Paycheck Protection Program: Updated Guidance on Counting Employees in Foreign Affiliates

The U.S. Small Business Administration (SBA), in consultation with the U.S. Department of the Treasury, has provided updated guidance on how to count employees in foreign affiliates for the purposes of determining the 500 or fewer employee size standard for the Paycheck Protection Program (PPP).

In the Interim Final Rule dated April 2, 2020 and in Frequently Asked Question 3 (FAQ 3) released on April 6, 2020, the SBA modified the 500 or fewer employee size standard with the language "whose principal place of residence is in the United States." This led to an interpretation that after applying the affiliation rules to obtain an aggregate employee count, the applicant would then exclude all employees who did not have a principal residence in the United States and if that final number was 500 or fewer, then the applicant, if it met all other criteria, would be an Eligible Borrower for a PPP loan.

In Frequently Asked Question 44 (FAQ 44) released on May 5, 2020, the SBA removed the "whose principal place of residence is in the United States" as it relates to determining affiliation and states:

"For purposes of the PPP's 500 or fewer employee size standard, an applicant must count all of its employees and the employees of its U.S. and foreign affiliates…" (emphasis added)

If an applicant originally determined that it was eligible after removing employees who did not have residence in the United States from its aggregate employee count, it is recommended 1) that the applicant re-evaluate its employee count and 2) if after applying the new SBA guidance noted above, determines that it no longer satisfies the 500 or fewer employee requirement to be an Eligible Borrower, the applicant may want to consider using the necessity Safe Harbor date of May 14, 2020, to return the PPP loan funds.

Holland & Knight will provide additional analysis of this issue in a subsequent publications.

For additional guidance, see Holland & Knight's previous alerts "Small Business Loan Programs: Overview and Insights," April 7, 2020, and "Safe Harbor Deadline for Repayment of PPP Loans Extended from May 7 to May 14," May 6, 2020.

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