President Donald Trump has signed into law a bill that gives employers more flexibility when using Paycheck Protection Program (PPP) funds and applying for loan forgiveness.
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.
Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven.
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.
Borrowers can use the 24-week period to restore their 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.
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 already 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.
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%.If you have any questions regarding this or any other HR related matter, please feel free to call us here at MCDA CCG, Inc.