The U.S. House of Representatives and the Senate passed the Paycheck Protection Program Flexibility Act (H.R. 7010), and the President recently signed it into law. The Flexibility Act is intended to liberalize aspects of the Paycheck Protection Program, as well as certain employment tax provisions, enacted as part of the CARES Act.
Read on for highlights from the Flexibility Act.
Forgiveness period extension. Current PPP borrowers may keep the original eight-week period of forgiveness or choose to extend it to 24 weeks. New PPP borrowers will have a 24-week covered period to meet the forgiveness requirements, with December 31, 2020, as the final deadline. This extension is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
Payroll expenditure requirement reduction. Currently, a borrower’s loan forgiveness eligibility is reduced if less than 75% of eligible funds are used for payroll costs. Still, forgiveness isn’t entirely eliminated if that threshold isn’t met. New legislation drops the payroll expenditure requirement from 75% to 60%. However, if a borrower spends less than 60% on payroll, none of the loan will be forgiven. With the forgiveness period extension, it is thought that achieving the 60% threshold will be reasonable for most ongoing businesses.
Time frame to restore workforce and wages extended. Borrowers will have 24 weeks to restore their workforce and wages to the pre-pandemic levels that are required for full forgiveness. The previous deadline of June 30, 2020, has been extended to December 31, 2020.
Exceptions for loan forgiveness without full workforce restoration. The new legislation includes two exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance allowed borrowers to exclude from their calculations employees who turned down good-faith offers to be rehired at the same hours and wages as before the pandemic. The new legislation allows borrowers an adjustment if they couldn’t find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating restrictions including orders not to reopen or limitations placed on reopening due to CDC guidelines or other state or local orders.
Loan repayment extension. New borrowers will have five years to repay their loans instead of two. Existing PPP loans can be extended for up to five years if the lender and borrower agree. The interest rate remains at 1%.
Delay payroll taxes. The new legislation allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act. Under the initial Act, if you took a PPP loan, you could not defer your payroll taxes. Now you can do both.
The new legislation gives businesses the ability to determine their right to forgiveness and the flexibility to receive forgiveness for their PPP loans. The forgiveness period will extend to December 31, 2020, allowing most businesses to continue to make payroll while ensuring rent payments continue moving forward. This gives most businesses the ability to receive complete forgiveness for their loans.
We will continue to provide updates as we learn more.