The Paycheck Protection Program (PPP) has been a lifeline for many small businesses struggling to stay afloat during the COVID-19 pandemic. One of the key provisions of the PPP is the ability for business owners to obtain forgivable loans to cover payroll and related expenses. However, questions have arisen about how the program applies to contract labor.
Contract labor is defined as workers who are not employees of a business but are hired on a contract basis for specific tasks or projects. These workers may be paid a flat fee or an hourly rate, and they are responsible for paying their own taxes and insurance.
Under the PPP, businesses can use loan funds to cover payroll costs, including wages, salaries, and benefits. However, the program`s eligibility guidelines do not specifically address contract labor. As a result, many business owners have been unsure whether they can include their contract workers in their loan calculations.
The good news is that there is now more clarity around this issue. In June 2020, the Small Business Administration (SBA) released new guidance stating that businesses can include payments to independent contractors in their PPP loan calculations.
This means that if you are a business owner who uses contract labor, you can include those payments when calculating your PPP loan amount. However, there are a few things to keep in mind:
– The amount you can include is limited. You can only include payments to independent contractors up to $100,000 per year, per contractor. Additionally, you cannot include payments to contractors who live outside of the United States.
– You will need to provide documentation. As with all PPP loan expenses, you will need to provide documentation to prove that you paid your contract workers. This could include invoices, receipts, bank statements, or other records.
– Forgiveness may be different. If you use PPP loan funds to pay contract workers, you may need to calculate forgiveness differently than you would for traditional payroll expenses. Speak to your lender or a financial advisor for guidance on how to do this.
In summary, if you use contract labor in your business, you can include those payments when calculating your PPP loan amount. Make sure to keep good records and speak to a financial advisor for guidance on how to maximize loan forgiveness. With this extra support, you can keep your business going strong even in challenging times.