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Payroll Protection Program Flexibility Act of 2020

On Wednesday, June 3, 2020, the Senate passed the Paycheck Protection Program Flexibility Act of 2020.  This Bill was previously passed by the House and it is on the President’s desk for signature.  This Act makes some significant, taxpayer friendly, changes to the CARES Act and the Payroll Protection Program (PPP).  We expect the President to sign the bill into law.

Forgiveness Calculation

Some of the most borrower friendly changes occurred within the calculation of the forgiveness amount.  The 8 week covered period has been extended to the earlier of: (1) 24 weeks after loan origination date or (2) December 31, 2020.  This allows for the loan proceeds to be spent over an extended period of time significantly benefiting those borrowers who are just starting to reopen or are not yet open.  However, if a borrower has spent its funds within the 8 weeks, an election can be made to allow for loan forgiveness using the 8 week period.

The PPP forgiveness calculation still includes a provision for reduced forgiveness if there is a reduction in salary or Full Time Equivalent (FTE) employees.  However, the new bill provides for additional exemptions from this calculation.  If any of the following conditions are met, the corresponding reduction is not taken into consideration in the forgiveness calculation.

  1. Rehire provisions:
    • The inability to rehire individuals who were employees on 2/15/2020, AND
    • The inability to rehire similarly qualified individuals for unfilled positions by 12/31/2020.
  2. Documented inability to return to the level of business activity on 2/15/2020 during the period of 3/1/2020 to 12/31/2020 due to compliance with guidance issued by HHS, CDC, or OSHA related to sanitation, social distancing, or worker/customer safety.

The Safe Harbor provision which allows for no reduction in forgiveness due to FTE or salary reduction was extended to December 31, 2020 from June 30, 2020.  If an employer is able to return their FTEs and salaries to the February 15, 2020 level by December 31, 2020, then the borrower will be exempt from the FTE or salary reduction provisions.

One last provision is taxpayer friendly.  At least 60% of total loan proceeds MUST be used for payroll, a beneficial change from the prior 75% test.  This test is a limit on the forgiveness amount, but is does not have a cliff effect.  For example, if you spent $54,000 on payroll costs during the covered period, the maximum amount you could have forgiven is $90,000 ($54,000/60%).

Loan terms

Any new loans under the PPP will have a minimum maturity for unforgiven amounts of 5 years.  Any loans already in existence are allowed, but not required, to have the maturity terms modified to conform.

Additionally, the loan deferral period has been modified from 6 months to the date that the amount of determined forgiveness is remitted to the lender.

Social Security and Medicare Deferral

PPP borrowers will be allowed to defer their employer portion of social security and medicare through the end of 2020, without regard to whether PPP forgiveness was granted.

Disclaimer: This post was current as of the date of posting.  Any changes made to the law or regulations since original posting has not been incorporated.  Please view the recent postings for current information or contact us directly with any questions.