Important PPP Update: Flexibility Act Signed Into Law

Jun 8, 2020

The PPP Flexibility Act (PPPFA) was signed into law, bringing about several key changes to the Payroll Protection Act (PPP) forgiveness feature. Further guidance is expected from the SBA and the Treasury Department to assist in implementing these changes.

The following is a summary of the legislation’s main points compiled by the AICPA:

  • EXTENSION OF COVERED PERIOD: Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020.
  • MODIFIED PERCENTAGE OF USE OF PPP LOAN FORGIVENESS: The PPPFA reduces the amount of the loan need to be spend on payroll from 75% to 60%, thus increasing the amounts of funds available for rent, mortgage payments, utilities and interest on loans from 25% to 40%.  Borrowers can qualify for partial loan forgiveness if less than 60% of the PPP loan is used for payroll. Or Borrowers can elect to use the original 75% / 25% rule along with the original 8-week covered period.
  • NEW LOAN TERMS: New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
  • DEFERRAL OF PAYROLL TAXES: The bill allows businesses that took a PPP loan to also delay payment of employer portion of social security taxes (6.2%).
  • REHIRE REQUIREMENTS: The PPPFA changes the date that employers must rehire employees to restore the workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
  • FULL TIME EQUIVALENT EXCEPTIONS: The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.