Senate Approves Bill to Ease Restrictions on Paycheck Protection Program

U.S. Capitol

[Update: President Donald Trump signed the act into law on June 5.]

Both chambers of Congress have approved a bill to modify certain provisions employers must follow to be eligible for loan forgiveness under the Paycheck Protection Program (PPP).

The U.S. House of Representatives passed the bipartisan Paycheck Protection Program Flexibility Act in a 417-1 vote on May 28, and the Senate passed the bill by unanimous consent on June 3. President Donald Trump will now consider the measure.

"Millions of working families continue to face the historic economic fallout from the coronavirus pandemic, including unemployment levels not seen in many decades," said Sen. Mitch McConnell, R-Ky., on the Senate floor. He noted that the new bill would "strengthen the implementation of the Paycheck Protection Program for the workers and small businesses that are struggling to weather this storm."

Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, Congress allocated funds to the PPP to help small businesses keep workers on their payrolls. Lawmakers from both sides of the aisle supported making changes to the PPP to address complaints from employers that the existing rules are unfeasible.

"We need to give borrowers more than eight weeks to use the funds in order to qualify for loan forgiveness," said Rep. Nydia Velázquez, D-N.Y., when the House voted on the measure. "Borrowers who took out PPP loans early in the program are about to reach the end of their period governing forgiveness" and "millions of small businesses across the nation are still facing forced closures."

We've rounded up the latest news on this topic from SHRM Online and other trusted outlets.

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More Flexibility

The Paycheck Protection Program Flexibility Act would give employers more flexibility on how they use PPP funds while remaining eligible for loan forgiveness. Employers would have to spend 60 percent—rather than the current 75 percent—of PPP funds on payroll costs. The additional 40 percent could be spent on mortgage interest, rent, utilities and other costs. Employers would also have 24 weeks—instead of eight weeks—to spend the loan proceeds, and they would be able to defer payroll taxes even if they receive loan forgiveness. Currently, employers must rehire certain laid-off workers by June 30 to seek loan forgiveness, but the new bill would extend the deadline to Dec. 31, with exceptions based on employee availability. "Businesses are really suffering for lack of these changes," said Sen. Chuck Schumer, D-N.Y., on the Senate floor.


Paycheck Protection Program Details

Under the current legislation, PPP loans can be applied to expenses incurred in an eight-week period between Feb. 15 and June 30 and may be used for payroll costs, health care, rent, utilities and other business debts. Businesses are generally eligible if they employ fewer than 500 employees. However, businesses that employ 500 or more workers may participate if they meet the Small Business Administration's (SBA's)  size standards for their industry. Independent contractors and self-employed people are also eligible, as well as independently owned franchises that are SBA-approved and employ less than 500 workers. The PPP is meant to encourage businesses to keep their workers employed or quickly rehire them, so the SBA will forgive loans if all employees remain on payroll for eight weeks—or workers are rehired by a certain date—and the money is used for covered expenses.

(SHRM Online)

Current Loan Forgiveness Criteria

A covered small business may qualify for a loan of up to 2.5 times its average monthly payroll costs—up to a maximum of $10 million. The U.S. Small Business Administration (SBA), which is administering the program, will forgive loans if:

  • The loan proceeds are used to cover payroll costs, as well as most mortgage interest, rent and utility costs over the eight-week period after the loan is made.
  • Employee headcount and pay levels are maintained.

The eight-week period begins on the date the lender makes the initial distribution to the business. Employers need to monitor their expenditures during the first eight weeks after the PPP loan is originated to ensure that no more than 25 percent of the loan proceeds are spent on nonpayroll costs such as rent, mortgage interest and utilities payments. Employers should also note that the forgivable amount will be reduced if an employer decreases its full-time employee headcount or cuts salaries and wages by more than 25 percent. Though, employers who made reductions between Feb. 15 and April 26, have until June 30 to restore their full-time employment and salary levels to qualify.

(SHRM Online)

What to Do if Your Rehire Offer Is Rejected

New guidance that helps PPP borrowers with loan forgiveness may lead to a tricky employee relations issue. Employers that have laid people off can obtain loan forgiveness if they maintain headcount, which means rehiring those workers. But what if former employees decline the offer? Employers will need to meet there five conditions to avoid having their loan forgiveness reduced, according to the SBA.

(SHRM Online)

High Demand

The PPP reached its initial $349 billion cap less than two weeks after the program launched, so lawmakers approved another coronavirus relief package, which added $310 billion to replenish the fund. "With the additional funds appropriated by Congress, tens of millions of additional workers will benefit from this critical relief," said Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza in a joint statement when the new funds were approved.

(SHRM Online)

Check for Updates to FAQs

The SBA and Treasury Department have been periodically updating their answers to frequently asked questions, so employers should check regularly for new insight on nuanced issues. For instance, do businesses owned by large companies that have the means to support ongoing operations qualify for a PPP loan? The guidance says that "all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere … borrowers still must certify in good faith that their PPP loan request is necessary."

(U.S. Treasury Department)



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