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What to Know: Paycheck Protection Program Flexibility Act

Posted On
6/8/2020
By
Compliance

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Update 7/4/2020: On July 4, 2020, President Trump signed into law an extension of the Paycheck Protection Program (PPP) loan application deadline to August 8.  Looking to apply for a loan? Find an SBA-approved lender. If you’re not sure if PPP is the right approach for your small business, start your research with these resources: maximizing PPP loan forgiveness and explore other small business financing options.

Update 7/2/2020: The Paycheck Protection Program is currently not accepting applications for loans, as the deadline to have a loan approved. As of July 1, both the U.S. Senate and House of Representatives have passed an extension of the application deadline to August 8. This now goes for President Trump's signature to become law. If you are planning to apply for a loan should the program reopen to new applications, get a head start: find an SBA-approved lender. While we await further news, you can learn more about maximizing PPP loan forgiveness and explore other small business financing options.

Update 6/30: As of June 30, 2020 applications for loans through the Paycheck Protection Program are closed. Looking for funding? Learn more about small business funding options that are still available.

Update, 6/22: SurePayroll customer? If you’re planning to apply for PPP loan forgiveness, you can now access an interactive forgiveness estimator and worksheet directly from your dashboard. Log in and click on the yellow banner to get started.

The Paycheck Protection Program (PPP) Flexibility Act, which was signed into law June 5, 2020, made some significant changes to the PPP loan and loan forgiveness process:

  • Extends term for any loan remaining after applying for forgiveness to a minimum of five (5) years to borrowers who obtained loan after passage of law
  • Extends covered period
  • Extends exemption for re-hires to Dec. 31, 2020
  • Establishes FTE Reduction Exemption
  • Amends 75/25 rule to 60/40, affecting percentages of loan that must be used on covered payroll and non-payroll costs
    • Note: If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs. No more than 40% of the loan forgiveness amount can be attributable to non-payroll costs.
  • Changes how deferral of Social Security taxes implemented
  • Deferral period extended for unforgiven loan amounts: Borrowers now can defer repayment for one year rather than six months 
  • Loan forgiveness must be applied for within 10 months after the last day of the covered period

Tip: To estimate your PPP loan forgiveness, head over to our Forgiveness Estimator. You can also find additional forgiveness content and resources in our Maximizing Loan Forgiveness hub.

PPP Loan Forgiveness

The Act extends the covered period to the earlier of 24 weeks from origination date of the loan, or until Dec. 31, 2020. Borrowers who received a PPP loan before the enactment of the Act may elect to use the original covered period, which was eight weeks after the origination of the loan.

Loan forgiveness for the first eight weeks under certain conditions (not all listed):

  • Loan amounts used to pay payroll (60%) or non-payroll costs such as mortgage interest or rent, and utilities (40%) – provided service began before Feb. 15, 2020 – could be forgiven in full.
    • Note: If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs. No more than 40% of the loan forgiveness amount can be attributable to non-payroll costs.
  • Forgiveness will be reduced proportionally by any reduction in employees retained compared to the prior year, in general, and reduction in wages of eligible employees by more than 25% of prior year compensation.
  • Borrowers are required to show documentation on expenses/employees

Repayment for Unforgiven Loans

The PPP Flexibility Act establishes:

  • A minimum loan maturity period of five years following an application for loan forgiveness

This provision applies only to PPP loans issued after the effective date of the Act, although borrowers and lenders could agree to extend current loans originally set by SBA that were for two years.

It's important to note that a PPP loan cannot be combined with:

  • The Employee Retention Credit

Consult with your CPA or financial advisor to determine what program is right for your business.

Employee Retention Credit

Provides for a refundable credit against employer payroll taxes for employers who complied with government order to partially or fully suspend operations or who recognized significant reduction in gross receipts, but who retained their employees. Learn more about the CARES Act.

Eligible employers can:

Exclusions:

Take a refundable credit of 50% of qualified wages/health plan expenses up to $10,000 per employee against applicable employment taxes

Employer cannot receive the Employee Retention Credit if they receive a Paycheck Protection Program Loan from the SBA

 

This credit cannot be taken on any wages previously accounted for in a WOTC or Emergency Paid Sick Leave Credit

 

Payroll Tax Deferral Period

Employer can defer payment of applicable employer payroll taxes (employer portion of Social Security) incurred from March 27, 2020, to Dec. 31, 2020.

Details to note:

  • Deferred repayment would be split and paid as follows: 50% due December 31, 2021; 50% due December 31, 2022.
  • Employers can now defer payment of the employer share of Social Security taxes even after PPP loans are forgiven.

State Unemployment Insurance Tax Credit

Some states have enacted legislation that provides employers with a SUI tax credit if they paid their first quarter SUI contributions on or before a specific date. The amount of the credit equals the amount of the first quarter 2020 contributions paid by the employer and is applicable to the second quarter 2020 SUI contributions.

Check with your state to see whether you can take advantage of this credit. You can also learn more about state-by-state COVID-19 legislation and response by visiting our interactive map.

Bottom Line

We are closely monitoring any legislative changes and will work through new guidance to provide up-to-date tools, reporting, and resources to help you maximize your loan forgiveness. To estimate your PPP loan forgiveness, head over to our Forgiveness Estimator. You can also find additional forgiveness content and resources in our Maximizing Loan Forgiveness hub.

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This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.