In addition to certain entities, independent contractors, sole proprietors and “eligible self-employed individuals” may be eligible to apply for a Paycheck Protection Program loan under the CARES Act.

What is an eligible self-employed individual? It is important to note that the statute did not refer to “self-employed individuals” which would have been very easy for Congress to do. Instead, Congress used a term with a very specific meaning from a statute that Congress had just passed the week before.

The CARES Act provides that the term “eligible self-employed individuals”  has the meaning given in section 7002(b) of the Families First Coronavirus Response Act (“FFCRA”), which provides that the term means an individual who:

(1) regularly carries on any trade or business within the meaning of section 1402 of such Code, and

(2) would be entitled to receive paid leave during the taxable year pursuant to the Emergency Paid Sick Leave Act if the individual were an employee of an employer (other than himself or herself).

DIVISION E of the FFCRA contains the “Emergency Paid Sick Leave Act” and it provides:

(a) IN GENERAL.—An employer shall provide to each employee employed by the employer paid sick time to the extent that the employee is unable to work (or telework) due to a need for leave because:

(1) The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19.

(2) The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19.

(3) The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis.

(4) The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).

(5) The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID–19 precautions.

(6) The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

The intent of the FFCRA was to provide for paid leave up to a limited amount for those who suffer a COVID-19 qualifying need for leave that prevents them from working and prevents them from being paid. If an employer decides to continue to pay an employee his/her full salary during any leave, the employee would not be eligible for FFCRA paid leave. The DOL has provided some Q&As on the meaning of “unable to work” for FFCRA purposes. Below is one that offers some guidance on how the DOL has interpreted this statute:

What does it mean to be unable to work, including telework for COVID-19 related reasons?

You are unable to work if your employer has work for you and one of the COVID-19 qualifying reasons set forth in the FFCRA prevents you from being able to perform that work, either under normal circumstances at your normal worksite or by means of telework.

If you and your employer agree that you will work your normal number of hours, but outside of your normally scheduled hours (for instance early in the morning or late at night), then you are able to work and leave is not necessary unless a COVID-19 qualifying reason prevents you from working that schedule.

Unless a self-employed individual has been “unable to work (or telework)” due to one of the circumstances listed above, and not just as a result of a drop in demand for services, the individual does not appear to be an “eligible self-employed individual” within the meaning of FFCRA, and therefore does not appear to be an “eligible self-employed individual” within the meaning of the CARES Act, and therefore may not be eligible to individually apply for a PPP loan.

This analysis does not apply to individuals who operate under a sole proprietorship or as an independent contractor, but only other self-employed individuals attempting to determine eligibility for a PPP loan.

Unquestionably, Congress used the FFCRA’s very specific definition of “eligible self-employed individual” in addressing who can for apply for a Paycheck Protection Program loan under the CARES Act, adopted on March 27, 2020.  In the SBA’s interim final rule issued on April 2, 2020, it likewise referenced “eligible self-employed individual” in answering who is eligible.   Although certain guidelines published by the US Treasury Department reference “self-employed individuals” without the reference to “eligible” when discussing who is eligible for a Paycheck Protection Program loan, the loan application form published by the SBA and posted on Treasury’s website requires a certification that individual applying is an “eligible self-employed individual” – using the term used in the CARES Act and defined in the FFCRA.  The website guidance appears to be creating significant confusion but the CARES Act, FFCRA and loan application clearly require that self-employed individuals who apply be “eligible self-employed individuals” within the meaning of the FFCRA, and thus unable to work or telework as a result of a statutory listing of COVID related events.  Notwithstanding the fact that the above referenced statutory and regulatory language clearly points to Congress requiring self-employed individuals to have to meet different criteria than independent contractors and sole proprietors to be eligible for a PPP loan, it is hard to know how the SBA and banks will interpret these provisions.