On February 16, 2022, the Small Business Administration (“SBA”) released additional information for Shuttered Venue Operators Grant (“SVOG”) recipients: SVOG Post-Award FAQs and SVOG Post-Application Guidance. This additional information clarifies the rules surrounding payments included in the Independent Contractors budget line item (6a) for SVOG recipients.
The SBA definesIndependent Contractorsin the February 16, 2022 Post-Award FAQs as an individual, sole proprietor, LLC, Partnership, Corporation, etc. that “provides services outside of an employer-employee relationship”. In addition, Independent Contractors “are responsible for the means and methods for completing a task based on specifications in a contract”. This definition implies that the payments for services performed, typically on a contract basis, to anyone or any entity not on the recipient’s payroll should be included within this budget category.
Clarification Regarding Funds in the Independent Contractor Category
In the updated Post-Award FAQs, the SBA clarified the cap is NOT on the aggregate annual payments made to an independent contractor. Instead, a cap ONLY exists on compensation paid directly to an employee of an independent contractor (rather than to the contracting entity itself). The cap on payments made directly to an employee of an independent contractor is limited to $100,000 annually.
The SBA’s guidance represents a literal reading of the original language of the statute passed by Congress, which states that such payments are “not to exceed a total of $100,000 in annual compensation for any individual employee of an independent contractor.”
This document and clarification is extremely important as it solidifies the position that there are no caps on payments to independent contractors for services performed. Payments to these contractors must be ordinary and necessary, and the amount must be reasonable. Grantees should consider both historical practices and industry standards to determine what amount would be deemed reasonable.
Payments to Artists
The new guidance also addresses payments for Artist Fees as an eligible grant expense.
If the artist is considered an independent contractor of the grantee, there is no annual cap for payments directly to the contractor. As stated above, a cap only exists for direct compensation paid directly to an individual employee of the artist.
Prepayments and deposits to secure artists for activities or performances commencing after the end of the project period are allowed, provided it is within the grantee’s necessary and ordinary business practices to make such payments. The SBA notes that such deposits for performances scheduled after the project period should not be the primary use of the grantee’s SVOG funds paid to artists. It should be used for artist fees for performances during the audit period first.