June 8, 2020
On Friday, June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (“Act”). The Act provides much-needed clarifications concerning the Paycheck Protection Program (“PPP”), and provides flexibility to PPP loan recipients. Below is a brief overview of how the relevant provisions of the Act affect the PPP.
Forgiveness Period for Borrowers Expands from Eight Weeks to Twenty-Four Weeks
Prior to the passage of the Act, forgiveness was only available for eligible expenditures made in an eight-week period after the loan was disbursed to the borrower (the “Covered Period”). The Act has expanded the options for the Covered Period that PPP borrowers may use when calculating loan forgiveness. Instead of only having eight weeks, borrowers may now choose their Covered Period to be the earlier of twenty-four weeks from the date they received their loan or December 31, 2020. This extension of the Covered Period for PPP borrowers who have already received funding does not change the application deadline of June 30, 2020 for prospective PPP borrowers who may be interested in applying for a loan under the program.
Only Sixty Percent (60%) of PPP Loan Proceeds Need to be on Payroll Costs
The PPP originally stated that PPP loan recipients needed to use 75% of their proceeds on eligible payroll costs in order to qualify for full forgiveness of their loan. The Act has reduced that threshold for payroll costs to 60%, which allows PPP borrowers to now use up to 40% of their loan proceeds on non-payroll costs. Please note that if a borrower’s payroll costs are less than 60% of the borrower’s total loan proceeds, none of the loan will qualify for forgiveness.
Loan Maturity Date and Deferment Date Extended
Borrowers who do not qualify for forgiveness of their loan will now have a minimum of five years to repay their loan instead of two. The Act also extends the deferment date of principal and interest payments from six months to the date the borrower’s loan forgiveness amount is determined by the borrower’s lender. Borrowers who decide to either not apply for forgiveness or fail to apply within ten months from the end of their covered period (i.e. the twenty-four-week period or December 31, 2020) will have their principal and interest payments start ten months after the end of their Covered Period.
Extension on Period for Borrowers to Restore Employee & Salary Levels
PPP borrowers now have until December 31, 2020 to restore their FTE count and certain salaries to levels the borrowers had before the start of the pandemic. This is a six-month extension from the original deadline of June 30, 2020 to qualify for forgiveness. The Act also provides some flexibility for the following situations:
- An inability to rehire individuals who were employees of the eligible recipient on February 15, 2020.
- An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
- Documentation of 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 Director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration 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.
Two-Year Employer Payroll Tax Deferrals
PPP borrowers were not permitted to defer their employer payroll portion of certain payroll taxes prior to the enactment of the Act. With the Act’s passage, PPP borrowers are able to take advantage of delaying employer payroll taxes even when they apply for forgiveness. While the IRS previously stated that PPP borrowers could only defer these taxes up to a borrower’s forgiveness date, borrowers now can defer through December 31, 2020, and pay 50% of the deferred balance on December 31, 2021 and the remaining 50% on December 31, 2022.
Walter | Haverfield is monitoring the guidance concerning this program closely and is prepared to assist businesses navigate these important, yet complex issues. If you have additional questions, please reach out to us here. We are happy to help.