[Federal Register Volume 85, Number 90 (Friday, May 8, 2020)]
[Rules and Regulations]
[Pages 27287-27290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09963]



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 Rules and Regulations
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  Federal Register / Vol. 85, No. 90 / Friday, May 8, 2020 / Rules and 
Regulations  

[[Page 27287]]



SMALL BUSINESS ADMINISTRATION

13 CFR Parts 113 and 120

[Docket Number SBA-2020-0024]
RIN 3245-AH40


Business Loan Program Temporary Changes; Paycheck Protection 
Program--Nondiscrimination and Additional Eligibility Criteria

AGENCY: U.S. Small Business Administration.

ACTION: Interim final rule.

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SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA) 
posted an interim final rule announcing the implementation of the 
Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The 
CARES Act temporarily adds a new program, titled the ``Paycheck 
Protection Program,'' to the SBA's 7(a) Loan Program. The CARES Act 
also provides for forgiveness of up to the full principal amount of 
qualifying loans guaranteed under the Paycheck Protection Program 
(PPP). The PPP is intended to provide economic relief to small 
businesses nationwide adversely impacted by the Coronavirus Disease 
2019 (COVID-19). SBA posted additional interim final rules on April 3, 
2020, April 14, 2020, April 24, 2020, April 28, 2020, and April 30, 
2020 and the Department of the Treasury posted an additional interim 
final rule on April 28, 2020. This interim final rule supplements the 
previously posted interim final rules by providing guidance on 
nondiscrimination obligations and additional eligibility requirements, 
and requests public comment.

DATES: 
    Effective date: This rule is effective May 8, 2020.
    Applicability date: This interim final rule applies to applications 
submitted under the Paycheck Protection Program through June 30, 2020, 
or until funds made available for this purpose are exhausted.
    Comment date: Comments must be received on or before June 8, 2020.

ADDRESSES: You may submit comments, identified by number SBA-2020-0024 
through the Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. SBA will post all 
comments on www.regulations.gov. If you wish to submit confidential 
business information (CBI) as defined in the User Notice at 
www.regulations.gov, please send an email to [email protected]. Highlight 
the information that you consider to be CBI and explain why you believe 
SBA should hold this information as confidential. SBA will review the 
information and make the final determination whether it will publish 
the information.

FOR FURTHER INFORMATION CONTACT: A Call Center Representative at 833-
572-0502, or the local SBA Field Office; the list of offices can be 
found at https://www.sba.gov/tools/local-assistance/districtoffices.

SUPPLEMENTARY INFORMATION: 

I. Background Information

    On March 13, 2020, President Trump declared the ongoing Coronavirus 
Disease 2019 (COVID-19) pandemic of sufficient severity and magnitude 
to warrant an emergency declaration for all States, territories, and 
the District of Columbia. With the COVID-19 emergency, many small 
businesses nationwide are experiencing economic hardship as a direct 
result of the Federal, State, tribal, and local public health measures 
that are being taken to minimize the public's exposure to the virus. 
These measures, some of which are government-mandated, are being 
implemented nationwide and include the closures of restaurants, bars, 
and gyms. In addition, based on the advice of public health officials, 
other measures, such as keeping a safe distance from others or even 
stay-at-home orders, are being implemented, resulting in a dramatic 
decrease in economic activity as the public avoids malls, retail 
stores, and other businesses.
    On March 27, 2020, the President signed the Coronavirus Aid, 
Relief, and Economic Security Act (the CARES Act) (Pub. L. 116-136) to 
provide emergency assistance and health care response for individuals, 
families, and businesses affected by the coronavirus pandemic. The 
Small Business Administration (SBA) received funding and authority 
through the CARES Act to modify existing loan programs and establish a 
new loan program to assist small businesses nationwide adversely 
impacted by the COVID-19 emergency. Section 1102 of the CARES Act 
temporarily permits SBA to guarantee 100 percent of 7(a) loans under a 
new program titled the ``Paycheck Protection Program.'' Section 1106 of 
the CARES Act provides for forgiveness of up to the full principal 
amount of qualifying loans guaranteed under the Paycheck Protection 
Program (PPP). On April 24, 2020, the President signed the Paycheck 
Protection Program and Health Care Enhancement Act (Pub. L. 116-139), 
which provided additional funding and authority for the PPP.
    Prior to the CARES Act, nonprofit organizations were not eligible 
to participate in SBA's 7(a) Loan Program (15 U.S.C. 636(a)). Section 
1102 of the CARES Act expanded eligibility, limited to PPP, to include 
certain nonprofit organizations, among other organizations.
    SBA regulations at 13 CFR part 113 impose regulatory requirements 
``to reflect to the fullest extent possible the nondiscrimination 
policies of the Federal Government as expressed in the several 
statutes, Executive Orders, and messages of the President dealing with 
civil rights and equality of opportunity.'' 13 CFR 113.1(a). But 
because SBA's loan programs previously served business entities, these 
regulations did not restate certain limitations and exemptions under 
federal law primarily pertinent to certain faith-based or nonprofit 
organizations. In particular, Title IX of the Education Amendments of 
1972 permits single-sex admissions practices by preschools, non-
vocational elementary or secondary schools, and private undergraduate 
higher education institutions. See 20 U.S.C. 1681(a)(1). Additionally, 
the Fair Housing Act of 1968 allows religious organizations to reserve 
housing for coreligionists, see 42 U.S.C. 3607, and allows for single-
sex emergency shelters that provide refuge to abused women (or abused 
men), see 24 CFR 5.106; see also Johnson v. Dixon, 786 F. Supp. 1, 4 
(D.D.C. 1991) (``It is . . . doubtful [that] `emergency

