United States: Employee Count for PPP Loan Eligibility Includes All Employees, Not Only Employees Whose Place of Principal Residence Is in the US

SBA’s latest Interim Final Rule (the 13th IFR from the SBA and Treasury Department by our count) for paycheck protection program (PPP) loans (IFR13) addresses the critical issue of the employee headcount for PPP loan eligibility, and it states that businesses should count all employees without regard to their country of residence.

By now, it’s generally understood that a business is eligible for a PPP loan if it has 500 or fewer employees, and this count must include the employees of affiliates (we discussed the affiliation rules in this article). Under this new IFR13, the employee count is based on total employees and is not limited to employees whose principal residence is in the U.S. (Residency Qualifier). Importantly, however, the SBA will treat businesses that used the Residency Qualifier to lower their employee headcount for PPP eligibility as still eligible if their loan applications were made before May 5. Stated differently, elimination of the Residency Qualifier only applies to businesses applying for a PPP loan on or after May 5.


FAQ 3 (published on April 6) of SBA’s PPP loan FAQs and the IFR published in the Federal Register on April 15 based the employee count on U.S. resident employees:

  • FAQ 3: “a business is eligible for a PPP loan if the business has 500 or fewer employees whose principal place of residence is in the United States * * *.” (Emphasis added.)
  • IFR (April 15) 2(a): “you are eligible for a PPP loan if you have 500 or fewer employees whose principal place of residence is in the United States * * * .” (Emphasis added.)

On May 5, however, the SBA published FAQ 44. As we discussed in this article, FAQ 44 created confusion about the application of the Residency Qualifier because it discussed counting “all” employees. Nevertheless, because FAQ 44 simply omitted the Residency Qualifier — without formally addressing it — and because FAQs are not afforded as great a weight of authority as the IFR, we believed the Residency Qualifier remained applicable when counting employees for PPP eligibility purposes. As we stated in the previous article, “We assume the SBA would be clearer if it were changing the rules in the middle of the game.”

New Rule

The new IFR13 now provides this clarity:

“to calculate the number of employees of an entity for purposes of determining eligibility for the PPP, an entity must include all employees of its domestic and foreign affiliates, except in those limited circumstances where the affiliation rules expressly do not apply to the entity” (Emphasis added.)

The SBA also recognizes that its prior guidance resulted in “reasonable borrower confusion” about the Residency Qualifier. Accordingly, applicants that (i) applied before May 5 and (ii) excluded employees whose principal residence was outside the U.S. “shall not be deemed to have made an inaccurate certification of eligibility solely on that basis.” Although we appreciate this safe harbor, we believe it should apply to applications made before the SBA promulgated the new IFR13. The SBA apparently chose May 5 because it believes that the issuance of FAQ 44 resolved the confusion. To the contrary, FAQ 3 and the April 15 IFR 2(a) provided an unambiguous standard, with FAQ 44 creating confusion. The new IFR13 raises questions of why FAQ 3 and the prior IFR 2(a) include the Residency Qualifier, and why the SBA has retained FAQ 33, which provides guidance in applying the Residency Qualifier.

In any event, it is now clear that the SBA believes the Residency Qualifier should not apply to PPP loan applications made on or after May 5 (even though IFR13 is not even effective until it is published in the Federal Register). Some borrowers may well adopt (reasonably in our view) a contrary position for applications submitted prior to the effective (or at least prior to the May 18 release) date of IFR13, and we look forward to seeing the results of any resulting dispute. The best challenger would be a U.S. company with just shy of 500 employees whose principle place of residence is within the U.S., and a few more whose residence outside the country pushes them over the 500 employee limit. But beware, if a business challenges the elimination of Residency Qualifier, the SBA may respond by asserting that the business, possibly because of the foreign operations, did not have an adequate basis for making the uncertainty certification. We have discussed uncertainty certification in articles here, here, here and have a slide deck about the certification.