Paycheck Protection Program (PPP) FAQ

The FAQ on this page is based on questions from our webinar on the topic. You can view the webinar recording at AGA University.

Last updated: April 14, 2020

Disclaimer: The information included on this page is included only for informational purposes and is only an interpretation made based on available information that is subject to change. The information should not be construed as legal, tax or financial advice, nor does Hart Health Strategies Inc. provide legal, tax or financial advice in any context. Any action taken related to these matters should only be done in conjunction with the appropriate legal and/or other professional advice.  

Additional resources

Employee Questions

An employee who is an independent contractor (i.e., a 1099 employee) can separately apply to the program. If they are not a 1099 contractor, then an entity can count that employee in the total number of employees for determining whether the entity is under the 500 employee threshold. However, you will wish to discuss with your accountant how part-time employees affect loan forgiveness amounts.

If one of the entity’s goals is to ensure optimizing the amount of the loan that can be forgiven, it is important to remember that a feature of the forgiveness program is substantial use of PPP funds for payroll. It may be the case that some of an entity’s employees have already filed for unemployment benefits. We cannot speak to the specifics regarding the interaction between unemployment and the PPP so we recommend speaking with an accountant with the appropriate expertise. We would also suggest that interested parties review the guidance that accounts for and supports bringing employees back on payroll if they have already been laid off.
The legislation does not provide an answer for this specific scenario. Therefore, you should discuss with your lender how they will treat these employees during the forgiveness process.
Unless the K-1 physician is an independent contractor (1099 employee), then our understanding is that the employee would count for the PPP. Please confirm this with your accountant.

Affiliation Rules

The program provides specific guidance related to “affiliation,” which is what this questions seems to contemplate. Therefore, we would recommend that you review with your accountant the rules related to affiliation. However, to help provide additional insight on the issue, we would highlight several resources: 

  • The Small Business Administration (SBA) recently issued an interim final rule related to affiliations, which primarily dealt with the affiliation rules as it relates to faith-based organizations.  However, the rule does clarify that the appropriate affiliation rules are under 13 CFR 121.301, not 13 CFR 121.103.
  • The SBA has also posted information regarding the affiliation rules for the PPP here.
  • The Treasury has provided limited information regarding the ability to waive minority shareholder rights for purposes of determining affiliation: see question six here.

Given the complexity of these rules and the variety of potential affiliation scenarios, please consult with your accountant on your specific situation. 

Disbursement Issues

The amount of the funds that have been “obligated” through the PPP may not have been dispensed yet.  Additionally, the banks are overwhelmed by the volume of PPP applications so that, while an application may have been accepted, it may take them some time to process it and arrive at the point of disbursement. 

Yes, we are aware that some banks are not yet ready to participate in the program. However, SBA has a website that helps interested parties find a lender accepting applications: www.sba.gov/paycheckprotection/find.

Loan Forgiveness

Lenders participating in the PPP will ask for additional documentation and such documentation will likely include more than payroll reports, given that the forgiveness process contemplates forgiveness of up to 25% non-payroll-related allowed uses. It is critical to receive clear guidance from your lender on what documentation they will require, both for the loan application and the forgiveness request. 

To clarify, a loan forgiveness total is decreased by two factors: (1) any layoffs or reductions in full-time equivalents (see slide 15 for the calculation); or (2) decrease of any salary for certain individuals of more than 25% (see slide 16 for the calculation).  For either of these situations, if an entity re-hires or reinstates the salary by June 30 (not June 20), then these reductions in forgiveness are mitigated. 

For the FTE reduction component, the key factor is that the entity retains the same number of FTEs.  Therefore, assuming all other requirements are met, an entity could end up hiring another individual to replace an individual who has been laid off to get to the same number of FTEs without affecting the loan forgiveness amount.  

For the salary reduction component, the unit of assessment is the individual employee.  There may be additional information from the SBA regarding this topic, given that there will likely be circumstances beyond the employer’s control.

If an entity restores the number of full-time equivalents or reinstates the salary of certain employees above the 25% threshold by June 30, then any potential reduction in forgiveness could be “cured” if all other requirements are met.

According to the statute, the eight-week period of forgiveness starts running on the date of loan origination. Thus, an entity will have to show payroll for those eight weeks in order to pursue forgiveness, especially since the SBA has clarified that it expects that 75% of the loan will be used for payroll costs.  Given the limited amount of loan uses, an entity should consult with its accountant about the best strategy for when and how employees are re-hired or salaries reinstated.

According to the statute, the eight-week period of forgiveness starts running on the date of loan origination. Thus, an entity will have to show payroll for those eight weeks in order to pursue forgiveness, especially since the SBA has clarified that it expects that 75% of the loan will be used for payroll costs.  Given the limited amount of loan uses and the limitations on salary reductions for certain employees, an entity should consult with its accountant about the best strategy for when and how employees are re-hired or salaries reinstated.