[[Page 27288]]

overnight shelter,' . . . can be characterized as a `dwelling' within 
the meaning of the [Fair Housing] Act.''). Finally, the Indian Child 
Welfare Act of 1978 requires certain placement preferences in the 
foster care and adoptions of Indian children. See 25 U.S.C. 1915. The 
broadly worded SBA regulations do not articulate these limitations on 
the application of the relevant nondiscrimination provisions.
    In addition, there is a technical discrepancy between SBA's 
religious employer exemption at 13 CFR 113.3-1(h) and Title VII of the 
Civil Rights Act, which allows religious employers to make hiring 
decisions according to their religious beliefs with respect to all 
``activities,'' not just ``religious activities.'' See An Act to 
further promote equal employment opportunities for American workers, 
Public Law 92-261, 86 Stat. 103, 104 (1972), codified at 42 U.S.C. 
2000e-1(a).
    Given these various discrepancies, organizations have accordingly 
faced uncertainty about whether their participation in the PPP program 
would require them to substantially change their operations for a short 
period of months. These types of changes are impossible for some 
organizations, and impractical for many. This uncertainty risks 
frustrating the purpose of the CARES Act, which was to afford swift 
stopgap relief to Americans who might otherwise lose their jobs or 
businesses because of the economic hardships wrought by the response to 
the COVID-19 public health emergency. To provide certainty to 
applicants and recipients of loans and loan forgiveness under the PPP, 
and to address the large-scale burdens that SBA regulations may impose 
on recipients participating only on a short-term basis, this interim 
final rule provides guidance that for purposes of the PPP, nonprofits 
must meet their nondiscrimination obligations under existing Federal 
laws and Executive Orders. This interim final rule also provides 
guidance with respect to the religious employer exemption to ensure 
harmony with Section 702 of Title VII.
    In addition, as described below, to enable certain eligible small 
educational institutions to participate in PPP, this interim final rule 
provides that institutions of higher education shall exclude work study 
students when determining the number of employees for purposes of PPP 
loan eligibility.

II. Comments and Immediate Effective Date

    The intent of the Act is that SBA provide relief to America's small 
businesses expeditiously. This intent, along with the dramatic decrease 
in economic activity nationwide, provides good cause for SBA to 
dispense with the 30-day delayed effective date provided in the 
Administrative Procedure Act. Specifically, it is critical to meet 
lenders' and borrowers' need for clarity concerning program 
requirements as rapidly as possible because the last day eligible 
borrowers can apply for and receive a loan is June 30, 2020.
    This interim final rule supplements previous regulations and 
guidance on certain important, discrete issues. The immediate effective 
date of this interim final rule will benefit lenders so that they can 
swiftly close and disburse loans to small businesses. This interim 
final rule is effective without advance notice and public comment 
because section 1114 of the Act authorizes SBA to issue regulations to 
implement Title I of the Act without regard to notice requirements. In 
addition, SBA has determined that there is good cause for dispensing 
with advance public notice and comment on the ground that it would be 
contrary to the public interest. Specifically, SBA has determined that 
advance public notice and comment would delay the ability of certain 
organizations to implement their nondiscrimination obligations in a 
manner consistent with the limitations contained in existing Federal 
laws, and potentially force such organizations to change their 
operations until SBA adopted a final or interim final rule. Rather than 
change their operations, the affected organizations could elect not to 
apply for PPP loans and lay off employees, which would defeat the 
paycheck protection purposes of the PPP. This rule is being issued to 
allow for immediate implementation of this program. Although this 
interim final rule is effective immediately, comments are solicited 
from interested members of the public on all aspects of the interim 
final rule, including section III below. These comments must be 
submitted on or before June 8, 2020. SBA will consider these comments 
and the need for making any revisions as a result of these comments.

