The Paycheck Protection Program Is Extended

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Patricia Tsipras

July 16, 2020

Late on July 4, President Trump signed into law an extension – until August 8 – of the Paycheck Protection Program (PPP).  The amendments also give employers more flexibility and more time to use PPP funds.  Specifically, employers have 24 weeks from the disbursement of their loan, or until December 31, when the PPP is set to end, to use the funds.

Payroll Costs

Originally, to ensure loan forgiveness, at least 75 percent of the loan had to be used for payroll costs.  However, now employers must spend only 60 percent of the loan proceeds on payroll costs.

Employee Retention or Rehire

Loan forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  The PPP provided certain safe harbors, allowing employers to avoid a reduction in their forgiveness amount due to a significant decrease in headcount or wages between February 15 and April 16, 2020, as long as those levels were restored by June 30, 2020.  The amendments extend this deadline to December 31.

In addition, loan forgiveness will not be reduced based on an inability to rehire employees if the employer can document (1) written offers to rehire individuals who were employees as of February 15, 2020; or (2) an inability to hire similarly qualified employees for unfilled positions by December 31, 2020.

Furthermore, forgiveness will not be jeopardized for headcount reductions if the employer is able to document its inability to return to the same level of business activity that existed prior to February 15, 2020, because of its compliance with COVID-19 requirements or guidance issued between March 1 and December 31, 2020, by Health and Human Services, the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration regarding sanitation, social distancing, or employee/customer safety.

Deferral of Employer Social Security Tax

The amendments also allow employers that receive PPP loan forgiveness to continue deferring payment of the employer share of the Social Security tax under CARES Act through December 31, 2020.

Deferral of Principal and Interest Payments

Employers can defer principal and interest payments on any portion of PPP loans that is not forgiven.  The amendments extend the deferral period (originally six months) to the time when the Small Business Administration compensates the lender for forgiven amounts.  However, principal and interest payments can be required if the employer has not applied for forgiveness within 10 months of the expiration of its covered period.

Extension of Loan Term

Finally, the amendments extend the term of PPP loans from two to five years.

More changes could be coming, so we recommend that you stay alert for new guidance from the Small Business Administration and Treasury Department, and contact us with questions.

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