Resources

The Small Business Administration has officially weighed in on using funds from the Paycheck Protection Program to pay for bonuses, ending weeks of interpretations and guesses from small-business owners and experts.

The new guidance, published Friday, echoes what CPAs and other experts had surmised: Bonuses, hazard pay, or other extra compensation are allowed for employees, but not for owners of business recipients of the loan program. 

The SBA clarified section 1106(d)4 of the Act and stated that employees can get bonuses so long as their total salary does not exceed $100,000 on an annualized basis for the funds to still qualify for forgiveness. 

“The SBA Administrator Jovita Carranza, in consultation with the Department of Treasury Secretary Steven Mnuchin, has also determined that, if an employee’s total compensation does not exceed $100,000 on an annualized basis, the employee’s hazard pay and bonuses are eligible for loan forgiveness because they constitute a supplement to salary or wages, and are thus a similar form of compensation,” the agency stated in the new guidance. 

This comes after the SBA officially ruled out bonuses last week for owners, self-employed people, and general partners. For owners, their total pay in the eight-week loan period cannot be more than either $15,385 — which is the eight-week equivalent of a $100,000 annual salary — or the eight-week equivalent of their 2019 compensation, whichever is less. 

While that answer may frustrate small-business owners, the use of additional pay for employees offers a new, useful tool in meeting what could be difficult ratios for loan forgiveness, as small businesses are only allowed to spend 25% of the PPP funds they receive on nonpayroll expenses such as rent, mortgage interest, and utilities. For some businesses, it’s been difficult to draw employees back to payroll to meet that forgiveness obligation because they are receiving more pay weekly through enhanced unemployment benefits. 

The guidance also adds increased flexibility for employers with pay periods that don’t easily align with the eight-week covered period allowed in the loan. Now employers that pay every two weeks or every week can choose different 56-day time periods that align better with their pay cycles. 

For more information please feel free to contact us at info@millermusmar.com or call us at 703-437-8877.

MillerMusmar CPAs is an established accounting firm with offices in Reston, Virginia, and Manassas, Virginia. We have a twenty-five-year history of providing top quality auditing, tax, and accounting services to clients throughout the Washington Metropolitan area and internationally. By combining the expertise of a mid-sized firm with the personal attention, we are both large and small enough to deliver a responsive service to our clients. For more information, please visit our website at www.MillerMusmar.com.