Paycheck Protection Program - Flexibility Act
Important information, documents, and resources for PPP Loans of The Coronavirus Aid, Relief, and Economic Security (CARES) Act
Paycheck Protection Program - Flexibility Act
This information is constantly changing and is up to date as of June 22, 2020. Please check back regularly for updated information
On Friday, June 5th, the President signed into law the Paycheck Protection Program Flexibility Act (PPPFA). The act, among other things, expands the loan spending period and other forgiveness qualifications. For a review of the original forgiveness rules, visit our PPP Forgiveness webpage.
Following are some of the noteworthy points in the current bill:
Covered (8 week) period extended to 24 weeks:
Originally, the forgiveness period (AKA 'covered period') has been 8-weeks from the day the first loan disbursement was received. According to the new law, borrowers can choose to use a 24-week period (that ends no later than December 31, 2020). (New loans will automatically use the 24-week period.)
Employee maximum Payroll cost increased:
The maximum ‘payroll cost’ allowed per employee, over the covered period (of 24 weeks) is now $46,154. This follows the $100,000 annual cap per employee ($100,000 / 52 * 24). Borrowers opting to use the 8-week covered period, will remain at the $15,385 maximum ($100,000 / 52 * 8).
Payroll costs for owners raised:
The maximum payroll cost for owner-employees, will remain $15,385 for borrowers who opt for the 8-week covered period (but not to exceed 8-weeks’ worth of pay in 2019). For borrowers using the 24-week covered period, the maximum pay for owners is $20,833 (which is 2.5-month equivalence of $100,000 per year). However, it may not exceed 2.5 months’ worth of 2019 pay (20.83% of 2019 pay).
Percentage of Payroll and Other costs are now 60% payroll and 40% other:
Originally, forgiveness amounts were to be decreased if more than 25% of costs were for 'other costs' (non-payroll costs). That means that you would be forgiven for your payroll expense plus another 25% for other costs. Under the new law, only 60% must be used for payroll and 40% can be used for other costs. The Treasury and SBA departments have clarified that partial forgiveness will be granted even if less than 60% has been spent on Payroll.
Headcount and Wage level restoration extended to December 31st:
Originally, forgiveness amounts were not to be decreased due to FTE headcount and wage level decreases if restored by June 30th to what they were on February 15th. Under the new law, the date for restoration is extended to December 31st. In addition, FTE headcount reductions for the following reasons will not affect forgiveness:
1. Borrower could not find qualified employees to replace those who left
2. Borrower is unable to restore business operations to February 15, 2020 levels, due to COVID-19 related restrictions. This is in addition to previous guidance which allowed FTE headcount reductions for employees who rejected a re-hire offer and employees fired for good cause.
3. borrowers was unable to restore their FTE Headcount due to government restrictions related to Covid-19 (such as compliance established by the Secretary of HHS, the director of CDC, or the Occupational safety and health administrator).
Payroll Tax (employer social security) Deferral (PTD) allowed for companies whose loan has been forgiven:
Originally, a company whose PPP loan was forgiven must stop deferring their social security taxes. Under the new law, a company may continue to take advantage of the payroll tax deferral even after their PPP loan is forgiven. Deferring social security taxes refers to the allowance to defer employer portion of social security taxes with 50% of the taxes due on Dec 31, 2021 and the remaining 50% due on Dec 31, 2022. See more about PTD in our article on the CARES Act here.
Loan maturity extended to 5 years and payment deferral period extended to 10 months:
Originally, the loan maturity date was two years from when the loan was granted. Under the new law, the maturity date for new loans is extended to five years. Existing loans may also be extended to five years if the borrower and lender mutually agree. In addition, the loan payment deferment period (period for which the principal and 1% interest payments can be deferred) was changed from being '6 months from the loan date' to 'the date that SBA remits the borrower's loan forgiveness amount to the lender', meaning from when loan forgiveness is approved. However, if a borrower does not apply for forgiveness within 10 months after the last day of the covered period, payments will be required.
SBA released two new PPP Loan Forgiveness Application forms:
Revised Loan Forgiveness Application. The revised form reflects the changes enacted in the PPP Flexibility Act.
The newly released EZ Application is a simplified version of the Loan Forgiveness Application requiring less calculations and documentation. Borrowers who meet one of the following criteria may use the EZ Application form:
Criteria 1: Had no employees at the time they applied for the PPP loan (and did not include any employees’ pay when calculating the 2.5 average monthly payroll in the PPP loan application).
Criteria 2: Did not decrease any employees’ (hourly or salary) wage levels by more than 25% compared to the lookback (1/1/2020 to 3/31/2020) and did not reduce their FTE Headcount between 1/1/2020 and the end of the ‘covered period’ (24-week or 8-week). ‘Employees’ for this purpose only refers to employees who earned less than $100,000 in 2019.
You can ignore reductions in FTE headcount that arose due to not finding qualified replacements or rejected re-hire offers.
Criteria 3: Experienced a reduction in FTE headcount due to a decline in business activity related to Covid-19 government regulations and Did not decrease any employees’ (hourly or salary) wage levels by more than 25% compared to the lookback (1/1/2020 to 3/31/2020).
CHS Payroll Loan forgiveness tools:
CHS Payroll is continuously looking for ways to help you maximize your loan forgiveness. Look out for the following PPP Forgiveness Tools included in your payroll reports package.
PPP - Payroll Expense Report: this report assists companies who want to see their qualified payroll expense on a payroll by payroll basis in order to better predict their total forgiveness amount. It also assists in maximizing loan forgiveness being that a percentage (60% as per the PPPFA Act) of total forgiveness funds must be used for payroll expenses.
PPP - FTE Headcount Test Report: this report assists companies who would like to monitor their FTE count on a payroll by payroll basis to see if they can adjust work schedules and thereby avoid a reduction on forgiveness due to decrease FTE count.
PPP - Wage Level Test Report: this report assists companies who would like to monitor their wage levels on a payroll by payroll basis to see if they can adjust wage levels and thereby avoid a reduction on forgiveness due to more than 25% decrease in wages.
Stay tuned as we continue to explore the PPP forgiveness world and bring you the selected information and tools you need to ease your burden during these trying times.
Please note, further guidance on the various PPP loan forgiveness rules are expected. The above reflects our understanding of the guidance currently available. New guidance may cause changes to the rules and advice herein. None of this information should be construed as legal guidance. Any information provided herein, as well as information provided in our PPP forgiveness tools or reports, should not be relied on for forgiveness preparation and final forgiveness determination. Please consult your lender, CPA or financial advisor for your specific situation.
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