New SBA Guidance

New SBA PPP Guidance: Employee Headcount Rules Relaxed for Certain Loan Applicants

On May 18, 2020, the Small Business Administration (SBA) issued an additional Interim Final Rule surrounding certain circumstances in which aggregated affiliated borrower employee headcount exceeds 500. Provided the PPP funding was applied for prior to May 5, 2020, borrower eligibility will not be impacted if the headcount calculation only included U.S. based affiliated employees whose principal place of residence is the United States.

Pursuant to Sec. 1102 of the CARES Act, PPP eligibility is generally limited to those borrowers with 500 or fewer employees.  While exceptions to the 500-employee headcount limit exist for franchises, the food & beverage and accommodation industries, and for businesses that meet the SBA’s alternative size standards, applicants who do not meet these exceptions must satisfy this headcount limitation in order to remain PPP eligible.

For purposes of determining the 500-employee headcount threshold, the SBA’s affiliation rules provide that both domestic and foreign employees of the entity, as well as its affiliates, are taken into consideration.  Thus, despite the fact that eligible Payroll Costs constitute only those costs paid or incurred to employees whose principal place of residence is the United States, applicants are required to consider their globally affiliated employee headcount for purposes of the 500-employee limitation.

To further cement this requirement, the SBA issued FAQ #44 guidance on May 5, 2020, stating that an applicant “must count all of its employees and the employees of its U.S and foreign affiliates, absent a waiver of or an exception to the affiliation rules”.

To avoid potential confusion, the SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-U.S employees from its headcount computation if the borrower (together with its affiliates) had no more than 500 employees whose principal place of residence is in the United States.  Such borrowers shall not be deemed to have made an inaccurate certification of eligibility solely on that basis.

Sax will continue to update you as further details are made available.  Reach out to your Sax advisor or email [email protected] with questions.  For more and on-going information relative to your state and business, visit Sax’s COVID-19 Resource Center

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