PPP Loan – Counting of Employees and Foreign Affiliates

As previously discussed earlier this Spring, the Paycheck Protection Program (“PPP”) enacted through the CARES ACT is a Federal Program that has been marked with more questions than answers. As the days pass and the implications of the program are evaluated by the government and public, the Small Business Administration (“SBA”) and Department of Treasury (“DOT”) are continually changing and revising their guidelines. In line with that trend, on Wednesday, May 8, 2020, the DOT released several updates to their FAQ document (currently on its COVID-19 Resource Page). Questions 43-45 have been added.

FAQ #43 – Extends the Safe Harbor Deadline by which a Company can repay PPP funds to May 14, 2020. Borrowers do not need to apply for the extension (the original deadline had been May 7, 2020).

FAQ #44 – Clarifies that for the purposes of the PPP’s 500 or fewer employee size standard, an applicant must count all of its employees and employees of its U.S. and foreign affiliates, absent a waiver of or an exception to the affiliation rule. This is a marked shift from FAQ #3, published on April 6, 2020, which defined the calculation of employees as those “whose principal place of residence is in the United States.” The SBA takes into consideration that certain companies in special industries with designated NACIS codes are exempt from the 500 or fewer employee standard.

FAQ #45 – States that Companies that repay the PPP loan by the new Safe Harbor Deadline shall still be eligible for the Employee Retention Credit if they are otherwise an eligible employer for purposes of the credit.

In light of the above new guidance it is strongly recommended that Companies review the number of employees both in the U.S. among international affiliates (as defined by the SBA) to determine if the Company still qualifies for the PPP. Under U.S. Federal law, criminal and civil penalties may apply for knowingly making a false statement or certain types of misrepresentations to the government. The Safe Harbor provision is a means by which Companies can repay any PPP already received from the SBA prior to the release of this new information.

We can assist your company in identifying whether or not your company is exempt from the 500 employee criteria meaning you remain eligible to keep the funds if you fall into certain categories. This is a case-by-case determination. Please contact BridgehouseLaw LLP if you have questions or are in need of further assistance with the PPP.

Kristin Whalen, Managing Partner | Attorney (NC)
Post: May 8.2020