During a National Small Business Town Hall hosted byInc. and the U.S. Chamber of Commerce on Friday, Chamber executive vice president and chief policy officer Neil Bradley clarified that business owners may not count independent contractors toward their payroll when calculating the size of their Paycheck Protection Program (PPP) loans.
"The regulations that came out last night make it very clear," Bradley said. "As an employer and borrower, what you pay independent contractors and 1099s does not count toward your payroll cost in calculating how much you can borrow and how much can be forgiven."
Small businesses and solopreneurs are able to begin applying for PPP loans today, Friday, April 3. Independent contractors--who file their taxes using 1099 forms--have the ability to apply for their own PPP loans beginning April 10.
The issue regarding 1099 workers had been one of the more confusing points of the program. Initial guidance seemed to suggest that 1099s could be counted toward payroll.
You can view the new guidance from the Treasury Department, which was issued Thursday night, here. The distinctions between the different types of enterprises are below.
- Generally, a small business has 500 employees or fewer, though the standards vary in some industries.
- A sole proprietorship (also called a solopreneur) is essentially a one-person business.
- Independent contractors can include doctors, dentists, veterinarians, lawyers, accountants, and others "who are in an independent trade, business, or profession in which they offer their services to the general public," according to the IRS. They file their taxes using 1099 forms, as opposed to employees, which use W-2s.
Your first step in trying to secure a loan should be to check with your current bank or lending institution to see if they're participating in the PPP.