On June 3rd, the Senate passed the Paycheck Protection Program Flexibility Act of 2020, where it awaits signature by the President. This bill provides for significant changes to the rules surrounding the Paycheck Protection Program.
The first major changed called for in the bill is the extension of the 8-week covered period called for in the CARES Act to the earlier of 24 weeks from loan disbursement or December 31, 2020. Loans disbursed prior to enactment of the bill are eligible for the original and shorter 8-week period, should the borrower elect to do so. This means that borrowers now potentially have significantly more time to use the loan proceeds to cover eligible costs.
The second major change is the reduction in the percentage of the loan proceeds that must be used for payroll costs in order to qualify for full forgiveness. Guidance issued by the Treasury currently states that at least 75% of the amount requested to be forgiven must be used for payroll. This Act would lower that amount to 60%, providing more flexibility for borrowers.
Also included are two clauses relating to the rehiring of employees. The first clarifies one we already knew; a rehiring exception would be allowed where a written offer of employment is made, but the employee rejects the offer. The second allows for an exception where an employer has made a good faith effort to return to a similar level of business activity that existed prior to February 15, 2020, but is unable to due to concerns surrounding the pandemic. The Act also extends the deadline to rehire employees to meet the FTE requirement to December 31, 2020.
The Act also extends the loan deferral period to 10 months after the end of the covered period, and removes the ban on payroll tax deferrals for borrowers who receive loan forgiveness.
The Act provides much needed flexibility, but there are still ambiguities that we await guidance from the Treasury on. As we receive more information, McKonly & Asbury will continue to keep you updated.
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This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although McKonly & Asbury has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.