Payroll Protection Program Flexibility Act of 2020 (PPPFA)

On Friday June 5, 2020, President Trump signed into law the Payroll Protection Program Flexibility Act of 2020 (PPPFA). The Bill was designed to address many of the concerns for recipients of Payroll Protection Program (PPP) loans. The Bill itself is extremely short and while it solves many problems created by this stimulus program it creates a growing list of questions. The following is an overview of the new provisions. We expect additional guidance from the Small Business Administration (SBA) in the coming weeks to provide added guidance on how some of these provisions will be administered. We will continue to monitor important developments and communicate relevant information.

1.     Time period to use funds extended from 8 to 24 weeks

The recipients of PPP loans before June 5, 2020 can choose to calculate their loan forgiveness over either 8 weeks or 24 weeks from the day they received their loan. However, the 24-week period cannot extend past December 31, 2020. For loans received after June 5th the forgiveness period is calculated over the 24-week period.

This provision was designed to assist businesses that were not open or had substantial reductions in employees due to COVID-19. PPPFA did not change any other provisions of the law regarding how to calculate forgiveness reductions. PPPFA simply extends the period for allowable expenses which should increase the likelihood of complete loan forgiveness.

PPPFA is silent as to how this impacts owners and employees who earn over $100,000. We anticipate more guidance from the SBA but expect the original limitations to remain intact under the new 24-week forgiveness period.

We will distribute revised PPP Loan Forgiveness Calculators once they become available.

Strategy & Advice

Since many employers are well into their 8-week forgiveness period it may be best to use this time frame for forgiveness. However, if you are unable to obtain full forgiveness, we recommend that you wait on filing for forgiveness to try to maximize the amount forgiven under the 24-week extended period. There are more provisions of PPPFA, outlined below, which will need to be considered. This provision will provide added flexibility to insure you maximize the amount forgiven.

2.     75% Threshold for Payroll Costs Dropped to 60%

The original PPP loan forgiveness provided that 75% of the funds used must be attributable to payroll costs. PPPFA dramatically changes this provision by stating that “at least” 60% of the covered loan amount should be used for payroll costs.

This appears to be an intentional “cliff” provision which means that no less than 60% of the loan proceeds must be used for payroll costs. Otherwise none of the loan is forgiven. For example, if you received a $100,000 PPP loan and use $59,000 for payroll costs with $41,000 in other eligible expenses (rent, mortgage interest and utilities) then none of the loan will be forgiven.

Strategy & Advice

Since this is a “cliff” provision that we do not expect to change, it is imperative that you ensure that at least 60% of the loan proceeds are used for payroll over either the 8-week or 24-week period.


Shortly after publication, the SBA and Treasury announced that this is NOT a “cliff” provision and will grant partial forgiveness.

3.     Deadline to Rehire Workers Extended to December 31, 2020

The original law provided that employers had until June 30, 2020 to restore their employee head count to pre-COVID-19 levels in order to avoid reductions in the amount of loan forgiveness. PPPFA extended this requirement to December 31, 2020. The new law also clarifies that they do not have to be the same employees, or even have the same job duties as the pre-COVID employees.

These provisions provide employers, particularly those unable to open at full capacity, with more flexibility to meet the expectations provided under PPP.

4.     Eased Rehire Requirements

The intent of PPP was to keep the same number of employees on the payroll as was used to calculate the loan. The only exception to this rule was if an employer could document in writing an attempt to rehire an employee who rejected this offer.

The new law makes two significant changes to these requirements. First, it extends the rehire date to December 31, 2020, as outlined above, and second, it adds other exceptions for a reduced head count. The law states a business can still receive forgiveness on payroll amounts if it is:

  • Unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020; or
  • Able to show an inability to hire similarly qualified employees on or before December 31, 2020; or
  • Able to demonstrate an inability to return to the same level of business activity as such business was operating at or before February 15, 2020, due to COVID-19 compliance requirements (i.e. reduced capacity for social distancing).

We anticipate additional guidance on how we “demonstrate an inability.” However, the intent of the law supplies more exceptions which should allow for maximum loan forgiveness under this program.

Extends Repayment Term from 2 Years to 5 Years

PPPFA requires the minimum loan term for new loans to be 5 years. PPPFA does not change the original interest rate language, so we will need to see if the SBA changes the interest rate now that the loans have a longer maturity date.

Existing loans remain unchanged. However, PPPFA allows lenders and borrowers of existing loans to mutually agree to modify the term of the loan. We do not expect lenders to agree to modify the term without adequate interest rate concessions. We will see how lenders respond over the coming weeks.

PPFA also delays the first payment owed on the unforgiven portion of the loan to 6 months after the SBA decides on forgiveness. Additionally, if a recipient does not apply for forgiveness, the loan repayment will begin no later than 10 months after the end of 8-week or 24-week covered period.

6.     Payroll Tax Deferral Available to Every Business

Employers could defer payment of the employer’s share of Social Security payroll taxes (6.2%) through the later of the date PPP loan forgiveness was granted or December 31, 2020. Deferred payroll taxes are due 50% at the end of 2021 and the remainder at the end of 2022.

PPPFA eliminates the PPP loan forgiveness provision and makes this deferral available to all employers. Employers still can elect out of this deferral. However, since it is a no interest loan, we would advise that every employer elect into the deferral.

In these uncertain times, we are continually evolving to ensure that we do what is in the best interest of our clients, team, and community.

We will continue to closely monitor the economic and tax changes and communicate important information to you timely and accurately. We are always available by phone or email to address your questions and concerns.

We strongly encourage you to leverage our expertise during these trying times. We have a deep understanding and broad view of the economic climate, which can add significant value during times of uncertainty. We are committed to assisting you in successfully managing through the rapidly changing economic environment.

Thank you for your support and stay safe!

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