III. Paycheck Protection Program Nondiscrimination and Additional 
Eligibility Criteria

Overview

    The CARES Act was enacted to provide immediate assistance to 
individuals, families, and organizations affected by the COVID-19 
emergency. Among the provisions contained in the CARES Act are 
provisions authorizing SBA to temporarily guarantee loans under the 
PPP. Loans under the PPP will be 100 percent guaranteed by SBA, and the 
full principal amount of the loans and any accrued interest may qualify 
for loan forgiveness. Additional information about the PPP is available 
in interim final rules published by SBA and the Department of the 
Treasury in the Federal Register (85 FR 20811, 85 FR 20817, 85 FR 
21747, 85 FR 23450, 85 FR 23917, 85 FR 26321 and 85 FR 26324) 
(collectively, the PPP Interim Final Rules).
1. Non-Discrimination
    Are recipients of PPP loans entitled to exemptions on the grounds 
provided in Federal nondiscrimination laws for sex-specific admissions 
practices, sex-specific domestic violence shelters, coreligionist 
housing, or Indian tribal preferences in connection with adoption or 
foster care practices?
    Yes. With respect to any loan or loan forgiveness under the PPP, 
the nondiscrimination provisions in the applicable SBA regulations 
incorporate the limitations and exemptions provided in corresponding 
Federal statutory or regulatory nondiscrimination provisions for sex-
specific admissions practices at preschools, non-vocational elementary 
or secondary schools, and private undergraduate higher education 
institutions under Title IX of the Education Amendments of 1972 (20 
U.S.C. 1681 et seq.), for sex-specific emergency shelters and 
coreligionist housing under the Fair Housing Act of 1968 (42 U.S.C. 
3601 et seq.), and for adoption or foster care practices giving child 
placement preferences to Indian tribes under the Indian Child Welfare 
Act of 1978 (25 U.S.C. 1901 et seq.).
    In addition, 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.
2. Student Workers and PPP Loan Eligibility
    Do student workers count when determining the number of employees 
for PPP loan eligibility?
    Yes, student workers generally count as employees, unless (a) the 
applicant is an institution of higher education, as defined in the 
Department of Education's Federal Work-Study regulations, 34 675.2, and 
(b) the student worker's services are performed as part of a Federal 
Work-Study Program (as defined in those regulations \1\) or a

[[Page 27289]]

substantially similar program of a State or political subdivision 
thereof. Institutions of higher education must exclude work study 
students when determining the number of employees for PPP loan 
eligibility, and must also exclude payroll costs for work study 
students from the calculation of payroll costs used to determine their 
PPP loan amount.
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    \1\ The Department of Education's Federal Work-Study Programs 
described at 34 CFR part 675 are (1) the Federal Work-Study Program, 
(2) the Job Location and Development Program, and (3) Work Colleges 
Program.
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    The Administrator, in consultation with the Secretary, has 
determined that this is a reasonable interpretation of section 1102(a) 
of the CARES Act's reference to ``individuals employed on a full-time, 
part-time, or other basis.'' Such programs generally provide part-time 
jobs for students with financial need, and their services are incident 
to and for the purpose of pursuing a course of study. Work study 
students are excluded from the definition of employees in other areas 
of federal law. For example, in the regulations implementing the 
Affordable Care Act, Treasury defined an employee's ``hours of 
service'' to exclude work study hours.\2\ Explaining this exclusion, 
the regulation's preamble states that ``[t]he federal work study 
program, as a federally subsidized financial aid program, is distinct 
from traditional employment in that its primary purpose is to advance 
education.'' \3\ Similarly, student work is generally exempt from 
Federal Insurance Contribution Act (FICA) and Federal Unemployment 
taxes.\4\
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    \2\ 26 CFR 54.4980H-1(a)(24) (``Hour of service . . . (ii) 
Excluded hours . . . (B) Work-study program. The term hour of 
service does not include any hour for services to the extent those 
services are performed as part of a Federal Work-Study Program as 
defined under 34 CFR 675 or a substantially similar program of a 
State or political subdivision thereof.'').
    \3\ 79 FR 8544, 8550 (Feb. 12, 2014).
    \4\ Internal Revenue Code Section 3121(b)(10) excepts from FICA 
tax ``service performed in the employ of--(A) a school, college, 
university . . . if such service is performed by a student who is 
enrolled and regularly attending classes at such school, college, 
university.'' Student workers, who are not full time, are excepted 
where the services are ``incident to and for the purposes of 
pursuing a course of study.'' 26 CFR 31.3121(b)(10)-2(d)(3)(i).
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    For similar reasons, the Administrator, in consultation with the 
Secretary of the Treasury, has determined that a limited exception for 
work study is appropriate here. In particular, the Administrator 
recognizes that requiring institutions of higher education to count 
work study students towards employee headcount would result in an 
anomalous outcome in two respects. First, it would prevent some small 
educational institutions from receiving PPP loans due solely to their 
provision of financial aid to students in the form of work study. 
Second, it would result in the exclusion of small educational 
institutions whose part-time work study headcount dwarfs their full-
time faculty and staff headcounts. Educational institutions that filed 
loan applications prior to the issuance of the regulation are not bound 
by this interpretation but may rely on it. Lenders may continue to rely 
on borrower certifications as part of their good faith review process.
3. Additional Information
    SBA may provide further guidance, if needed, through SBA notices 
that will be posted on SBA's website at www.sba.gov. Questions on the 
Paycheck Protection Program may be directed to the Lender Relations 
Specialist in the local SBA Field Office. The local SBA Field Office 
may be found at https://www.sba.gov/tools/local-assistance/districtoffices.

