PPP Flexibility Act

Update June 19, 2020

Since the passage of the Flexibility Act on June 5, the agencies have published additional guidance documents to implement the changes made by the PPP Flexibility Act. This new guidance includes revised PPP Borrower Application, updated interim final rules, revised PPP Loan Forgiveness application and instructions and a new EZ PPP Loan Forgiveness Application and instructions. Highlights include:

Revised PPP Loan Application:

The Loan application instructions and loan application are now two separate documents instead of a combined document. The loan application contains:

• PPP Loan Forgiveness Calculation form
• Borrower Certification Form
• PPP Schedule A
• PPP Schedule A Worksheet
• Optional PPP Borrower Demographic Form

The changes to the form are relevant to the revisions made by the PPP Flexibility Act:

• Revises the 75% payroll costs for loan forgiveness to 60%
  • If a borrower spends less than 60% of the total original loan amount on payroll costs, they will not be eligible for full loan forgiveness.
  • Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to payroll costs.
    • The guidance provides an example: if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in non-payroll costs constituting 40 percent of the forgiveness amount).
• Revises covered period to:
  • Borrowers who received loan disbursement before June 5 can chose 8-week (56 day) period or 24-week (168 day) period to end no later than December 31, 2020
  • Borrowers who received loan disbursement on or after June 5 must use 24-week (168 day) period to end no later than December 31, 2020

EZ Loan Application:

Certain borrowers will be eligible to complete the PPP Loan Forgiveness Application Form 2508EZ. This is a simplified version of the PPP loan forgiveness application; however, the employer would need to be able to confirm that they meet one of the three requirements below:

1. The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).
2. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND 
   1. The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020.  Also, ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused.  See 85 FR 33004, 33007 (June 1, 2020) for more details.
3. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND
   1. Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

The EZ loan application and instructions are two separate documents. The loan application consists of three pages and does not include the PPP Schedule A form and Schedule A worksheet; it only includes the following:

• PPP Loan Forgiveness Calculation form, similar to the standard PPP forgiveness calculation form, but omits the section for Adjustments for FTE and Salary/Hourly Wage Reductions
• Borrower Certification Form
• Optional PPP Borrower Demographic Form

The new guidance documents are available on the Treasury webpage here or the SBA website here.

Update June 5, 2020

President Trump signed HR 7010, PPP Flexibility Act on Friday, June 5, 2020. The provisions of this bill provided below are now effective.

At A Glance

The Act will:

• Extend the forgiveness eligibility timeline from eight weeks to the earlier of:
  • 24 weeks from the loan origination date, or
  • December 31, 2020
• Allow borrowers who had a forgiven PPP loan to defer employer SS tax
• Allow borrowers to use PPP funds for more non-payroll costs.

Extension of Covered Period

The Act will also change the Covered Period applicable to loan forgiveness to the earlier of 24 weeks after the loan origination date or December 31, 2020. This provides borrowers more time to use the loan funds.

Additionally, the Act reduces the 75% payroll costs rule to 60%, allowing borrowers to spend more loan proceeds on non-payroll costs and still be eligible for forgiveness.  Lastly, the Act provides a safe harbor from the reduction in loan forgiveness amount due to a reduction in FTE employees if certain conditions are met.  

Payment of Employer Payroll Taxes Delayed

The CARES Act permits employers to defer the deposit and payment of the employer’s portion of social security taxes that otherwise would be due between March 27, 2020, and Dec. 31, 2020. Currently, borrowers who have PPP loans forgiven are ineligible for the payroll tax deferral for any time after the date the PPP loan is forgiven. The PPP Flexibility Act eliminates this restriction.

Next Steps

Paylocity is revising our PPP Loan reports to ensure alignment with the PPP Flexibility Act changes and recent guidance.

Thank you for choosing Paylocity as your Payroll Tax and HCM partner.

This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.