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The CARES Act includes the Small Business Administration’s Paycheck Protection Program (PPP) loans for eligible small businesses, emergency grant funding, and a path for loan forgiveness if funds are used for payroll and related costs.[1] PPP loan funds can be used for payroll costs, including benefits, interest on mortgages if incurred before February 15, 2020, rent, and utilities expense obligations in place as of February 15, 2020.

Payroll costs include salary, wages, commissions, or tips; employee benefits, including costs related to vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group healthcare benefits, including insurance premiums; payment of any retirement benefit; and state and local taxes assessed on compensation.[2]

The following is a summary of a few salary and payroll to-dos to help maintain PPP loan compliance and maximize chances of PPP loan forgiveness:

  • Review your payroll costs closely for PPP payroll exclusions such as:
    • Compensation of an individual person in excess of $100,000 (when annualized);
    • Compensation to an employee whose principal residence is outside of the US;
    • Qualified sick leave for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act (FFCRA); and
    • Qualified family leave wages for which a credit is allowed under Section 7003 of the FFCRA.
  • Maintain employee and compensation levels through the eligible covered period.
  • Maintain copies of payroll reports by person for each pay period for the eight weeks following the loan origination date.
  • For reductions in headcount: calculate the average number of full-time equivalent (FTE) employees employed between February 15 and June 30, 2019, and between January 1 and February 29, 2020 (preferably in Excel or CSV format).
  • For reduction in wages: Provide a report by employee for all employees earning less than $100,000 per year that lists wages between January 1 and March 31, 2020.
  • Note deadlines for restoring salaries to FTE employees and eliminating salary reductions to pre-COVID-19 levels: extended to December 31, 2020, by PPP Flexibility Act of 2020 passed on June 3, 2020.
  • Payroll taxes: Deferral of employer portion of taxes is allowed under the CARES Act.
  • Real estate: The PPP Flexibility Act changes the deferral period from six months to:
    • the date the forgiveness amount is determined; or
    • Ten months after the covered period for forgiveness if the borrower fails to apply for forgiveness during that period.
  • As part of the Loan Forgiveness Application (SBA Form 3508 or lender equivalent), provide copies of all applicable 2019 tax forms.
  • On SBA Form 3508, display all calculations to arrive at payroll costs, including adjustments.
  • Maintain documentation reflecting the health insurance premiums paid by the company under a group health plan (including owners of the company).

PPP Loan Forgiveness Requirements[3]

  1. Payroll Costs (which must utilize PPP compliant payroll practices).
  2. Interest payments on any business mortgage obligation on real or personal property that was incurred before February 15, 2020 (but not any prepayment or payment of principal).
  3. Payments on business rent obligations on real or personal property under a lease agreement in force before February 15, 2020.
  4. Business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.


[1] CARES Act Sections 1102 and 1106 implement the PPP. The PPP has been expanded and further clarified in subsequent legislation, including the April 24, 2020, Paycheck Protection Program and Health Care Enhancement Act. This law increased the funding of the PPP by $321 billion to a total of $670 billion, and provided supplemental funding for healthcare providers. The PPP Flexibility Act of 2020 passed on June 5, 2020, extended the covered period, among other reforms.
[2] For an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment or similar compensation are also considered payroll costs. See 15 U.S.C. 636(a)(36)(A)(viii); 85 FR 20811, 20813.
[3] “Business Loan Program Temporary Changes; Paycheck Protection Program—Requirements—Loan Forgiveness,” Interim Final Rule, 85 FR 33004 (June 1, 2020), available at: