As the COVID-19 pandemic continues to disrupt businesses across the country, many companies are turning to the Small Business Administration`s Paycheck Protection Program (PPP) to provide financial assistance. However, for businesses that rely on 1099 contractors, navigating the PPP can be a bit more complicated.

First, it`s important to understand the difference between employees and independent contractors. While employees are considered full-time or part-time workers who receive a regular salary or hourly wage, independent contractors (also known as 1099 contractors) are self-employed individuals who work on a project-by-project basis and receive payment only for the work they complete.

Under the PPP, businesses can apply for loans to cover payroll costs, including salaries, wages, and benefits. However, since 1099 contractors are not considered employees, their wages cannot be included in the calculation of the loan amount. Instead, businesses can apply for a separate loan to cover payments to their independent contractors.

Another option for businesses that rely heavily on 1099 contractors is to apply for the Economic Injury Disaster Loan (EIDL) program. This program provides low-interest loans to businesses affected by the pandemic, including those that rely on independent contractors. However, unlike the PPP, the EIDL loans are not forgivable and must be repaid over a period of 30 years.

Businesses that receive PPP loans must also be careful when it comes to the forgiveness portion of the program. To have the loan forgiven, businesses must use at least 60% of the funds to cover payroll costs, including salaries, wages, and benefits for employees. Since 1099 contractors are not considered employees, their payments cannot be used towards the 60% requirement.

In summary, businesses that rely on 1099 contractors may face additional challenges when applying for PPP loans. They may need to apply for separate loans or look to other programs, such as the EIDL, for financial assistance. It`s important to carefully consider all options and consult with a financial advisor to ensure that the business is taking the appropriate steps to navigate these challenging times.