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PPP Salary Calculation: Ensuring Compliance and Accuracy

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April 28, 2023


What’s Inside

The pandemic was hard on individuals and businesses alike, but it particularly impacted small businesses. As a result, employees of such small enterprises suffered from lower wages or loss of pay. To help such small businesses in the USA cover their payroll costs, the U.S. Small Business Administration introduced the Paycheck Protection Program (PPP).

Under this program, eligible entities could avail of loans amounting to 2.5 times the average PPP salary costs, computed per the scheme's rules and guidelines. The deadline to avail of a loan under the Paycheck Protection Program was May 31, 2021.

What does PPP Salary Entail?

The term ‘salary’ includes different components. In the Paycheck Protection Program context, PPP salary and payroll costs include the following types of expenses.

  • Any compensation paid to employees in the form of salary or wages
  • Commissions paid to employees
  • Costs incurred to pay for employee vacations
  • Costs incurred on account of medical or sick leaves
  • Any cash compensation paid to employees

PPP Salary Calculation Guidelines: How to Ensure Compliance and Accuracy

The maximum loan amount that a business or business owner can avail of under the Paycheck Protection Program is 2.5 times the PPP salary. While you can always use a PPP salary calculator to compute these costs, it helps to know the details of the computation.

Calculating Payroll Costs for Businesses with Employees

  1. Take the aggregate payroll costs pertaining to the last 12 months for the employees whose principal place of residence is the USA.
  2. If you have paid any employee, independent contractor or sole proprietor any compensation exceeding $100,000 annually, subtract the amount in excess of $100,000.
  3. Divide the resulting number by 12 to arrive at the average monthly payroll costs for your business.
  4. Multiply that average monthly payroll costs by 2.5 to determine the maximum amount of loan you can borrow.

Calculating Payroll Costs for Independent Contractors or Sole Proprietors with No Employees

  1. Identify the net profit as per line 31 in your 2019 IRS 1040 Schedule C.
  2. If the above net profit exceeds $100,000, you must limit it to $100,000 for the purpose of the calculation. If the profit is zero, you will be ineligible for a loan under the Paycheck Protection Program.
  3. Divide the number obtained in the above step by 12 to determine the average monthly net profit.
  4. Multiply the resulting number above by 2.5. That will be the maximum amount you can borrow.

Note: In case a business, an independent contractor or a sole proprietor had any outstanding Economic Injury Disaster Loan (EIDL) between January 31, 2020 and April 3, 2020, the sum should be added to the amount computed in step 4 above to identify the maximum amount that can be borrowed.

Learn how to download your salary slips with ease here.  

A Loan for All Your Emergency Requirements

The loans granted under the Paycheck Protection Program made it easier for small businesses in the USA to meet their payroll costs. Similarly, the Indian financial landscape also has various loans and financing products to meet various funding requirements. You can get an instant loan directly to your Savings Account through the Fi Money app. If eligible, you can borrow up to ₹5 lakhs via a 100% paperless process.

Frequently Asked Questions (FAQs)

1. What is the PPP (Paycheck Protection Program) and how does it impact salary calculation?

The Paycheck Protection Program is a loan program introduced by the US federal government during the COVID-19 pandemic. It was intended to allow small businesses to apply for low-interest loans, so they could meet operational costs like payroll, utilities and other expenses.

The program itself does not impact the salary calculator for the employees of a business. However, the amount of loan an entity is eligible for under the program depends on the PPP salary or payroll computed as per the program’s regulations.

2. What are the compliance requirements and guidelines for calculating salaries under PPP, to ensure accuracy and compliance with program rules?

To calculate the PPP salary and determine the amount of loan a business is eligible for, the US government introduced certain guidelines and compliance requirements. Typically, you need to take the aggregate payroll costs for the last 12 months, subtract employee compensation exceeding an annual salary of $100,000 and divide the resulting number by 12 to get the average monthly PPP salary.

3. What are the key components, rates, and rules involved in PPP salary calculation, including considerations such as eligible payroll costs, loan forgiveness criteria, and documentation requirements?

The eligible payroll components considered in PPP salary calculation include salary, wages, costs incurred on employees’ vacations, medical and sick leave, and all cash compensations paid to employees. The loan forgiveness criteria include the costs and expenses that the PPP loan proceeds are spent on and the percentage of the loan spent on payroll costs. The documentation requirements include payroll processing records, tax filings, Form 1099-MISC and bank records, among others.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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