As the pandemic continues to wreak havoc on the economy, many small businesses are struggling to stay afloat. To help provide some relief, the U.S. government has established the Paycheck Protection Program (PPP), which offers loans to help businesses keep their employees on the payroll. However, there is still some confusion over whether independent contractors count as employees for purposes of PPP loan calculations.
The short answer is that independent contractors are not considered employees for PPP loan calculations. This is because independent contractors are considered self-employed individuals, and as such, they are eligible to apply for their own PPP loan. However, if you are a small business owner who has hired independent contractors, there are still things you need to know about how they can affect your PPP loan calculations.
First, it’s important to understand how PPP loan calculations work. The loan calculation is based on your average monthly payroll costs over the past 12 months. This includes salaries and wages, as well as employer contributions to health insurance, retirement plans, and other benefits. If you have hired independent contractors, their compensation does not count towards your payroll costs.
However, there is an exception to this rule. If you have independent contractors who have filed a Schedule C with their tax return, you may include their compensation as part of your payroll costs for PPP loan calculations. This is because independent contractors who file a Schedule C are considered self-employed individuals, and their compensation is treated as profit from their business.
Another thing to keep in mind is that if you have applied for a PPP loan and have already received funding, you are required to spend at least 60% of the loan funds on payroll costs in order to qualify for loan forgiveness. This includes payments to employees and independent contractors. However, if you have independent contractors who have received their own PPP loan, you cannot count their compensation towards your 60% payroll cost requirement.
In conclusion, independent contractors are not considered employees for PPP loan calculations, but there are still ways in which they can affect your loan calculations and loan forgiveness requirements. If you are a small business owner who has hired independent contractors, it’s important to understand how their compensation fits into the PPP loan program, so that you can make the most informed decisions for your business during these challenging times.