BREAKING NEWS: How Relaxation of PPP Guidelines Affects You and Answers to Your PPP Questions

On June 5th, The Paycheck Protection Program Flexibility Act became law after it was signed by the President – having received nearly unanimous support in both the House and Senate. This new law relaxed some of the regulations, and many businesses may be wondering how this affects PPP funding. Although the regulations are still in flux, the purpose of this article is to provide a concise snapshot of how PPP funding can be used to qualify for forgiveness. Because self-employed individuals and partnerships are subject to additional regulations though, they should not exclusively rely upon this information and should seek the help of an experienced law firm or accountant to determine how they can qualify for forgiveness.

  • How can I spend my PPP funding?
    • The primary thrust of the Program is in the name, paycheck protection, and the main purpose of the Program is to let businesses continue to pay their employees’ wages, leave, and health benefits. Beyond payroll though, PPP funding can be applied to mortgage interest, rent, and utilities if the mortgage, lease, or utility service began before February 15, 2020. If an expense falls into one of these broad categories, it can be forgiven. Importantly though, at least 60% of the funding must be spent on payroll.
  • How long do I have to spend it?
    • Until June 5, 2020, business expenses had to be incurred in the eight weeks following PPP funding to qualify for forgiveness. Congress recently extended the forgiveness period from eight weeks to twenty-four weeks though, giving businesses significantly more flexibility in determining how to apply their PPP funding. 
  • What other requirements are there?
    • Staffing. One of the main goals of the Paycheck Protection Program is to enable businesses to retain their employees, and one of the requirements of the Program is that businesses maintain the same number of employees as they had before the pandemic. To determine whether you meet this requirement, you need to determine your average number of full-time equivalent employees during three periods:
      • a) The eight weeks following your funding;
      • b) from February 15, 2019 to June 30, 2019; and
      • c) from January 1, 2020 to February 29, 2020.
    • NOTE: If a) is bigger than b) or c), then you successfully meet this requirement. [1] If a) is smaller than 2) or 3), your maximum forgiveness will be reduced proportionally unless you can demonstrate that you made a good faith effort to rehire a former employee that was employed as of February 15, 2020, that you fired an employee for cause, or that an employee voluntarily resigned or requested a reduction in hours. Additionally, businesses that restore their full-time equivalent number of employees and restore employee salaries and wages that had been reduced by December 31, 2020 will not have their loan forgiveness amount reduced on account of these restrictions.
    • Employee Pay. Businesses also need to demonstrate that employees are receiving at least 75% of the pay that they received in the most recent quarter prior to the pandemic. This is evaluated individually for each employee, and it does not apply to employees that received more than $100,000 in 2019.

If businesses meet all these requirements, your PPP funding will likely qualify for forgiveness. Businesses should document all qualifying expense and keeping careful records. Businesses should also communicate with their lenders to determine whether lenders have any additional requirements. Because PPP regulations are still subject to future changes though, businesses should consult as well as an experienced law firm and accountant to ensure that there are no surprises when it comes time to apply for forgiveness.  – Weiss LLP: 06/08/2020

[1] Although most businesses can compare employee retention with 2) or 3), seasonal employers must use 2), the 2019 period, to determine whether they qualify.