Falsifying Employee Numbers on PPP Applications: Defense Options

Thanks for visiting Federal Lawyers – a second-generation law firm managed by our lead attorney, with over 40 years of combined experience defending federal fraud cases. If you’re accused of lying about employee numbers on your PPP application, you’re facing serious federal charges. False statements to obtain a federally-backed loan can result in wire fraud charges carrying 20 years in prison, bank fraud charges carrying 30 years, and false statements charges carrying 5 years.

We defend PPP fraud cases involving employee count allegations. Our team includes former federal prosecutors who understand how these cases get built and where the weaknesses are. Employee count fraud is one of the most common PPP allegations, but it’s also one of the most defensible. The question is: did you intentionally lie, or did you make an honest mistake about who counted as an employee?

Why Employee Numbers Mattered for PPP Loans

Your PPP loan amount was calculated based on your average monthly payroll costs multiplied by 2.5. More employees and higher payroll meant a bigger loan. This created incentive to inflate employee counts.

The PPP application asked for the number of employees. Different versions asked it differently – some asked for average employees, some asked for employees as of a specific date, some asked for full-time equivalents. That confusion created legitimate misunderstandings.

Your loan amount was also based on payroll documentation – IRS forms 941 showing payroll taxes, or Schedule C showing net profit for sole proprietors. If your employee count didn’t match your payroll documentation, that’s a red flag. Prosecutors look for mismatches: you claimed 20 employees, but your 941 forms show payroll taxes for 8 employees.

The SBA and DOJ are now comparing PPP applications to tax records and payroll data systematically. Algorithms flag discrepancies. If your employee count is significantly higher than what your tax records support, your loan gets referred for investigation.

What Counts as Falsifying Employee Numbers

Claiming employees who don’t exist is clear fraud. You put “25 employees” on your application when your business had 3 employees. Or you had no employees at all – you’re a sole proprietor – but claimed 10 employees to increase your loan amount. That’s intentional fraud.

Counting family members who don’t actually work for the business is fraud. Your spouse, children, or relatives are on payroll for tax purposes but don’t do any work. You counted them as employees on your PPP application. Prosecutors will interview those people, check if they actually worked, review their work product. If they didn’t really work, you falsified your employee count.

DEFENSE TEAM SPOTLIGHT

Todd Spodek

Lead Attorney & Founder

Featured on Netflix's "Inventing Anna," Todd Spodek brings decades of high-stakes criminal defense experience. His aggressive approach has secured dismissals and acquittals in cases others deemed unwinnable.

NY Bar Admitted Multi-State Licensed Federal Courts

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Including independent contractors in your employee count is a gray area. Some business owners counted 1099 contractors as employees. That’s generally wrong – contractors aren’t employees for PPP purposes. But the guidance was confusing, especially early on. Whether counting contractors is fraud depends on whether you had a good faith belief they counted.

Legal Scenario: What Would You Do?

Scenario

You submitted a PPP loan application during COVID and now realize some employee count numbers may have been inaccurate.

Could this be considered fraud?

Attorney's Answer

Inaccuracies in PPP applications can trigger federal fraud charges carrying up to 20 years in prison. However, honest mistakes differ from intentional misrepresentation. Documentation of your good-faith efforts is critical to your defense.

This is general information only. Contact us for advice specific to your situation.

Inflating full-time equivalents creates problems. The application asked for FTE – full-time equivalent employees. If you had 5 full-time employees and 6 part-time employees each working 20 hours per week, your FTE was probably 8 or 9 (depending on how you calculated it). If you put 11, you inflated the number. Whether that’s fraud or honest miscalculation depends on the specifics.

The Timing Question