If you`re a business owner who has received funding through the Paycheck Protection Program (PPP), you may be wondering if you can use those funds to pay your contractors. The answer is yes, but with some important caveats.
First, it`s important to understand that the PPP was designed to help small businesses keep their employees on payroll during the COVID-19 pandemic. The funds are intended to cover payroll costs, including salaries, wages, and benefits. However, the program also allows for a portion of the funds to be used for other eligible expenses, including rent, mortgage interest, and utilities.
While contractors are not considered employees, they may still be eligible for PPP funds if you have paid them as independent contractors and reported their income on a 1099 form. In this case, you can use PPP funds to pay your contractors, but only for their compensation – you cannot use the funds to pay for any expenses related to their work, such as equipment or supplies.
It`s also important to note that PPP funds are subject to strict guidelines and requirements. To be eligible for loan forgiveness, which is the goal for most businesses, you must use at least 60% of the funds for payroll costs and the remaining 40% for eligible non-payroll expenses. Additionally, you must maintain your pre-pandemic staffing levels and employee salaries to qualify for loan forgiveness.
If you use PPP funds to pay your contractors, you must also keep careful records and documentation to demonstrate how the funds were used. This will be important in case of an audit or review by the Small Business Administration (SBA), which oversees the PPP.
In summary, yes, you can use PPP funds to pay contractors, but only for their compensation and subject to strict guidelines and requirements. As with all aspects of the PPP, it`s important to consult with your lender or a qualified professional to ensure compliance and maximize the potential benefits of the program for your business.
