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Client Alert on Interim Final Rule

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CLIENT UPDATE: On May 5, 2020, Treasury issued an interim final rule clarifying that certain nondiscrimination provisions under federal law apply to PPP loan recipients, and that Federal and State work study students are excluded for purposes of determining PPP loan eligibility.

Nondiscrimination Provisions

The interim rule provides that the nondiscrimination provisions in applicable SBA regulations incorporate corresponding exceptions and limitations found elsewhere under Federal Law; thus, certain nonprofit and religious PPP loan recipients will not be forced to substantially change their operations in order to comply with the SBA’s nondiscrimination regulations. The exceptions the rule identifies include: sex-specific admissions practices at preschools, non-vocational elementary or secondary schools, and private undergraduate higher education institutions under Title IX; sex-specific emergency shelters or coreligionist housing under the Fair Housing Act; and for adoption or foster care practices giving child placement preferences to Indian Tribes under the Indian Welfare Act of 1978.

In addition, the rule provides that “for purposes of the PPP, SBA regulations do not bar a religious nonprofit entity from making decisions with respect to the membership or the employment of individuals of a particular religion to perform work connected with the carrying on by such nonprofit of its activities.”

Student Workers and PPP Loan Eligibility

The interim rule provides that, generally, student workers count as employees when determining the number of employees for purposes of PPP loan eligibility. However, if the PPP loan applicant is an institution of higher education and a student’s services are performed as part of a Federal or State work study program, then that student is not counted towards the number of employees for PPP loan eligibility. Additionally, higher education institutions must exclude payroll costs for work study students when calculating their PPP loan amount. This clarification aims to help smaller institutions that otherwise would have been ineligible for a PPP loan due to the number of work study student employees.

The full text of the rule can be found here: https://home.treasury.gov/system/files/136/IFR-Nondiscrimination-and-Additional-Eligibility-Criteria.pdf.

Wadleigh’s COVID-19 Response Team will continue to monitor this situation closely and provide updates as the situation develops.