The Senate Committee on Small Business has requested CFI to provide information on an issue with PPP loan forgiveness regarding “owner-employees.” The Small Business Administration (SBA) has capped the amount of the PPP loan that can be used to pay owner-employees.
Specifically, the SBA has limited the amount of cash compensation that can be paid to an owner-employee. The maximum amount for an owner-employee who makes at least $100,000 annually is $15,385 if the borrower uses the 8-week period, and $20,833 if the 24-week period is used. The cap would be lower if the owner-employee makes less than $100,000 a year.
In addition, there are limits on adding in the cost of healthcare and retirement benefits. S corporations can include retirement contributions, but not the cost of healthcare benefits for owner-employees. Partnerships and sole proprietors cannot include any contributions to retirement or healthcare benefits of its owner-employees. Similarly, LLCs cannot include any of the cost of any of these benefits, unless it elects to file as an S corporation, and then it is limited to including only retirement contributions. C corporations can add it the cost of healthcare and retirement benefits, but the cash compensation for each owner-employee is capped as explained above.
The problem is two-fold: First, is whether the cap should even be imposed since Congress has expanded the period during which the PPP loan can be used from 8 to 24 weeks; and second, the SBA has not defined who is an owner-employee. The lack of a definition raises a host of questions, such as:
· How much ownership creates an owner-employee?
· Does the ownership need to have a voice in the operations?
· Is profit sharing sufficient to be deemed an owner?
The Senate Committee on Small Business has asked if CFI could provide examples of this issue for C corporations, S Corporations, and LLCs. If your business has any minority owner-employees, has a profit-sharing plan, or awards employees share or ownership while employed, we need to hear from you. We can use your situation, without identifying any particular business, as an example of the problem to support our position that the cap on owner-employees either needs to be eliminated or a clear definition of owner-employee needs to be provided.
This is an excellent opportunity for CFI members to have an impact of the upcoming legislation and SBA regulations. The matter is urgent and we need to provide information as soon as possible. Please contact our legal counsel, Jeffrey King, at firstname.lastname@example.org or 561.278.0035 or our lobbyist, Max Perkins, at email@example.com or 202.587.2736.