On the afternoon of Wednesday, June 3, the Senate passed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA). This was previously passed by the House last week and has been signed into law by the President, effective June 8.
The Act amends the wording of the original CARES Act on the following key points:
- The forgiveness period on Paycheck Protection Program (PPP) loans is extended from eight weeks to 24 weeks (or Dec. 31, 2020 whichever comes earlier).
- The ratio between payroll and non-payroll expenses is changed from 75% payroll and 25% non-payroll to 60% payroll and 40% non-payroll.
- In order to not impact forgiveness, employees now must be rehired by Dec. 31, 2020 (instead of June 30, 2020).
This is excellent news for our clients who will most likely be able to spend all of the PPP funds during the 24-week forgiveness period. Continuing to spend the PPP funds wisely, as business decisions require, will allow the maximum usage of the funds while still allowing spending within the 24 weeks. In addition, for those that are not able to rehire all employees until later in 2020, it will not impede forgiveness.
Keep in mind, even if the PPP funds are completely spent during the 24-week period, it does not guarantee max forgiveness. The full time equivalent (FTE) calculation will still need to be done to ensure maximum forgiveness.
For funds that are not spent by the end of the 24-week forgiveness period, PPPFA changes the maturity on these loans from two years to five years. This is unlikely to impact most of our clients other than those that received an EIDL grant.
For those with shell corporations, the $15,385 owner salary cap is still in place. Additionally, the employee salary cap of $100,000 is still in place, not taking into account any health or pension benefits above the salary limit.
We expect there to be further guidance produced by the SBA regarding the 24-week period, as well as if the 8/52 owner-employee formula will stand or change to 24/52. Without a formula change, full forgiveness for corporations only employing owners and family members will be difficult.
As this guidance is released, we will continue to update our clients and our blog.