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The recently passed CARES Act authorizes the Small Business Administration (SBA) to issue up to $349 billion in low-interest, potentially forgivable loans via its Paycheck Protection Program (PPP). The PPP loans are intended to assist small businesses in payment of their eligible payroll costs, mortgage payment interest, rental payments, utilities payments, and other permitted costs. However, the language of the CARES Act has resulted in a fair bit of confusion among potential applicants and lenders. In response, the SBA published an interim final rule on April 2, 2020, followed by a Frequently Asked Question (FAQ) document on April 6, 2020, to assist in addressing some of the questions surrounding the PPP.

One of the critical questions raised by applicants and lenders is, what qualifies as eligible “payroll costs” both with regard to calculating the PPP loan amount and determining what uses of loan funds are eligible for forgiveness.

Guidance has been changing on an almost daily basis since the CARES Act was signed into law on March 27, 2020. The following is a reflection of our current understanding based on the latest guidance and is provided for informational purposes only.  We advise all potential applicants to consult with their legal counsel, tax/accounting advisors, and local lenders for specific guidance regarding how to calculate “payroll costs” properly.

What constitutes payroll costs?

Payroll costs include:

  • Gross salary, wages, commissions, and tips (capped at $100,000 on an annualized basis for each employee and pro-rated as necessary);

  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; an allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefits;

  • State and local taxes assessed on compensation; and

  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

What costs are excluded from payroll costs?

Note, unless otherwise stated, the following exclusions apply to both the calculation of the loan amount and the amount of forgiveness:

  • The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary.

  • Any compensation paid to an employee whose principal place of residence is outside the U.S.

  • Payments made to independent contractors. Note, independent contractors can apply for their own PPP loan, so payments made to them should not be included in an employer’s payroll costs.

  • Concerning the calculation of the amount of loan forgiveness only, the following amounts are excluded from payroll costs:

    • Qualified sick and family leave wages for which a credit is allowed under sections the Families First Coronavirus Response Actare not eligible for forgiveness.

    • Non-cash benefits, including (i) employer contributions to defined-benefit or defined-contribution retirement plans; (ii) payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; (iii) payment of state and local taxes assessed on the compensation of employees; and (iv) any other taxes imposed or withheld under Chapters 21, 22, and 24 of the IRS Code, that are paid during the covered period from February 15, 2020, to June 30, 2020.

What period is applicable with regard to calculating the average monthly payroll costs used to determine the loan amount?

  • Seasonal businesses that were in business for at least eight weeks between February 15, 2019, and June 30, 2019, shall use the 12-week period beginning February 15, 2019, or at the election of the eligible recipient, March 1, 2019, and ending June 30, 2019;

  • Newly formed businesses (i.e., companies that were not in business and paying employees by February 15, 2019) shall use the period beginning on January 1, 2020, and ending on February 29, 2020;

  • Regular businesses (i.e., those that do not fall into either of the above categories) shall use the 2019 calendar year (i.e., January 1, 2019, to December 31, 2019).

What payroll costs are eligible for loan forgiveness?

  • Only funds spent on eligible costs (including payroll costs) during the eight week period immediately following the borrower’s PPP loan approval are eligible for forgiveness.

  • At least 75% of the forgiven amount must be used to pay payroll costs.

abeo continues to monitor changes we believe are relevant to our physician and hospital clients. Please email us at if you have other topics you’d like to see covered.

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abeo Management Corporation (abeo) serves as a leading source of revenue cycle management and practice management with a specialization in anesthesia. The company leverages its people, processes, and software to serve independent practices, surgery centers, hospitals and healthcare systems with a scope of services that include billing, coding, transcription, practice management, and business consulting.

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