Updated June 11, 2020
Original Post- June 4, 2020
Please note: This update reflects recent guidance and clarity by the SBA and Treasury. Updates are identified by this text color.
In a unanimous voice vote, last night the Senate passed the H.R. 7010 – Paycheck Protection Program Flexibility Act of 2020. The vote needed to be unanimous because the Senate is not officially in session. The PPP Flexibility Act was signed into law by President Trump on June 5.
Following are key provisions of this legislation:
24 Week Period Replaces 8-Week Period
PPP borrowers now have 24 weeks to spend the funds on qualifying items. Those that received the loan before June 5 can elect to keep the original eight-week period. This will make it much easier for borrowers to get full forgiveness on their loans. Borrowers who have met the requirements for full forgiveness may want to go ahead and apply for loan forgiveness using the original eight-week period.
75% requirement for Payroll Costs Drops to 60%
Currently, at least 75% of the total costs eligible for forgiveness must be spent on payroll. This amendment reduces the payroll requirement to 60%. The SBA and Treasury have clarified that even if less than 60% of the funds are used on payroll costs, a portion of the loan is still forgivable, so long as at least some of the funds are used for payroll costs. Up to 40% of the loan can be used for permitted rent, utilities, and interest.
Period for Workforce Restoration Moved from June 30 to December 31
Under the CARES Act, the borrower had until June 30 to fully restore the workforce to pre-pandemic levels to be eligible for full forgiveness. Borrowers can use the 24-week period to restore their workforce while the rehire date is extended from June 30 to December 31, 2020.
As an example, assume a borrower had 50 employees before the virus and reduced the number of employees to 25 over the 24-week period. If the borrower spent the loan proceeds as required and restored the workforce to 50 employees by December 31, 2020, the borrower would be eligible for full forgiveness.
Exception for Attempts to Rehire
The legislation provides an exemption from a reduction in loan forgiveness for full-time equivalent employees (FTE) if during the period beginning on February 15, 2020, and ending December 31, 2020, the employer, in good faith, is able to document one of the following:
- The borrower could not find qualified employees to hire. To qualify for this exception, borrowers must establish an inability to rehire individuals who were employees on February 15, 2020, and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
- The borrower could not restore the business to a comparable level of activity because of social distancing or other federal health guidance. To qualify for this exception, the borrower must establish an inability to return to the same level of business activity that the business was operating at before February 15, 2020, due to compliance with federal requirements established related to maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
The time period to repay any loan amount that was not forgiven is extended from two years to five years. The interest rate remains at 1%. Originally, payments on any non-forgiven loan balance were due starting six months after the loan was received. Since the bank and SBA could take several months to approve and process the loan forgiveness, the Flexibility Act defers the first payment until six months after the date the SBA makes a determination on the loan’s forgiveness.
Payroll Tax Deferral
The Act allows businesses that took the PPP loan to also delay payment of the employer’s portion of social security payroll taxes (6.2%). This allows borrowers to defer the payment until December 31, 2021, when 50% of such taxes must be paid and the remaining 50% will be due on December 31, 2022.
As always, stay updated with JPS as we continue to monitor guidance and provide additional information as it becomes available.
To read other JPS COVID-related articles, click here.
Do you and your business need help navigating these changing times? Contact JPS.
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