On June 5, 2020 President Trump signed into law the Paycheck Protection Program Flexibility Act (“PPFA”) which will significantly ease the path toward forgiveness on loans made under the Paycheck Protection Program (“PPP”). The bill passed both houses of Congress unanimously. Here are the highlights.

How Long Do You Have to Use All PPP Funds?

You now have 24 weeks to use all PPP Funds – UP from 8 Weeks.

You read that right — you now have 24 weeks from your funding date to spend the PPP money, or by the end of 2020, whichever comes first. Prior to this change, many small businesses were working with their accountants to strategically cram all the expenses they could into the original 8 week period rather than risk losing forgiveness on a portion of the loan. This new extended period practically guarantees forgiveness. The loan amounts, you’ll recall, are based on 2.5 months of payroll expenses. Now, qualified use of the funds includes 6 months of payroll, rent, mortgage payments, interest and utilities. 

How Much of PPP Funding Is Required to Be Used for Payroll? 

Amount of PPP Loan Use for Payroll is now 60%, down from 75%.

The original PPP rules required borrowers to spend at least 75% of the funds on payroll, thereby making only 25% of the funds available for other qualifying expenses. The PPPFA changes this requirement to 60%, which makes 40% of the funds available for borrowers to use towards rent, utilities, mortgage payments and interest. The new law does not expand on the types of expenses that qualify for forgiveness.

When Is the Deadline to Re-Hire Workers Under PPFA?

Deadline to Re-Hire Workers Pushed Back to December 31, 2020

Many small businesses were concerned that the original deadline to rehire workers by June 30, 2020 to have their salaries count towards forgiveness was not feasible. Businesses may not be open or operating at full capacity by that date. Owners argued that this forced them to continue paying workers to stay home and not work, essentially becoming a de facto unemployment office, rather than risk losing forgiveness. This change addresses and relieves that concern. All salaries paid to workers by the end of 2020 will be included in the forgiveness determination. 

Important to note that this change does not alter the limitation on employees, owners or contractors earning over $100K annually. These workers are still capped at $15,385 of compensation counting towards forgiveness. 

Easing Up on PPP Rehire Requirements

The PPP sought to provide continuity of pay for workers. Therefore, the requirement that borrowers keep the same number of employees (or rather Full-Time Equivalents or FTEs) as a condition for forgiveness made sense. The only exception available in the PPP law provided for a reduction in headcount for employees who rejected the borrower’s offer to re-employ in writing. 

The PPPFA provides for several new exceptions. A borrower with reduced headcount can now receive forgiveness if all of the following apply:

  • Is unable to rehire an individual who was an employee on or before February 15, 2020;
  • Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or 
  • Is able to demonstrate an inability to return to the same level of business operations prior to February 15, 2020.

Guidance on those last 2 bullet points will almost certainly be forthcoming. For now, it is very important that employers who are experiencing reduced headcounts to document meticulously their efforts to rehire through the end of 2020. 

PPP Funds Are Still Available!

If you have not applied for a PPP loan for your business, schedule a free consult with one of our CPAs today. We’ll help you get the PPP funding you need.

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