Paycheck Protection Program Flexibility Act
briefing by Kimberly Ripberger, CPA
On Friday, June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) into law. This law provides more favorable provisions for PPP borrowers. In addition, Interim Final Rule 13 CFR Part 120, Business Loan Program Temporary Changes; Paycheck Protection Program – Revisions to First Interim Final Rule was issued on June 11, 2020 to amend the previously issued guidance on April 2, 2020. The Interim Final Rule for Revisions to the Third and Sixth Interim Rules was issued on June 17, 2020.
Please click here to view our previous blogs related to the CARES Act and Paycheck Protection Program (“PPP”).
An overview of the changes that were effective with the passage of the PPPFA and the Interim Final Rules are listed below.
- Covered Period – The original 8-week covered period for determining loan forgiveness that begins on the date loan proceeds are received by the borrower was increased to 24 weeks or December 31, 2020, if earlier.
- NOTE: Borrowers that received PPP loans prior to June 5, 2020, have the opportunity to choose either the 8-week covered period or the PPPFA 24-week covered period.
- Maturity Date – The maturity date of loans of the PPP loans that are not forgiven was extended from two years to five years for loans that were made on or after June 5, 2020.
- NOTE: The June 11, 2020 Interim Final Rule states that the maturity date remains at two years for loans made prior to June 5, 2020. However, the borrowers and lenders may mutually agree to extend the maturity date to five years.
- Reduction of Payroll Expense Ratio – The percentage of PPP loan funds that must be used for payroll expenses to receive the full forgiveness was reduced from 75% to 60%. The remaining 40% must continue to be used for qualifying non-payroll expenses as previously defined in the CARES Act.
- Eligible payroll costs per employee
- Capped at $46,154 for 24-week covered period borrowers
- Remains capped at $15,385 for 8-week covered period borrowers
- Owner compensation replacement
- Capped at $20,833 for 24–week covered period borrowers ($100,000/12 months * 2.5 months)
- Remains capped at $15,385 for 8-week covered period borrowers
- Loan Deferral Extension – The loan repayment for each borrower will be deferred until the amount of loan forgiveness is remitted from the SBA to the lender. In addition, if a borrower fails to apply for loan forgiveness within 10 months after the end of the covered period, loan repayment will be deferred until the end of those 10 months.
- Deferral of Payroll Tax Payments – The previous provision in the CARES Act was amended to allow PPP loan recipients who have received loan forgiveness to participate in the payroll tax deferral program.
- Extension of Time to Rehire Employees or Eliminate a Reduction in Pay – The amount of time to rehire full-time equivalent employees and/or eliminate a reduction in pay was extended from June 30, 2020 to December 31, 2020 to aid in borrowers maximizing their loan forgiveness due to the uncertain economic times.
- Relief for Employers Who Cannot Rehire Employees – If a borrower cannot restore its full-time equivalent employees by December 31, 2020, the amount of loan forgiveness will not be reduced if the borrower can document in good faith the following:
- “An inability to rehire individuals who were employees of the eligible recipient on February 15, 2020 AND an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020;” OR
- “An inability to return to the same level of business activity as such business 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 on 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.”
- Eligible payroll costs per employee
We will be continually monitoring additional guidance as it is released related to the PPPFA and will provide updated information on this page as it becomes available, so please check back often. In addition, please feel free to reach out to your BRC advisor with any questions you may have.
Kimberly Jessup Ripberger Assurance Partner, CPO, CPA
Kimberly is an assurance partner at our firm with over 20 years in public accounting. Her previous experience included working in Industry in process improvement and project management. She works primarily with clients involved in the governmental, non-profit and affordable housing industries, including tax credit properties, U.S. Department of Housing and Urban Development, and […]