Paycheck Protection Program Flexibility Act

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 weeks) 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.)

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.

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 (the 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.

• Some of the open questions:Will the payroll expense employee cap remain at $15,385 or will it will be increased due to the 24-week period expansion?
• Will the FTE and Wage levels now be measured over the 24-week period instead of the 8-week period?
• Will the FTE and Wage level calculations change?
• Must a borrower wait until December 31st to determine its FTE count and wage limits or can they stick to the June 30 deadline?

In conclusion, the new bill addresses many of the challenges small businesses were facing for forgiveness eligibility, however many open questions remain. SBA, in consultation with the Treasury, will update the PPP Forgiveness application to reflect the new changes. Further guidance is expected for clarification on the many unclear aspects of the bill.

CHS Payroll LLC Loan forgiveness tools:

CHS Payroll LLC 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.

Coming soon: PPP - FTE Headcount Test Report: this report will assist 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.

Coming soon: PPP - Wage Level Test Report: this report will assist 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.

Sincerely,