Compliance With Executive Orders 12866, 12988, 13132, 13563, and 13771, 
the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612).

Executive Orders 12866, 13563, and 13771
    This interim final rule is economically significant for the 
purposes of Executive Orders 12866 and 13563, and is considered a major 
rule under the Congressional Review Act. SBA, however, is proceeding 
under the emergency provision at Executive Order 12866 Section 
6(a)(3)(D) based on the need to move expeditiously to mitigate the 
current economic conditions arising from the COVID-19 emergency. This 
rule's designation under Executive Order 13771 will be informed by 
public comment.
Executive Order 12988
    SBA has drafted this rule, to the extent practicable, in accordance 
with the standards set forth in section 3(a) and 3(b)(2) of Executive 
Order 12988, to minimize litigation, eliminate ambiguity, and reduce 
burden. The rule has no preemptive or retroactive effect.
Executive Order 13132
    SBA has determined that this rule will not have substantial direct 
effects on the States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various layers of government. Therefore, SBA 
has determined that this rule has no federalism implications warranting 
preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Chapter 35
    SBA has determined that this rule will not impose new or modify 
existing recordkeeping or reporting requirements under the Paperwork 
Reduction Act.
Regulatory Flexibility Act (RFA)
    The Regulatory Flexibility Act (RFA) generally requires that when 
an agency issues a proposed rule, or a final rule pursuant to section 
553(b) of the APA or another law, the agency must prepare a regulatory 
flexibility analysis that meets the requirements of the RFA and publish 
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically, 
the RFA normally requires agencies to describe the impact of a 
rulemaking on small entities by providing a regulatory impact analysis. 
Such analysis must address the consideration of regulatory options that 
would lessen the economic effect of the rule on small entities. The RFA 
defines a ``small entity'' as (1) a proprietary firm meeting the size 
standards of the Small Business Administration (SBA); (2) a nonprofit 
organization that is not dominant in its field; or (3) a small 
government jurisdiction with a population of less than 50,000. 5 U.S.C. 
601(3)-(6). Except for such small government jurisdictions, neither 
State nor local governments are ``small entities.'' Similarly, for 
purposes of the RFA, individual persons are not small entities. The 
requirement to conduct a regulatory impact analysis does not apply if 
the head of the agency ``certifies that the rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities.'' 5 U.S.C. 605(b). The agency must, however, publish 
the certification in the Federal Register at the time of publication of 
the rule, ``along with a statement providing the factual basis for such 
certification.'' If the agency head has not waived the requirements for 
a regulatory flexibility analysis in accordance with the RFA's waiver 
provision, and no other RFA exception applies, the agency must prepare 
the regulatory flexibility analysis and publish it in the Federal 
Register at the time of promulgation or, if the rule is promulgated in 
response to an emergency that makes timely compliance impracticable, 
within 180 days of publication of the final rule. 5 U.S.C. 604(a), 
608(b). Rules that are exempt from notice and comment are also exempt 
from the RFA requirements, including conducting a regulatory 
flexibility analysis, when among other things the agency for good cause 
finds that notice and public procedure are impracticable, unnecessary, 
or contrary

[[Page 27290]]

to the public interest. SBA Office of Advocacy guide: How to Comply 
with the Regulatory Flexibility Act, Ch.1. p.9. Accordingly, SBA is not 
required to conduct a regulatory flexibility analysis.

Jovita Carranza,
Administrator.
[FR Doc. 2020-09963 Filed 5-7-20; 8:45 am]
 BILLING CODE 8026-03-P