PPP Loan Rules Clarified for Fishing Boat Owners/Operators; OSHA and CDC Interim Guidance for Seafood Processors
Below is some recent information for the fishing and seafood industries.
Paycheck Protection Program Loans – Certain Fishing Boat Owners and Certain Crewmembers
For fishing boat owners and operators who obtained (or who are contemplating applying for) a forgivable Paycheck Protection Program (“PPP”) loan, the Small Business Administration (the “SBA”) recently issued an Interim Final Rule (the “IFR”) (SBA-2020-0040) clarifying that payments to certain independent contractors can be included in calculations for both the maximum loan amount and in some instances the amount of loan forgiveness. The IFR was issued and is effective on June 26, 2020.
PPP Authority Has Expired; Possible Extension. The congressional authority for the Paycheck Protection Program expired on June 30, 2020. Without congressional action to extend that authority, no further PPP loans will be approved for funding. As of 4:00 pm Pacific Time on July 1, 2020, the Senate and House have voted to extend until August 8, 2020 the deadline for PPP loan applications. The legislation now heads to the President for his signature or veto.
For those fishing boat owners or operators who did receive a PPP loan prior to the expiration of the program, the IFR is nonetheless relevant to expenses that may be included in calculating the amount of loan forgiveness. If the extension legislation is enacted, for those fishing boat owners or operators who apply for a PPP loan, the IFR may enable them to seek a larger maximum loan amount.
Background. In response to the coronavirus pandemic, Congress enacted and on March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide economic relief to those impacted by the pandemic. Part of the CARES Act is the Paycheck Protection Program (“PPP”), which offers certain qualifying small businesses potentially forgivable loans to be used to defray certain expenses in order to maintain operations and retain their workforce. Congress subsequently amended the PPP and on June 5, 2020, the President signed into law the Paycheck Protection Program Flexibility Act (“PPPFA”).
In necessarily general terms, under the PPP, an eligible business can borrow up to 2.5 times its average monthly incurred payroll costs during the year prior to the loan (not to exceed $10 million). There is a detailed formula for calculating payroll costs, but generally it includes compensation (salaries, wages, commissions, or similar compensation); vacation, parental, family, medical, or sick leave; separation or severance pay; payments required for the provision of group health care benefits (including health insurance premiums); payment of retirement benefits; and payment of state or local tax assessed on the compensation of the employee. Certain costs are excluded, most notably, the cash compensation amounts in excess of $100,000 annually attributable to employees earning more than that amount; payroll taxes; compensation to employees located outside the United States; and, of particular relevance to fishing boat owners and operators, payments to independent contractors.
The proceeds of a PPP loan are intended to be used for payroll costs, rent, certain utilities, and mortgage interest payments by a business impacted by the COVID-19 situation. No less than 60% of the loan proceeds must be used for payroll costs.
A PPP borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during either (at the borrower’s election) the 8-week (for loans before June 5, 2020) or 24-week period (the “forgiveness covered period”) beginning on the date the loan was funded:
- Payroll costs (using the same definition of payroll costs used to determine loan eligibility);
- Interest on any business mortgage obligation incurred before February 15, 2020;
- Rent on a leasing agreement for real or personal property in force before February 15, 2020; and
- Payments on utilities (electricity, gas, water, transportation, telephone, or internet) for which service began before February 15, 2020.
Relief for Fishing Boat Owners and Operators. With the SBA’s issuance of the IFR, the exclusion of payments to independent contractors was eliminated for certain boat owners or operators that are engaged in catching fish or other forms of aquatic animal life (fishing boat owners) and that have hired one or more crewmembers who are regarded as independent contractors or otherwise self-employed for certain federal tax purposes. Generally, a crewmember may be considered an independent contractor or self-employed if the fishing boat on which he or she works has an operating crew that is normally made up of fewer than 10 individuals and the crewmember receives as compensation for his or her work a share of the boat’s catch or of the proceeds from the sale of the catch in an amount that depends on the amount of the catch. Such a crewmember generally may not receive additional cash remuneration or other compensation for his or her services with respect to the fishing boat. The crewmember must be a crewmember as described in Section 3121(b)(20) of the Internal Revenue Code. The fishing boat owner must report the compensation paid to such crewmember on Box 5 of IRS Form 1099-MISC.
The SBA had issued an earlier Interim Final Rule providing that, because independent contractors have the ability to apply for PPP loans on their own, they do not generally count for purposes of another applicant’s PPP loan calculation and the amounts paid to them do not fall within the definition of “payroll costs.” Because some crewmembers are treated as independent contractors or otherwise self-employed for certain federal tax purposes, fishing boat owners have faced uncertainty about whether to report payments to such crewmembers as a payroll cost on their PPP loan applications. The IFR clears up that confusion by allowing such payments reported on Box 5 of the IRS Form 1099-MISC (up to the $100,000 annual compensation limit) to be considered “payroll costs” in a loan application for purposes of calculating the maximum loan amount. Such payments paid during the forgiveness covered period may also be counted as “payroll costs” for purposes of loan forgiveness, subject to one caveat. In order to avoid “double dipping,” the compensation paid to a crewmember can be included in the calculation of loan forgiveness only if that crewmember did not receive his or her own PPP loan and is not seeking forgiveness for the amount of compensation the crewmember received for performing the same services with respect to the owner’s fishing boat.
OSHA and CDC Interim Guidance for Seafood Processors
Recently, the Occupational Safety and Health Administration (“OSHA”) and the Centers for Disease Control and Prevention (“CDC”), in consultation with the Food and Drug Administration, issued certain Interim Guidance – Protecting Seafood Processing Workers from COVID-19. For more information, please see the following guidance.
If you have any questions about PPP loans, any other provision of the CARES Act, or other COVID-19 related items, please feel free to contact one of us or visit Schwabe’s COVID-19 and CARES Act resource pages for the most up-to-date information as it becomes available.
- Mark LongChair Emeritus and Shareholder
- Carmen CalzacortaShareholder
- Noah JarrettIndustry Group Leader
- Stephanie BerntsenShareholder