Owner-Employee Compensation & Non-Payroll Costs in New PPP Forgiveness Guidance
REDW LLC | August 26, 2020
On August 24, the U.S. Small Business Administration (SBA) and U.S. Treasury issued an interim final rule on Paycheck Protection Program (PPP) forgiveness issues regarding owner-employee compensation and the eligibility of non-payroll costs.
The interim final rule states that owner-employees with less than a 5% stake in a C or S corporation are exempted from the PPP owner-employee compensation rule for determining the amount of their compensation for loan forgiveness.
According to the interim final rule, the intent of the exemption is to cover owner-employees who have no meaningful ability to influence decisions over how loan proceeds are allocated.
The guidance also describes in detail, and with examples, two decisions meant to maintain equitable treatment between a business owner who holds property in a separate entity and one who holds the property in the same entity as its business operations.
In the first decision, SBA and Treasury affirm that the amount of loan forgiveness requested for non-payroll costs may not include any amount that is due to the business operation of a tenant or subtenant of the PPP borrower.
In the second decision, regarding certain non-payroll costs, rent or lease payments to a related party are eligible for loan forgiveness provided that two conditions are met:
- the amount of loan forgiveness requested for those payments is no more than the amount of mortgage interest owed on the property during the covered period attributable to the space being rented by the business, and
- the lease and mortgage were entered into before Feb. 15, 2020.
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