The U.S. Congress has passed, and President Trump has signed, a law to reform the Paycheck Protection Program (PPP) set up to assist businesses affected by COVID-19. The Paycheck Protection Program Flexibility Act (PPPFA) gives employers more flexibility in the utilization of funds awarded through the Paycheck Protection Program (PPP) set forth by the recently enacted Coronavirous Aid, Relief and Economic Security (CARES) Act. This new legislation will help employers by providing time to use PPP loan funds and still have the loan forgiven. Instead of eight weeks, borrowers will now have 24 weeks from the disbursement of their loan to use the PPP funds, or until Dec. 31 when the program is now set to end. Borrowers may still choose to use funds in the original eight-week period.
The PPPFA also creates flexibility in the amount of loan money that must be used for payroll purposes. Employers now have to spend 60 percent—rather than the previous 75 percent—of PPP funds on payroll costs. Payroll costs include:
- Salary, wages, commissions and tips—up to $100,000 annualized for each employee.
- Employee benefits, including paid leave, severance pay, insurance premiums and retirement benefit.
- State and local taxes assessed on pay.
- Payroll costs for sole proprietors and independent contractors include wages, commissions, income or net earnings from self-employment (up to $100,000 annualized).
The additional 40 percent could be spent on mortgage interest, rent, utilities and other costs.
Additionally, employers now have until Dec. 31, rather than June 30, to rehire certain laid-off workers if they are seeking loan forgiveness. Exceptions to the rehire rule may apply based on employee availability.
Employers should note that the new act extends the maturity date of the PPP loans—for any portion of a PPP loan that is not forgiven—from two years to five years. “This provision of the act only affects borrowers whose PPP loans are disbursed after its enactment,” explained Joshua Bowman and Joseph Wang, attorneys with Sherin and Lodgen in Boston. With respect to already existing PPP loans, the act states specifically that nothing in the act will “prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of a covered loan.”
Under the PPPFA, borrowers will also able to defer payroll taxes even if they receive loan forgiveness.