Paycheck Protection Program Flexibility Act Eases PPP Loans Restrictions
Author: Rena Pirsos, XpertHR Legal Editor
June 5, 2020
On Friday, June 5, 2020, President Donald Trump signed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) into law. The PPPFA modifies provisions related to the forgiveness of loans made to small employers under the PPP, which was implemented by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The law's provisions are effective immediately and apply as if they had been included in the CARES Act.
The PPPFA does all of the following:
- Extends the covered period during which a loan recipient may spend loan proceeds for covered expenses while remaining eligible for forgiveness from eight weeks to 24 weeks after the date of loan disbursement, or December 31, 2020, whichever is earlier. Employers that received loans before June 4, 2020, can choose either period within which to use loan proceeds. The deadline to apply for a loan remains June 30, 2020.
- Decreases from 75% to at least 60% the percentage of PPP loan proceeds that must be spent to cover eligible payroll and benefit costs during the forgiveness covered period in order to have 100% of the loan forgiven. If a borrower uses less than 60% for payroll costs, it will continue to be eligible for partial loan forgiveness. This will allow employers to spend more on other, nonpayroll expenses such as mortgage interest, utilities and rent.
- Increases the non-payroll portion of a forgivable covered loan amount from 25% to 40%.
- Extends the date by which an employer may rehire employees or eliminate a drop in employment, salary or wages without suffering a reduction in the loan forgiveness amount from June 30, 2020, to December 31, 2020.
- Clarifies that an employer's loan forgiveness amount will not be reduced if it is unable to restore the number of full-time equivalent employees by December 31, 2020, if it can document in good faith that:
- Written offers made to rehire employees, at the same salary and hourly levels at which they were employed on February 15, 2020, were rejected;
- Open positions could not be filled with similarly qualified employees; or
- It could not restore its employee count to February 15, 2020, levels due to COVID-19-related government agency restrictions (e.g., regarding social distancing, health or safety requirements) in effect between March 1, 2020, and December 31, 2020.
- Extends the period within which loan recipients can defer PPP loan principal, interest and fee payments on any unforgiven portion of a loan from six months to the date that the Small Business Administration (SBA) remits the borrower's loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower's loan forgiveness covered period).
- Eliminates the CARES Act provision that prevented employers whose loans are forgiven in full or in part from deferring payment of the employer share of Social Security tax.
- Extends from two years to five years the time within which to repay any PPP loans approved by the SBA (based on the date the SBA assigns a loan number).
Additional changes to the PPP and the SBA's loan forgiveness application form and May 22, 2020, interim final rules are expected.