Congress Passes PPP Flexibility Bill
We’re happy to share a long-awaited update on Paycheck Protection Program loan forgiveness. The good news is that Congress has passed a new bill that allows more flexibility for businesses that have received PPP loans. Below are the main highlights as well as a few questions that still remain. Once again, we expect additional clarifications and guidance to be forthcoming.
Things We Know
Extension of 8-week period to 24 weeks – Businesses will now have 24 weeks to use PPP funds, instead of the original 8 weeks. Since many businesses weren’t able to bring back their employees right away, this is welcome news.
Increase in allowable non-payroll expenses – The so-called 75/25 rule that required at least 75% of the forgiven amount to be for payroll costs has been changed to require only 60% of the loan to be used for payroll. This might not be as much of an issue since you now have 24 weeks to use the money.
Safe harbor for rehires extended to 12/31/2020 – Loan forgiveness can be reduced if a company doesn’t maintain their full-time equivalent headcount or if they reduce wages. Under the old rules, a company could bypass this requirement as long as they returned their FTE and wages to pre-disaster levels by June 30th. That date has been extended to the end of 2020 – giving businesses more time to get back to “normal”.
Good faith provision for inability to rehire – Let’s assume a company isn’t able to bring all of their employees back during the new 24-week period and can’t bring everyone back by the end of 2020 to qualify for the safe harbor. Under the new bill, a business could STILL qualify for full forgiveness if they can document that their inability to rehire is based on their compliance with required COVID-19 health restrictions. This means if your fitness studio or beauty salon isn’t able to fully re-open by the end of the year due to social distancing or sanitation standards, you can still get full loan forgiveness.
Repayment terms extended to 5 years – Under the original loan rules, a business had 2 years to pay back any loan amounts that weren’t forgiven. The new bill extends that to 5 years.
Payroll tax deferral allowed beyond forgiveness – Another part of the original CARES Act allowed businesses to defer the employer portion of Social Security taxes during 2020. But, a business that received forgiveness of a PPP loan was not able to take part in that deferral. That rule has now changed, allowing all businesses to push the payment of those payroll taxes into 2021 and 2022.
Things We Don’t Know
How does this affect the $100,000 per employee limit? The PPP funds could only be used to pay compensation at an annualized salary of $100,000. That meant any individual employee could get paid 8/52 of $100,000 (or $15,384.62). Now that the money can be used over 24 weeks, can an individual employee get 24/52 of $100,000 (or $46,153.85)?
Are you required to use 60% of the funds for payroll to qualify for any forgiveness? Under the original PPP rules, if a company received a loan of $100,000 and used $50,000 for payroll costs and $50,000 for non-payroll costs, the forgiven amount was limited to $66,666 (since payroll had to be 75% of the forgiveness). The new bill might be worded in such a way that a business doesn’t get ANY forgiveness unless they use 60% of the loan for payroll. That same company wouldn’t have anything forgiven since they only used 50% of the loan for payroll.
Is there any relief for businesses that tried to comply with the original rules? Some businesses who received the PPP loan weren’t ready to rehire their entire workforce – but made the decision to do just that to try to comply with the original rules of forgiveness. That money has already been spent – so an extension of the 8-week period does them little to no good. Will there be any relief granted to these businesses to make this right – possibly allowing these businesses to take advantage of the Employee Retention Credit in conjunction with the PPP?
Check out our COVID-19 resource page for more blog posts, videos and helpful information for businesses during the Coronavirus pandemic.