On June 5, 2020, President Trump signed into law the Paycheck Protection Flexibility Act. Providing a handful of modifications to the original PPP law, it makes it easier for businesses receiving PPP loans to qualify for loan forgiveness.
Covered Period for Forgiveness
The original act provided employers a “covered period” of 8 weeks from the date of the loan disbursement to apply toward forgiveness. This period has now been extended to the lessor of 24 weeks or Dec. 31, 2020. There will be a new loan forgiveness form provided by the SBA soon.
Loan Payback Deferral Period
Originally payments of principle and interest could be deferred for up to six months from the date of the loan. That period has been extended to the date the business receives the forgivable amount. For borrowers not seeking forgiveness, it is extended to 10 months beyond the end of the covered period.
Payroll Percentage Threshold
The amount of payroll expense required has been lowered from 75% to 60% of the forgiveness amount. Now, as much as 40% may be used for other permitted purposes (mortgage interest, rent, utilities).
As part of the CARES Act, borrowers were required to maintain the same level of employees and pay. Reductions resulted in a proportionate reduction in the forgiveness amount. The Flexibility Act provides that there will not be reduction in forgiveness where borrowers can document that either (i) It is unable to rehire individuals who were employees on February 15, 2020 and is unable to hire similarly qualified employees for unfilled positions by December 31, 2020 or (ii) it is unable to return to the same level of business that was conducted prior to February 15, 2020 as a result of guidance from the Secretary of Health and Human Services, the Director of the Center for Disease Control and Prevention or the Occupational Safety and Health Administration relating to COVID-19 safety. The period to cure reductions in headcount, salary and wages is extended from June 30, 2020 to December 31, 2020.
Restriction on Deferral of Payroll Taxes
The CARES Act allowed employers to defer payroll taxes but only if they did not receive a PPP loan. The Flexibility Act removed that restriction. Employer payroll taxes (OASDI) can now be deferred for payrolls between March 27, 2020 – December 31, 2020. Fifty percent of those taxes are due December 31, 2021 with the remaining fifty percent due December 31, 2022.
For businesses that do not receive forgiveness, the time with which to pay back the loan has been extended from two to five years. The interest rate remains at 1%.
Tracking Your Payroll Expense
ESS now has a new tool to help you track your PPP forgiveness amounts. The Covid-19 PPP Forgiveness Reports is can be found in PrismHR under HR Reports. You have the option to select to run the report for FTE Analysis or Payroll Cost Analysis by selecting from a drop-down menu and enter the covered period start date.