During the COVID-19 pandemic, the Paycheck Protection Program (PPP) was established to help small businesses. To help eligible firms with payroll bills, rent, electricity, and other charges, the program offers forgiven loans. However, not all costs satisfy the PPP’s definition of payroll costs. This essay will examine what payroll costs are for PPP and address some related issues.
Payroll expenses are referred to as employee compensation, which includes salaries, wages, commissions, and other forms of similar pay. Along with these expenses are severance payouts, vacation, parental, family, or sick leave in cash or its equivalent. Payroll expenses also cover payments for retirement benefits and group healthcare benefits, including insurance premiums.
Payroll expenses for PPP are restricted to $100,000 per employee, prorated for the covered period. Additionally, federal employment taxes like the employer’s part of FICA or Medicare taxes that are imposed or withheld between February 15, 2020, and June 30, 2020 are not included in payroll expenditures.
Guaranteed payments are sums of money given to partners in a partnership in exchange for services. These payments are recorded as an expense on the income statement of the partnership since they are seen as a component of the partnership’s profits. For PPP calculations, guaranteed payments are not regarded as payroll expenditures and are not forgiven.
Equity partners are a company’s co-owners and cannot be terminated like employees. However, they are able to leave the partnership and have their ownership interest purchased. The partnership agreement will typically contain instructions on how to remove a partner.
Guaranteed payments reduce the partnership’s net income but have no impact on the capital accounts of the partners. The guaranteed payments are typically distributed among the partners according to the terms of the partnership agreement.
In conclusion, PPP offers forgiven loans to qualified firms to pay for expenses including rent, utilities, and payroll. Payroll expenses include, among other things, payments for retirement benefits, group health insurance premiums, and compensation for employees. Guaranteed payments are recorded as an expense on the partnership’s income statement and are not considered payroll costs for PPP calculations. While they cannot be fired like employees, equity partners can be kicked out of the partnership and have their ownership interest purchased.
No, the recommended return and the hurdle rate are not equivalent. Preferred return is the rate of return that an investor receives before any other investors in a project or investment, whereas hurdle rate is the minimal rate of return that an investment must achieve to be deemed feasible.