Balance business goals and employee needs: understanding regulations within the paycheck protection program.

The US Senate proposed Update to the Paycheck Protection Program was signed by President Trump on Friday, June 5, 2020.

The Paycheck Protection Program (PPP) continues to evolve. The federal government has taken steps to ease restrictions for benefits and provided additional clarity to business owners. As we have seen over the past few months, the federal financial support continues to advance as the country slowly resumes operations.

The U.S. Senate passed the House version of Paycheck Protection Program legislation on Wednesday, June 3, tripling the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness of the loans. The Senate approval sent the House bill, called the Paycheck Protection Flexibility Act (PPPFA), to President Trump, who signed it on Friday, June 5.

Following is a summary of the legislation’s main points compiled by the American Institute of Certified Public Accountants (AICPA):

- Current PPP borrowers may choose to extend the eight-week period to 24 weeks, or they may keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to allow borrowers to reach full, or almost full, forgiveness.

  • The extension will increase the likelihood that borrowers will receive complete loan forgiveness since the loan amount is based on one month of 2019 payroll multiplied by 2.5, which equals approximately 10 weeks. Businesses should enjoy additional flexibility to spend the PPP funds when they like for the remainder of the year.

- Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75%, but is now a “cliff.” This means that borrowers must spend at least 60% on payroll, or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if the borrower uses less than 75% of eligible funds for payroll costs. However, forgiveness isn’t eliminated if the borrower does not meet the 75% threshold, as compared to the currently required minimum of 60% spent on payroll to qualify for reimbursement.

  • However, the law does not change the list of expenses eligible for forgiveness. Eligible expenses still include rent, mortgage payments, utilities, and interest on loans.

- Borrowers can use the 24-week spending period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. Borrows must spend the loan by Dec. 31, a change from the previous deadline of June 30.

- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness, even if they don’t fully restore their workforces.

  • Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good-faith offers to be rehired at the same hours and wages as before the pandemic.
  • The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19-related operating restrictions.
  • It is important to note, however, that the law did not change how salaries are calculated towards forgiveness. The payroll calculation used in the loan application still applies to the forgivable amount. The limit on compensation remains in place at $100,000 per employee, including owners and leadership.

- New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.

  • Existing PPP loans with a 2-year maturity date remain unchanged unless the lender and borrower mutually agree. Businesses should reach out to their borrower for further details.

- The bill allows businesses that took a PPP loan to delay payment of their payroll taxes, which was prohibited under the CARES Act.

Overall, the refinements detailed in the PPPFA support businesses. The law seeks to ease many of the burdens placed on businesses that received PPP loans, and for many businesses that may still apply for a PPP loan.

Please note, there are still plenty of questions left unanswered. Analysts expect further regulations with additional changes to the PPP program as the country slowly returns to operations. Gallagher will continue to monitor legislative changes closely to help employers maximize their organizational wellbeing and face the future with confidence.


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