Independent Contractors and PPP

May 6, 2020
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I’ve been getting lots of emails from you guys with good news of  Payroll Protection Program approvals! If that’s you, congrats! You are in the 47%. If it’s not you, you’re in the majority, and there is still hope. Keeping my fingers crossed for all of you.

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Stimulus Stas

175,743,247,908 – As of May 1st, the SBA has funded $175,743,247,908 thus far in the second round of PPP. So, if my math is correct, that leaves $134,256,752,092 left in the PPP account.

7 – Borrowers now have 7 more days – until May 14, 2020 – to decide whether to return PPP funds within a safe harbor period provided by the U.S. Small Business Administration SBA.

PPP Live

Last Wednesday SOCAP invited me to discuss PPP. Some of you saw the presentation last Wednesday live, but for those who were unable to make it, I’ve included the 52-minute video below. As promised, the presentation included your FAQs. The 4 most popular questions were: (1) I own a business, but I don’t take a salary, can I still apply? If so, how do I calculate payroll? (2) My business uses independent contractors, not employees. Can I count their wages as payroll? (3) Is it possible to qualify for loans under both the PPP and EIDL? (4) What happens if I have to let go of employees after the 8th week? See the full discussion on YouTube. (I started a YouTube Channel just for this, so even if you don’t watch the whole thing, at least pop over there to subscribe. I appreciate it.) Here are the publicly available Google Slides of the presentation.

Spending PPP Wisely

According to our survey (see below), almost half of you have received PPP funding by now. In order to ensure that the loan can be forgiven, you need to spend the money on authorized expenses within 8 weeks from funding. So what are authorized uses? (1) At least 75% of the funding needs to be spent on payroll costs, which include: Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee); for a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee; State and local taxes assessed on compensation; and costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums. (2) Up to 25% can be spent on these other authorized uses: payments of interest (but not payments of principal) on any mortgage obligation; rent (including rent under a lease agreement); utilities; or interest on any other debt incurred before February 15, 2020. I know a lot of people have specific questions on this. Please click here to submit any questions on how to properly spend PPP.  

Independent Contractors

Ok… let’s talk independent contractors. I’ve been getting a decent amount of questions around independent contractors. (1) As a company, you may not include payment to contractors for purposes of calculating the total amount you are eligible for under the PPP, nor can they be included in your calculation as a forgivable payroll cost. (2) If you are an independent contractor you may apply on your own. (3) If you do, then you’ll need to have been operating prior to 2/15/20 and either have filed or will file your Form 1040 Schedule C for 2019 showing self-employment income. (4) You’ll need to have the following documents: Your 2019 1040 Schedule C (even if you haven’t filed it with the IRS yet); a 2019 1099-MISC, invoice, bank statement, or book of record that shows you were self-employed in 2019; a 2020 invoice, bank statement, or book of record establishing that you were in operation on or around 2/15/20. US Chamber of Commerce

Black Hole

This EIDL program has been live for a little over a month, so is it achieving its goal of rapidly deploying capital to entrepreneurs? The short answer is no. According to a report by the SBA, during the first tranche of CARES Act, up to April 24, 2020, the SBA has approved 38,984 loans for a total of $7,967,174,888. My research on EIDL had 2 key takeaways: (1) Very few businesses are getting funded. Only 9% of you that applied for EIDL got the funding. (2) The process was opaque and frustrating. Most of you felt like you submitted your EIDL application into a black hole. Forbes

47%

The good news is nearly half—47 percent—of PPP loan applications have been approved as of May 4, 2020. That number is a significant increase from April 20, 2020 when only 18 percent of PPP loans were approved. There are likely two reasons for this uptick in approvals. First, the SBA has $310 billion in new money to allocate. Second, there was a great deal of confusion among the SBA, banks and applicants about how to process the loans. It took time to iron out the wrinkles in the process, and now it’s much smoother. The average loan processing time was 15 days. Forbes

Should We Work Together?

I know there’s a lot of information to process about the stimulus. The intent of the email is to help give you clarity so you can make wise decisions. I hope it helps you gain deeper insight and equips you to create meaningful impact in the world. Many readers have asked about how we can work together. I run a law firm for entrepreneurs. We try to keep things simple by offering transparent flat fees. We structure our engagements in two ways: (1) Per-project flat fee engagements. No billable hour means no surprise legal bills. (2) General Counsel—A simple monthly fee for all your day-to-day legal needs. It’s like getting a subscription to your own general counsel. If you’re interested, let’s jump on a call to see if you’re a good fit for the firm. Click here to schedule a call.  

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