This week, Congress passed the Paycheck Program Flexibility Act into law, which amends provisions of the Paycheck Protection Program (PPP) creating more flexibility for businesses. Note: President Trump still needs to sign this Act for it to become law, which is expected to happen soon.
As a reminder, the purpose of the PPP is to provide fully federally funded loans to small businesses as an incentive for small businesses to keep their employees on the payroll instead of layoffs, reducing employees’ hours, reduction in workforce, or any similar action.
The Paycheck Program Flexibility Act will amend the following areas of the PPP:
Payroll Threshold for Forgiveness
Prior to Flexibility Act amendments, employers who received the PPP loan were required to spend at least 75 percent of the loan proceeds on payroll costs and no more than 25 percent on allowable non-payroll expenses to qualify for full loan forgiveness. If this Act becomes law, employers will need to spend at least 60 percent of the loan proceeds on payroll costs and the non-payroll portion of a forgivable covered loan amount has raised to 40 percent. However, there is a catch. If you use more than 40% on non-payroll related none of the loan will be forgiven. There is suggestion that this was an oversight and will be amended.
Deadline to Apply Funds
The Flexibility Act will extend the deadline for employers to apply PPP loan funds from June 30, 2020 to December 31, 2020. Note: The deadline to apply for a Paycheck Protection Program Loan remains June 30, 2020.
Timeline for Loan Fund Spending
The timeline for when employers must spend their PPP loans in order to be forgiven will be extended from an 8‑week period to a 24-week period or until the end of the year (whichever comes first). Borrowers can choose to extend to a 24-week period or stick with their original 8-week period.
Restoring Employee FTE
Employers who received a PPP loan will have until December 31, 2020 to restore their employee FTE without incurring a reduction in loan forgiveness. December 31, 2020 is a change from the previous deadline of June 30, 2020.
Exemption Based on Employee Availability
Prior to the introduction of this Act, employers were already allowed to exclude from loan forgiveness calculations employees who turned down good faith offers to be rehired at the same hours and wages as before COVID-19. The Flexibility Act will provide two new exceptions allowing employers with PPP loans to reach full loan forgiveness even if they do not fully restore their workforce.
Specifically, employers may qualify for full PPP loan forgiveness if they document in good faith the inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; OR employers are able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the CDC, or OSHA during the period beginning on March 1, 2020 and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
Loan Maturity
Employers with new PPP loans will have as long as five years, instead of two years, to repay any money owed. Existing PPP loans will remain at a 2-year maturity. The loan interest rate remains at 1 percent.
Payroll Tax Deferral
The Flexibility Act will allow employers who have PPP loans forgiven to also receive payroll tax deferment.
Please don’t hesitate to reach out if you have any questions. Our team is prepared to answer your questions.