benefit applies to self-employed workers, independent contractors, and gig economy workers.

This is A LOT of information, but I’ll leave you with this: the PPP provides a way to keep your business afloat while supporting your employees who must take FFCRA-related leave because they are sick, under quarantine, or their kids are out of school. Complete loan forgiveness? That’s a win-win to me.

Have more questions?

For additional information, please contact any of the following: Paul Economon, Partner [email protected]; Amy Epstein Gluck, FisherBroyles Employment Counsel and Partner [email protected]; Jess Bahs, Partner[email protected] with any questions or more specific situations.

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Amy Epstein Gluck

Amy Epstein Gluck has represented individuals and corporate clients in Virginia, Washington, D.C., and various federal district courts for more than twenty years. Ms. Epstein Gluck’s current practice areas include employment law—advising on and drafting employment agreements; handling employment negotiations, severance agreements, noncompete and nondisclosure agreements, “wrongful terminations” and other EEO matters; representation at the EEOC level; advising employers about discrimination laws and how to remain in compliance, and employment negotiations.