As the COVID-19 pandemic continues to impact businesses across the globe, the United States government has implemented various relief programs to help struggling companies and individuals. One of these programs is the Paycheck Protection Program (PPP), which provides loans to small businesses to help cover payroll costs and other necessary expenses. However, one question that has arisen is whether subcontractors are considered employees for PPP purposes.
First, it is important to understand the difference between an employee and a subcontractor. An employee is hired directly by a company and is typically subject to the company`s policies and procedures, while a subcontractor is an independent contractor hired by a company to perform a specific task or project. Subcontractors often work on a project-by-project basis and are not considered employees of the company they work for.
So, are subcontractors considered employees for PPP purposes? The answer is no. The PPP loan is intended to cover payroll costs for employees of a small business, as defined by the Small Business Administration (SBA). According to the SBA, an employee is “an individual employed on a full-time, part-time, or other basis,” and does not include independent contractors or sole proprietors.
This means that if a small business hires subcontractors to work on a project, the cost of those subcontractors is not eligible for PPP loan forgiveness. However, if the small business has employees, the loan can be used to cover their payroll costs, including salaries, wages, commissions, tips, and benefits, up to a maximum of $100,000 per employee per year.
It is important for small business owners to accurately identify their employees and subcontractors when applying for a PPP loan to avoid any confusion or misunderstandings. Misuse of PPP funds can result in legal consequences and financial penalties, so it is essential to follow the guidelines set forth by the SBA.
In conclusion, subcontractors are not considered employees for PPP purposes, and their costs cannot be covered by the loan. Small business owners should accurately identify their employees and subcontractors when applying for a PPP loan and use the funds only for eligible payroll costs. By following these guidelines, small businesses can help ensure they receive the maximum amount of loan forgiveness and avoid any potential legal or financial issues.