Home Health & Hospice Week

COVID-19:

New PPP Law Provides More Flexibility

Bonus and hazard pay count toward 60% payroll target, interim final rule clarifies.

Another week brings another new round of changes to COVID-19 funding.

On June 5, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 into law. The legislation gives “small businesses more time to repay funds and allow[s] more flexibility on how the funds are spent,” summarizes the National Association for Home Care & Hospice.

The “critical program … has provided over 4.5 million small business loans totaling more than $500 billion to ensure that approximately 50 million hardworking Americans stay connected to their jobs,” Treasury Secretary Steve Mnuchin and Small Business Administration head Jovita Carranza said in a June 8 release.“This bill will provide businesses with more time and flexibility to keep their employees on the payroll and ensure their continued operations as we safely reopen our country.”

The law’s “significant changes to the Pay-check Protection Program … may be impactful for businesses facing challenges in complying with the previously existing rules relating to PPP loan forgiveness,” note attorneys Christian Matarese, Allie Misner, and Christopher Rodriguez with law firm Dechert in online analysis.

The PPP Flexibility Act “loosens several of the Paycheck Protection Program’s more onerous restrictions regarding loan forgiveness,” notes Adam Davey with accounting firm VonLehman & Co.

NAHC “applauds this action by Congress, as the new flexibilities will enable small businesses the latitude necessary to carry out the Paycheck Protection Program as intended by the Congress,” the trade group says.

Keep up: Changes to the PPP program have been “fast and furious,” Davey says in online analysis.“The rules for the PPP — whether in legislative, regulatory or other forms — continue to emerge at a brisk pace, often updating previous guidance,” he cautions.

“The rules and guidance relating to the PPP and loan forgiveness are constantly in flux,” says attorney Ron Grace with law firm Nossaman. While many clarifications and changes are helpful, “time is of the essence” for providers in figuring out whether they will qualify for forgiveness, Grace says in an eAlert.

Covered Period Extension Helps Many

Here are the new rules the PPP Flexibility Act contains:

  • Payroll ratio. The law has changed the forgiveness requirement for the ratio of payroll spending from 75 percent to 60 percent.

Tip: In an interim final rule published in the June 1 Federal Register, the SBA clarifies that bonuses and hazard pay count toward the salary ratio, as long as an employee’s compensation doesn’t exceed $100,000.“The [SBA] Administrator, in consultation with the [Treasury] Secretary, has … determined that … the employee’s hazard pay and bonuses are eligible for loan forgiveness because they constitute a supplement to salary or wages, and are thus a similar form of compensation,” the rule says.

  • Covered period. Previously, borrowers had eight weeks to spend their PPP loan funds to qualify for forgiveness. The eight-week period began expiring on May 29 for the first loan recipients on April 3, NAHC points out.

Under the new law, providers can stick with that time period, or can switch to a 24-week period running through Dec.31.“This gives borrowers until the end of the year to spend their PPP loan proceeds,” explain attorneys with law firm Arent Fox in online analysis.

“This extension of the covered period gives borrowers significantly more flexibility to utilize PPP loan proceeds in accordance with the aims of the program after many businesses expressed concern that the eight-week period was too restrictive,” the Dechert attorneys note.

“This should allow most borrowers to achieve full forgiveness,” expects consulting firm The Health Group in Morgantown, West Virginia.

Not all borrowers will want to opt for the extended covered period.“If a borrower does use the alternative period to compute payroll costs, it also must use that alternative period to calculate FTE employees and salary or wage reductions,” Davey points out.

This option to stick with the original eight-week covered period ensures “that borrowers that maintained their FTE and salary/wage levels and spent their PPP loans over the original 8-week forgiveness period but are not able to reopen, or fully reopen and need to reduce headcount or wages following expenditure of PPP loan funds are not prejudiced by the new, longer forgiveness period,” the Arent Fox attorneys say.

  • Employment restoration. Borrowers now have until Dec.31 to bring employment levels back up to pre-coronavirus levels. Before the law passed, the deadline was June 30.
  • Hiring safe harbors. A borrower’s for­giveness won’t be impacted if it can show “an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and … an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020,” the law says.

Likewise, a borrower is exempt from penalty if it “is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupa­tional Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19,” the law indicates.

  • Repayment schedule. If borrowers don’t qualify for full loan forgiveness, they now have five years to repay the loan amount, as opposed to the previous two years. Interest remains at 1 percent, The Health Group points out.

The law specifies that the five-year maturity term takes effect for loans made June 5 and after, but lenders and borrowers can mutually agree to modify loans from before that date.

Watch out: Extending the repayment due date doesn’t change the application date. A PPP loan “application must still be submitted by June 30, 2020,” stresses Anne Coughlin with BKD.

  • Repayment start date. The law extends the end of the deferral period for PPP loan interest, principal and fees from “6 months” to “the date on which the amount of forgiveness determined … is remitted to the lender” by the SBA, the law says.

“Notwithstanding this extended deferral period,” the Arent Fox attorneys note, “borrowers will be required to begin paying principal, interest, and fees on their PPP loans 10 months after the end of the forgiveness covered period if they fail to apply for forgiveness.”

  • Payroll tax deferral. The law allows “recipients of loan forgiveness under the paycheck protection program to defer payroll taxes,” it says. Under the CARES Act, providers couldn’t both receive PPP loan forgiveness and defer payroll taxes.

Keep Your Eyes Peeled

The changes and clarifications are far from over.“Further administrative updates are expected by the SBA,” Coughlin points out.

“SBA, in consultation with Treasury, will promptly issue rules and guidance, a modified borrower application form, and a modified loan for­giveness application implementing these legislative amendments to the PPP,” the release from Mnuchin and Carranza says.

Note: The interim final rule is at https:// home.treasury.gov/system/files/136/PPP-IFR-Loan- Forgiveness.pdf.

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