QXP-COLUMNS-SPIRIT-620.qxp_WORKING 6/22/20 11:13 PM Page 42
planning matters
• with Vw law
CONGRESS ADDS flexibility FOR ppp borrowers The Paycheck Protection Program (PPP), loans for small businesses, has been a popular program but subject to multiple and constant changes in the applicable rules. In June, Congress made changes that generally enhance flexibility for borrowers and will make forgiveness of the PPP loans easier to attain.
mary e. vandenack and michael j. weaver
The original legislation required that borrowers use the loan proceeds within eight weeks and that 75 percent of the forgivable portion of such proceeds be used for payroll costs. The original eight-week timeframe was extended to 24 weeks for borrowers who needed more time to make full use of the funds. This provision was very helpful for businesses who were shut down in part or totally and reopening in phases. The requirement that 75 percent of the loan proceeds must be spent on payroll costs was relaxed to 60 percent. This provided borrowers greater flexibility in allocating PPP funds between payroll and non-payroll costs. Under the June rules, most borrowers should be able to develop a strategy to satisfy the“60-percent test.” The June legislation indicated there would be no forgiveness for borrowers who do not meet the“60-percent test.”Fortunately, the U.S. Treasury Department and the Small Business Administration released a joint statement abolishing such a cliff. This means if a borrower spends less than 60 percent of the PPP loan amount for expenses that otherwise would be forgivable for payroll, state payroll taxes, group health insurance and retirement plans during the eight-week or 24-week testing period, then that borrower will get some forgiveness, rather than no forgiveness. In earlier versions of PPP forgiveness legislation, employers were required to call employees back to work no later than June 30, 2020. The June legislation provides employers the opportunity to restore their workforce and compensation at any time prior to December 31. The legislation also includes two new“safe harbors”for borrowers to avoid penalties if they cannot fully restore all employees. Borrowers will not be penalized if they could not find qualified employees after a good-faith search, or if they were unable to restore business operations to pre-pandemic levels due to COVID-19-related operating restrictions. Borrowers on loans made on or after June 5 will have five years to repay any non-forgiven amounts rather than two years. Lenders are permitted, by mutual agreement, to extend existing loans from two years to five years. Deferral of loan payments for employers runs until such time as the lender receives the determination of the forgiveness amount from the Small Business Administration. Previously, the deferral was set to expire six months after the loan date. Borrowers will have up to 10 months after the end of the covered period to apply for forgiveness before payments on nonforgiven amounts. 42
Businesses receiving PPP forgiveness will also be permitted to defer payroll tax. The provision permits businesses to defer up to one-half of payroll taxes coming due in 2020 and pay those taxes in 2021 and 2022.The deferral had been previously limited to businesses not receiving PPP forgiveness.
In addition to the June legislation, some additional guidance has emerged with respect to the forgiveness process: using weekly or bi-weekly pay periods may align their • Borrowers covered period with their pay periods by delaying the commencement of their covered period to the first day of the next pay period beginning after the loan origination date. Borrowers using other pay periods are not permitted to make this adjustment. “incurred” during the covered period can still be included as • Costforgivable expenses if they are paid by the next pay date or due date after the expiration of the covered period. to the cap on compensation for any one employee, • Subject additional payments for “hazard pay” or bonuses will count as forgivable payroll costs. with more than one business will be limited to • Owner-employees the capped amount across all businesses.
mmagazine • JUne 2020
