Payroll Protection Flexibility Act
June 4, 2020 at 3:00 pm |
Last evening the Senate passed House Resolution 7010, known as the Payroll Protection Flexibility Act (the Act). The President is soon expected to sign the Act into law. The Act makes important changes to the Payroll Protection Program (PPP) that we believe will be beneficial and impactful to you.
Please note that, as always, the Small Business Administration (SBA) has broad authority to interpret and implement the Act. Therefore, it is highly probable that additional information, clarifications, and interpretations will be forthcoming. Following are the key provisions in the Act:
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- The Covered Period (the time in which you must spend the PPP money) is increased from 8 weeks to 24 weeks. This provides much more time to spend the funds and increases the likelihood of full forgiveness of your PPP loan. Importantly, you have the option to elect to stay with the original 8-week covered period if you would choose to do so. This may be a good option for you if you are confident that you qualify to receive 100% forgiveness of your loan at the end of the original 8-week period and you want to get the process for forgiveness started sooner rather than later.
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- The requirement to spend 75% of your PPP loan proceeds on payroll costs is reduced to 60%, allowing 40% of your loan to be spent on other allowable costs (mortgage interest, utilities, and rent).
- Note: The Act states that to receive loan forgiveness “an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs.” The SBA has indicated that it interprets this language to mean that if you only spend 59.9% on payroll costs, then you receive ZERO This is different than the original calculations that would have allowed for proportional forgiveness based on what was spent. Given the longer covered period noted above, we expect most businesses will be able to meet the 60% requirement, though certain industries may still find it difficult.
- The requirement to spend 75% of your PPP loan proceeds on payroll costs is reduced to 60%, allowing 40% of your loan to be spent on other allowable costs (mortgage interest, utilities, and rent).
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- The June 30 deadline to rehire workers to “cure” shortfalls in full-time equivalent (FTE) calculations has been extended to December 31.
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- Additional relief from the FTE reduction calculation is provided if a business is not able to return to the same level of business activity it was at on 2/15/20 because of compliance with guidance from the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration.
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- The deferral period of principal and interest which was previously 6 months was changed to be the earlier of (1) the date on which loan forgiveness is determined with the lender, or (2) approximately one year from the date the PPP loan was received.
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- The repayment term for unforgiven PPP loan principal was extended from 2 years to 5 years for new PPP loans issued after this legislation is put into law and can be extended to 5 years for existing PPP loans if the Lender and Borrower can agree to that.
One other provision in the Act that businesses may find advantageous is that PPP loan recipients are now able to defer deposits of the employer portion of social security tax (not Medicare or other taxes) for the remainder of 2020. Half of what is deferred in 2020 must be deposited on or before December 31, 2021, and the other half by December 31, 2022. This results in a de facto interest-free loan for that period of time and can be significant in size depending on the company’s payroll.
For additional information on tax deposit deferrals, we encourage you to review this FAQ:
The SBA will certainly issue more guidance and interpretations (on their own timetable!) that will further clarify the above provisions of the Act. Also, the President has not yet signed this bill, so it is not yet law, and the provisions in it should not be acted upon until it is signed.
We remain committed to helping you through the challenges of our current environment by providing timely information and advice when it matters most. Please do not hesitate to reach out to your Simon Lever service representative with any questions.