The statute states that the salary reduction limitation is on a per employee basis, not on a total payroll basis.  The restriction only applies to employees who make less than $100,000 a year. 

With regard to the SBA expectation that 75% of loan amounts will be spent on payroll, that is a cumulative payroll requirement.

Please consult with your accountant on this specific scenario. Generally, the statute states that the salary reduction limitation is on a per employee basis, not on a total payroll basis. The restriction only applies to employees who make less than $100,000 a year. For those employees, an entity may reduce an employee’s salary to 75% of what it was without potentially jeopardizing loan forgiveness as a result of salary reductions. 

With regard to the SBA expectation that 75% of loan amounts will be spent on payroll, that is a cumulative payroll requirement.

The Treasury Department recently stated in a Q&A document that, “In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019.” Please make sure to discuss this question with your potential lender.

An entity is to use the loan for the allowed uses per the statute. That includes payroll and certain other costs. The SBA has stated that, to receive full loan forgiveness, an entity must use at least 75% of the loan proceeds for payroll costs (which contemplates potential use of 25% for other allowed uses).

According to the statute, an entity will be eligible for forgiveness for costs and payments during the “covered period,” which the statute further defines as “the 8-week period beginning on the date of the origination of a covered loan[.]” 

$100 Billion Public Health and Social Services Emergency Fund (PHSSEF)

On April 10, HHS issued information regarding the $30 billion, including a press release, a fact sheet and terms and conditions. The agency stated that providers will be distributed a portion of the initial $30 billion based on their share of total Medicare Fee-For-Service (FFS) reimbursements in 2019. While many health care providers will receive the funds on April 10, within 30 days of receipt of those funds, a provider must attest to receiving the funds and agree to the terms and conditions. Otherwise, the agency states that the provider must contact HHS to remit the full payment as instructed.  

With respect to the remaining $70 billion within the fund, HHS noted that the “Administration is working rapidly on targeted distributions that will focus on providers in areas particularly impacted by the COVID-19 outbreak, rural providers, providers of services with lower shares of Medicare reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the treatment of uninsured Americans.”

HHS has stated that the initial disbursement through the PHSSEF is a payment (not a loan) and must not be repaid, but that it must be remitted, if the provider is unwilling or unable to attest to the terms and conditions. Separately, CMS announced that it has initiated the Medicare Accelerated and Advanced Payment Program for certain Medicare providers. The Medicare Accelerated and Advanced Payment Program is a loan with no forgiveness options. See this CMS fact sheet for more information on the Medicare Accelerated and Advanced Payment Program.

CMS has referred to the initial distribution of $30B of the PHSSEF funds to providers as the Provider Relief Fund (see slide 23 for more details). CMS announced that there will be additional distributions and that it will provide details in the future. Once there is more information, AGA will share it.

See this Hart Health resource for additional information on the program.

The program is being run by HHS, not CMS, despite the announcement by the CMS Administrator. Information for providers can be found here. According to HHS, the portal for confirmation of receipt of funds and agreeing to the terms and conditions will be available as early as April 13. See this Hart Health resource for additional information on the program.

The Provider Relief Fund distribution is a payment (not a loan) and does not need to be repaid (as opposed to a forgivable loan). See this Hart Health resource for additional information on the program.

Economic Injury Disaster Loan (EIDL)

The purpose of the EIDL grant is to provide an individual seeking a loan with an emergency amount of cash. Per the statute, even if the subsequent loan is denied, the additional money (up to $10,000) would not need to be repaid. The SBA may put into effect additional guardrails to ensure appropriate utilization of this program. Per the SBA interim final rule, some EIDL loans must be “rolled into” the PPP loan.  Further, per the statute, any funds received from the emergency EIDL grant would reduce the total amount of loan forgiveness an entity can receive from the PPP. 

The PPP is a loan with a partial loan forgiveness mechanism. The EIDL emergency grant is a grant, and an EIDL loan is a loan (to be paid back). The PHSSEF fund is payment (not a loan) and does not need to be repaid under certain circumstances for clinicians.

Medicare Accelerated and Advance Payments Program

For physicians, repayment begins 120 days after the issuance of the payment and ends 210 days from the date of the accelerated or advance payment was made. Repayment is a reduction in the full payment until the loan is repaid. If submitted claims do not extinguish the loan amount, the Medicare Administrative Contractor (MAC) will issue the provider a balance due notice and the terms of repayment including the interest rate, which at the current time is set at 10.25%. See this CMS fact sheet for more information on the Medicare Accelerated and Advanced Payment Program. See this Hart Health resource for additional information on the program.

The Administration has issued a waiver regarding the physician self-referral regulations (i.e. Stark law), which could, under certain circumstances, allow for this arrangement during the public health emergency.  We recommend consultation with an attorney prior to engaging in any such arrangement.