By: Bob Goldberg, RSPA General Counsel
On June 5, 2020, the President signed into law the Paycheck Protection Program Flexibility Act (PPPFA). The act is intended to provide additional flexibility on the use of Paycheck Protection Program (PPP) funds in order to maximize forgiveness and to make some additional limited changes to the CARES Act (under which the PPP was initially enacted).
This is intended as a general summary of the changes to the PPP made by the PPPFA. As there are several items that need clarification, it is expected the Small Business Administration will issue further guidance and revise its existing guidance on the implementation of these changes.
- A 24-week covered period for use of funds with option to keep the eight-week period has been added. Borrowers that have received PPP funds will have the option to use a 24-week covered period or keep the covered period at the original eight-week period previously set forth under the PPP.
- The 75%/25% requirement is now 60%/40%. The PPPFA has eliminated the SBA rule that no more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs. In its place, the PPPFA provides that in order to receive loan forgiveness, at least 60 percent of the loan amount must be used on payroll costs and no more than 40 percent may be attributable to non-payroll costs. Note that despite this change, the requirement to maintain an average monthly Full Time Employee (FTE) count and annual average salary or hourly wage employees at no less than 75 percent of the base salary or hourly wage received by that employee during the period of January 1, 2020 to March 31, 2020 remains in place.
- June 30 FTE Safe Harbor extended to December 31.
- New Safe Harbor for inability to rehire or restore FTE due to Regulatory and Guidance Compliance. The PPPFA provides for an additional FTE Reduction Safe Harbor whereby any reduction in forgiveness based on a reduction in FTE will be disregarded in the event a borrower is able to document that:
- It was unable to rehire individuals who were employees on February 15, 2020 and unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or
- It was unable to document its ability to return to the same level of business activity as it was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020 and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
- Loan repayment period provides a minimum of five years on new loans. The PPP guidance issued by the SBA provided that the period to repay loans would be two years. The PPPFA adds a minimum repayment period of five years (and retains the maximum of 10 years) for those loans that are issued after the date of the PPPFA. Existing PPP loans may extend the maturity date up to 10 years if the lender and the borrower agree. In addition, the first payment would be deferred until such time that the forgiveness is granted by the SBA and remitted to the borrower’s lender.
- Payroll tax deferral is possible regardless of whether or not forgiveness is granted. Borrowers will have the ability to defer their share of payroll taxes for 2020.
Rules and Guidelines continue to change on a regular basis. These changes are more generous, although further guidance is necessary. Continue to monitor all developments.
Of course, if you have further questions, the RSPA Legal Hotline is available to members.