PPP Loan and new Hire

[Andy777E]

All,

I applied PPP loan about 6 week back (currently 4 employees).
Looks like loan is approved although funds are not received yet.
My question is -I got another contract and I need to hire a brand new employee to do the work.
Is that an issue for loan forgiveness?
Appreciate input!

 

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[Trevor Kuntz]

All,

I applied PPP loan about 6 week back (currently 4 employees).
Looks like loan is approved although funds are not received yet.
My question is -I got another contract and I need to hire a brand new employee to do the work.
Is that an issue for loan forgiveness?
Appreciate input!

I am in a similar situation. We've hired three new PT employees in the last month and previously only had one employee (myself). I've applied for PPP based on 2019 numbers when the only employee was myself and as far as I am aware, the PPP loan will not be adjusted for new hires.

You may just have to use the PPP loan to pay for your current employees and use other funds to pay for the new hire since the PPP loan is designed for maintaining employment and not for expanding employment. If you use the funds that way, I can't see any reason why you would have issues with loan forgiveness.

 

[Andy777E]

I am in a similar situation. We've hired three new PT employees in the last month and previously only had one employee (myself). I've applied for PPP based on 2019 numbers when the only employee was myself and as far as I am aware, the PPP loan will not be adjusted for new hires.

You may just have to use the PPP loan to pay for your current employees and use other funds to pay for the new hire since the PPP loan is designed for maintaining employment and not for expanding employment. If you use the funds that way, I can't see any reason why you would have issues with loan forgiveness.

Thanks! True - Loan will be used for existing employees. But hiring new employees raises any eyebrows as PPP if your business was impacted by C0VlD-19? How do we explain expasnsion if a question comes across?

 

[Trevor Kuntz]

Thanks! True - Loan will be used for existing employees. But hiring new employees raises any eyebrows as PPP if your business was impacted by C0VlD-19? How do we explain expasnsion if a question comes across?

Everything that I can find about PPP is about maintaining a minimum headcount/payroll to be eligible for loan forgiveness. I have found some Reddit threads and business law blogs about hiring additional new employees and none have expressed any drawbacks or thoughts that hiring additional employees would put the PPP forgiveness in jeopardy.

 

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[Andy777E]

Everything that I can find about PPP is about maintaining a minimum headcount/payroll to be eligible for loan forgiveness. I have found some Reddit threads and business law blogs about hiring additional new employees and none have expressed any drawbacks or thoughts that hiring additional employees would put the PPP forgiveness in jeopardy.

Thank you! Checking with my CPA too- just to be sure!

 

[Bekit]

@CareCPA your thoughts on this?

I'm the only person on my business payroll, too. I had thought about applying for a PPP loan for the purpose of hiring a few people to get some stuff done that I have been putting off until I had money. But then I decided against applying for it. I think the point of the loan was to maintain your numbers, not grow your business? The uncertainty about whether the loan could be forgiven in these circumstances caused me to decide against applying.

 

[CareCPA]

Guidance is pretty spotty at the moment.
When you apply for the PPP, you certify that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."
So my question two months ago was: if you're growing, can you, in good faith, certify that?

However, if you're asking for less than $2 million, it doesn't matter. The IRS is assuming that you've made that certification in good faith.
Per IRS FAQ #46:
"Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith "

Steve has a good article here on some of the intricacies of the PPP forgiveness for wages: Losing PPP Loan Forgiveness - Evergreen Small Business

As long as you fall within the thresholds for not reducing headcounts or cutting wages, you likely don't have much to worry about.

 

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