Congress agreed late Wednesday night to relax the restrictions on certain Paycheck Protection Program requirements in its Paycheck Protection Program Flexibility Act of 2020. (“Flexibility Act”). The Act is expected to be signed by the President on Friday.
The Flexibility Act introduces the following changes to the PPP:
Repayment period extended. PPP loans that are not forgiven are to be given a repayment period of at least five years after the deferment period, instead of the two year period earlier set by the SBA. Importantly, this provision applies only to loans made and disbursed after the date of this amendment, but it allows lenders to amend the loans they have already made, if they and the borrower mutually agree to do so.
Covered Period extended. The “Covered Period,” that is, the period during which proceeds must be spent to be eligible for forgiveness, is extended. The deadline by which a borrower must expend the proceeds and hire back workers or true up salaries is now either 24 weeks after the loan was disbursed, or December 31, 2020, whichever is earlier. The end of the period was June 30 under the original version of the Act.
Borrowers who received their loans before the passage of the Flexibility Act can still elect to have the covered period end after 8 weeks so that they can proceed with the forgiveness process.
Relief when employees elect not to return. The amendment also provides relief for employers whose employees elect not to return before the end of the employee rehire period. If the employer was unable to rehire workers who were furloughed or laid off after February 15, 2020, either because the employee refused to return or for another reason, and if the employer was unable find similarly qualified employees to take their place before December 31, 2020, then those employee reductions will not reduce their forgiveness amounts. The circumstances must be thoroughly documented, however, to support this claim for relief.
Relief if safety requirements prohibit a full workforce. Employers also get a break from forgiveness loss due to workforce reductions if they can document the inability to return to work to the same level of business activity because of social distancing, sanitation or other worker safety requirements, as long as those requirements are in keeping with guidance issued by the CDC, OSHA or the U.S. Department of Health and Human Services.
Only 60% of loan proceeds must be spent on payroll costs. Borrowers can use more of the loan proceeds for expenditures other than payroll costs. Where the SBA required that 75% of the loan expenditures be for payroll costs, the Flexibility Act allows that 40% may be spent on other eligible costs and only 60% of the proceeds have to be used for payroll costs if a borrower wishes to seek forgiveness. See our March 26 Bulletin for a description of the costs that qualify as payroll costs; remember that they are greater than just wages, salaries and other cash compensation.
Payment period has changed for loans not forgiven. The deferral of the payment period has changed as well. Where payment of loan proceeds remaining after forgiveness amounts were calculated were deferred for at least six months to a year, now payments are deferred until after the forgiveness calculation is determined and communicated to the lender, which would suggest that this period would be longer than 6 to 12 months. To qualify for this deferment however, a borrower must apply for forgiveness within 10 months of the last day of the Covered Period. If they fail to do so, their payments must commence immediately following that 10 month period.
Payroll tax payment deferral restored to borrowers whose loans are forgiven. Finally, where the Act originally denied the deferral of payroll taxes for any borrower who had their PPP loan forgiven, this restriction has been removed. PPP loan recipients whose loans are forgiven can benefit from the employer payroll tax delay provisions.
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FOR MORE INFORMATION
For more information about the Paycheck Protection Program, please contact your attorney at Gravel & Shea PC or Cassandra LaRae-Perez at firstname.lastname@example.org