Q: I understand the 75% of pay requirement for loan forgiveness, but is there a threshold for the number of employees that must be maintained?

A: There 75% requirement that applies to both permitted use of proceeds and what uses of proceeds are eligible for forgiveness. At least 75% of loan proceeds must be used for “payroll costs”  and not more than 25% of the forgivable loan amount can be for other than “payroll costs” (said another way, at least 75% of the amount of the loan to be forgiven must be used for “payroll costs”).  

With respect to headcount and/or salary reduction, yes, this is a concern. Generally, speaking, the amount of the loan that is eligible to be forgiven will be reduced pro rata for reductions in headcount and for the amount of wage reductions in excess of 25% that are not restored prior to June 30.  There are specific reference periods for measuring headcount and wage reduction and it can be trickier than it appears on first glance, so you should consult with your accountant and/or attorney on the calculations.

CARES Act and Your Medical Practice: 
What You Need to Know

We received a lot of great audience questions during the webinar, but we didn’t have time to get to all of them. Luckily, our speakers from Goodwin Procter LLP provided written answers to some of the remaining questions. You can read them below.


Q: Can you get monies from both the Cares Act and the EIDL?

A: You cannot borrow loans under both programs for the same purpose. However, COVID 19 EIDLs are to cover losses and Paycheck Protection Loans are to cover, by and large, payroll costs.  If you have borrowed a COVID-19 EIDL (after January 31, 2020), the PPP program does permit you to refinance that EIDL into your PPP loan.  However, care should be taken in doing so, including that you should consider whether (or not) you have used your COVID-19 EIDL proceeds on payroll costs that are eligible to be forgiven.

© Phreesia

Phreesia is committed to supporting provider organizations in their response to Coronavirus Disease 2019 (COVID-19). To find out more about our evolving products, including our COVID-19 Screening Module, Intake for Telehealth and Zero-Contact Intake, visit the COVID-19 Response Page on our website.

Q: If you get the $10,000 from the EIDL and the PPP, will the $10,000 grant from the EIDL be subtracted from the forgiveness portion of the PPP?

A: Yes.  The $10,000 advanced under a COVID-19 EIDL is not required to be repaid (and is sometimes referred to as a “grant”), and if you refinance your COVID-19 EIDL into your PPP loan, the amount that is forgivable under the PPP loan will be reduced by that amount.

Q: Can K-1 partners be included on the application and receive funds for their payroll?

A: This is a gray area. There is no specific guidance from the SBA and there are considerations on both sides of the question. In some areas, “typically”  people who received K-1s are not treated as “employees”.  For example, to the extent they are viewed as self-employed, they likely cannot be considered for payroll, but they may be eligible to apply on their own behalf.  However, there is language in the statute that might provide a basis for including certain K-1 recipients in “payroll costs”, for example if their payments are guaranteed.  This question is complicated, at the intersection of employment law and tax law, as well as the CARES Act, and will be a facts-and-circumstances determination, so you should consult with your attorney and/or accountant on this question.

Q: Regarding the exclusion of incomes over $100K in the PPP, does this mean that funds cannot be used to pay employees who earn more than $100K per annum AT ALL, or that funds can only be used for the pro-rated portion of such salaries up to $100K?

A: From a use of proceeds perspective, “payroll cots” includes wages not in excess of $100K, so those amounts should count towards using the loans for permitted purposes. However, treatment of $100K earners for the purposes of determining what amount of the loan is eligible for forgiveness has further nuance to it, and as of yet fulsome regulations on forgiveness have yet to be published. You should consult with an attorney/accountant to ensure you are treating those payroll costs properly.

Q: Can you apply for PPP loan direct from SBA?

A: No, you must apply through an SBA-approved lender. The SBA provides a guaranty of the loan to certain approved lenders; it does not make PPP loans.

Q: What does the owner who does not take a salary from the practice do to qualify under the PPP?

A: To the extent they view themselves as self-employed or a sole proprietor, PPP does contemplate them applying in their own right for their personal behalf. However, this can be complicated so we recommend you speak with your accountant or attorney.

Watch the on-demand webinar recording below!

Q: We dropped about 10 FTEs on Jan 1, 2020. Therefore, we will naturally have a drop in FTEs from 2019 average to the 8-week measurement period. Are we comparing cost from '19 average to 8-week average?  Or FTEs?  What if you have new employees who were not here in 19?

A: Employee counts are based on headcount, not specific employees, so if some employees leave and other employees are hired, the new hires will “count”.  You count employees for different purposes in connection with PPP loans: (a) first, to determine the size of your business (and this count includes all part-time, full-time and other employees, (b) second, indirectly in determining the loan amount for which you may be eligible (i.e., in connection with “payroll costs”, and (c) third, measuring whether there has been a headcount reduction that will reduce the amount of the loan eligible to be forgiven.  You should consult with an attorney or your accountant to make sure you are making the appropriate calculation for each scenario.

Phreesia COVID-19 Response Page

Disclaimer: This is a general presentation on the stimulus loan programs which was recently enacted and has been rapidly evolving.  Goodwin is participating in this presentation as counsel to Phreesia and the presentation and accompanying materials should not be construed as legal advice because that will be dependent on the facts of your specific situation. If you have a particular situation on which you need advice, please reach out to your counsel.

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In this webinar, Goodwin Procter LLP shared their insights on:

  • An overview of the CARES Act relief programs 
  • Details on the Paycheck Protection Program and expanded U.S. Small Business Administration Economic Injury Disaster Loan Program (e.g. eligibility criteria, application process)

Click here to view the webinar slides

Q: If I am a shareholder in a surgery center (minor shareholder) and the owner of my practice, do I need to designate as an Affiliate?

A: Whether or not you are an “Affiliate” for purposes of determining size status of an applicant for a PPP loan will depend on a review of the facts and circumstances surrounding your ownership, and in particular your control rights, of the center, as well as the relationship between the practice entity and the surgery center.

Q: Are employees who receive 1099s included in the PPP application?

A: For purposes of determining payroll costs, individuals who receive 1099s (i.e., independent contractors) are excluded.  Note that the SBA has its own rules for determining whether an “independent contractor” should be counted as an employee for the purposes of determining size status. So, you may want to consult with an attorney. Note also that independent contractors can apply separately on their own personal behalf for a PPP loan.

Q: Can I apply with two different banks and see which application gets processed first?

A: The form application includes a certification that the applicant has not and will not receive another loan under the Paycheck Protection Program – you should make sure that certification remains true at all times.

Q: Does PPL allow for health insurance cost as well?

A: Group health care benefits are included in the definition of “payroll costs” for determining loan size and forgiveness amounts.

Q: When calculating forgiveness, do you apply the 100K cap and do you calculate the expenses incurred during the 8-week period or expenses paid in the 8-week period?

A: With respect to the incurred vs paid distinction, the CARES Act states that forgiveness will extend to costs incurred and payments made. With regard to the $100K threshold, please see the response to Question #5 above.

Q: Are small businesses established in 2020 eligible for this program? How can you prove the payroll amount?

A: Yes, they are.  If you were not in business during the period beginning on February 15, 2019 and ending on June 30, 2019, then your loan size will be determined on the basis of your average monthly “payroll costs” during the period of January 1, 2020 to February 29, 2020.