Last Friday, the federal government enacted the Paycheck Protection Program Flexibility Act (PPPFA). The PPPFA was designed to make it easier for PPP loan recipients to obtain full forgiveness of their loans. The following are some of the changes to the original payroll protection program.

Extended Covered Period

Under the PPPFA, borrowers are provided more time to spend the loan proceeds in a manner that results in loan forgiveness. Previously, the “covered period” was the 8 weeks following receipt of the loan proceeds. The new duration of the “covered period” is 24 weeks from loan origination or December 31, 2020, whichever comes first. The law does allow the borrower to retain the original 8 week period. Borrowers may want to retain the shorter period if business forecasts indicate that it may be difficult to maintain the required FTE headcount over the longer period or if the employer anticipates that it may be necessary to reduce salaries later in the year.

Lowered Payroll Costs Percentage

After enactment of the PPP, the SBA implemented a rule providing that 75% of the loan proceeds had to be spent on payroll costs in order for the loan recipient to receive full loan forgiveness. If they were not used for the purpose, forgiveness could be received on a pro-rata basis. Under the PPPFA, the SBA rule was eliminated, and the amount required to be spent on payroll costs has been reduced to 60%; however, that is now a strict requirement for forgiveness. It is now all or nothing. Thus, rent, mortgage interest, and utility costs can now account for up to 40% of the loan amount without any reduction in forgiveness qualification. But, if at least 60% of the loan amount is not used on payroll costs, then no portion of the loan will be forgiven.

Longer Repayment Period

The PPPFA extended the loan repayment term for amounts that are not forgiven from 2 years to a minimum of 5 years. The 1% interest charge remains the same.

FTE Safe Harbor Extended

The “full time equivalent” (FTE) safe harbor period has been extended to December 31, 2020. If a borrower had a FTE employee count reduction between February 15, 2020 and April 26, 2020, and restores its head count and salary levels to what they were on February 15, 2020 by December 31, 2020, then there will be no reduction in the amount of forgiveness.

Additional FTE Safe Harbor

Under the new safe harbor, any reduction in the amount of forgiveness based on a reduction in the FTE headcount will be disregarded if the employer can establish by documentation that (i) it was unable to rehire people employed as of February 15, 2020 and unable to hire similarly qualified employees for those positions on or before December 31, 2020; or (ii) it was unable to document its ability to return to the same level of business as it was at on February 15, 2020 due to compliance with HHS, CDC, or OSHA rules, regulations, and guidance pertaining to standards of sanitation, social distancing, or other worker or customer safety requirements related to Covid-19. This provision will benefit restaurants and other businesses that have to reduce customer and employee counts due to social distancing and other safety measures.

Extended Payroll Tax Deferment

The PPPFA removed the provision in the CARES Act that required borrowers who receive forgiveness to resume payment of payroll taxes. Under the new law, all borrowers may defer payment of 2020 payroll taxes, with one-half of the deferred amount being due on December 31, 2021, and the remainder being due on December 31, 2022.