More flexibility on PPP loans announced

Written by
Katie O'Koren

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On June 5th, 2020, the Paycheck Flexibility Act was signed, allowing borrowers more flexibility on how and when PPP loan funds can and cannot be used while retaining the possibility of full loan forgiveness. While even further clarification on these changes was provided this week, the most recent updates (as of 6/5/20) to the regulations are listed below next to the original provisions. Additional updates as of 6/17/20  are summarized below as well. We think this is good news for small businesses!

Original PPP Loan

Update to PPP Loan as of 6/5/2020

Expense Allocation

A minimum of 75% of the loan must be used for payroll-related costs. 25% of the loan can be used for mortgage, rent, and utilities.

A minimum of 60% of the loan must be used for payroll-related costs. 40% of the loan can be used for other eligible expenses like mortgage, rent, and utilities.

Time period in which to use the loan

8 weeks from when the money was received.

Time period can either be 8 weeks from when money was received if the loan was dispersed on or before 6/5/20 or if after 6/5/20, it can be extended to 24 weeks from when the money received or by 12/31/20, whichever is sooner. However, the money cannot be used beyond Dec 31, 2020.

FTE Count Restored

FTE count restored to February 15th, 2020 FTE levels by June 30, 2020.

If choosing a 24-week covered period, FTE must be restored to February 15th, 2020 FTE count by December 31, 2020. If choosing the original 8 weeks covered period, FTE count must be restored to February 15th FTE count by June 30, 2020. Decreases in FTE’s after 6/30/20 would likely not reduce forgiveness in those cases. See the ‘safe harbor’ update below.

Rehiring or recalling Staff

Staff must be rehired or recalled to avoid a reduction in the loan forgiveness amount.

If you are unable to re-staff because COVID-19 workplace safety requirements prevent rehiring, your loan will not be reduced. If you are unable to rehire the same employee and you were unable to find a replacement for that position, you will not see a reduction in loan forgiveness. See the safe harbor application date modification below.

Maturity Date of unforgiven part of the loan

2 years after the loan was received.

5 years after the loan was received.

Deferral period on paying back unforgiven piece of loan

6 months from when the loan was received.

10 months after the coverage period ends.

Deferral of Employer Portion of Social Security

Employers can defer their portion of Social Security Tax until the loan is forgiven. Once the loan is forgiven, employers must begin paying their portion of Social Security again.

Employers can defer their portion of Social Security taxes, regardless of whether the loan is forgiven or not. 50% of the deferred amount is due by December 31, 2021, and the remainder is due by December 31, 2022.

On June 17th, the Small Business Administration (SBA) announced the following additional updates:

  • A new EZ application for forgiveness of PPP loans will become available for certain borrowers. The application requires fewer calculations and less documentation than the full application. The EZ application can be used by borrowers who:
    • Are self-employed and have no employees;
    • Did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees; or
    • Experienced reductions in business activity as a result of health protocol requirements related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.
  • Health insurance costs for S corporation owners cannot be included when calculating payroll costs for loan forgiveness but retirement costs can be.
  • There is a new safe harbor provision for businesses impacted by the safety protocols required to operate. In these cases, borrowers have more flexibility in applying for forgiveness.
  • Borrowers that received loans before June 5th, 2020 can choose between using the original eight-week covered period or the new 24-week covered period.
  • The PPP allows loan forgiveness for a percentage of payroll costs — including salary, wages, and tips —  up to $100,000 annualized per employee, or $15,385 per individual over the eight-week period. The new interim final rule establishes the 24-week maximum for full loan forgiveness at $46,154 per individual (note that there are different rules for owner’s compensation)

If you wish to apply for the PPP Loan and have not done so yet, businesses have until June 30th,  2020 to submit an application. You can download the application form by clicking here.  To review the full interim rules, see here.

The forms are to be completed and submitted electronically. Contact your lender directly for information on where to submit your completed form.

For those seeking loan forgiveness, you may use the revised forgiveness application or the EZ application if eligible.

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If you have any questions about dealing with COVID-19 in the workplace, email us at insource@insourceservices.com or call us on (781) 235-1490.

HR staff keeping abreast of the PPP Flexibility act may be interested in learning about the latest news on extensions to COBRA election and payment deadlines. You can learn more from Insource Insights here.