Update: Paycheck Protection Program 2020 - Zupnick Associates

The federal government opened the Paycheck Protection Program 2020 (PPP) for eligible small businesses in early April. It designed the program as a direct incentive for businesses to keep workers on the payroll. In response to the COVID pandemic, it targeted small businesses with 500 or fewer employees.

The Small Business Administration (SBA) administrates these forgivable loans. It requires employers to keep all employees on the payroll for eight weeks. In addition, businesses could only use the loans for payroll, rent, mortgage interest, or utilities.

Paycheck Protection Program 2020 Fears

The Program did provide important relief for businesses, but concerns about its limitations arose. For example, under the PPP, borrowers had only eight weeks to spend the funds. It also set a June 30th deadline to restore employees and their wages. As a result, some business owners, unable to meet the deadlines, even returned their funds.

The Program also required businesses to dedicate 75% of the loans to cover payroll. This limited businesses with an urgent need for rent, utilities, or mortgage interest payments.

Loan forgiveness also demanded that businesses restore 100% of their full-time equivalent employees. But, the COVID-19 pandemic restrictions presented obstacles to finding and onboarding employees.

Finally, many businesses suffered reduced revenue during the COVID crisis. Hence, the short deadline to repay the unforgiven portions of loans discouraged potential applicants.

The PPP Flexibility Act

To address the concerns about the Paycheck Protection Program 2020, the feds proposed the PPP Flexibility Act. Then, toward the end of May, President Trump signed it as Public Law No: 116-142. It provides solutions to some of the concerns from the business community:

Extended Loan Period

Under the PPP Flexibility Act, benefactors may now extend the period allowed to exercise unforgiven funds. Instead of the original eight-week covered period, borrowers have up to 24 weeks. Also, the Act still allows payment in full in eight weeks, should recipients choose early payment.

Decreased Minimum Payroll Percentage

Initially, PPP required businesses to use 75% of the loan forgiveness amount to cover payroll. Under the Flexibility Act they can cover payroll with as little as 60% of the loan. Forgiveness of any part of the loan requires recipients to meet this requirement.

Extension of Safe Harbor Period

Originally, PPP set June 30, 2020 as the safe harbor deadline to restore workers and wages. But, the Flexibility Act extended this period with a December 31, 2020 restoration date. That means that borrowers now have 24-weeks to bring employees back on the payroll.

Exemptions for Hiring and Operations Issues

The original conditions of the Paycheck Protection Program 2020 did not take into account some basic pandemic business problems. For example, businesses struggled to find qualified workers on the Program’s limited schedule. Likewise, some businesses simply could not resume operations at the pre-COVID pandemic level.

Hence, the new legislation takes into account these issues. It exempts businesses from reduced forgiveness under such circumstances.

Paycheck Protection Program 2020 Extended Loan Maturity

The PPP originally gave borrowers two years to pay back loans. The Forgiveness Act, though, has extended the maturity date to five years.

Social Security Tax Deference

Many businesses receive forgiveness for some or all of their PPP loans. Since the passage of the Flexibility Act, the federal government grants deference to the employer’s share of the 6.2% Social Security tax. It set a December 31, 2021 deadline for 50% of the deferred payroll taxes. And, businesses must pay the remainder by December 31, 2022.

Paycheck Protection Program 2020 & Flexibility

Through the PPP Flexibility Act, the federal government has addressed important issues. It has extended deadlines, broadened restrictions, and facilitated tax payments. The changes have helped employers to help employees returning to work. 

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