New Law Gives PPP Borrowers More Breathing Room
June 5, 2020
by Sean Weiss, Partner & VP of Compliance
The U.S. Senate passed a bill that modifies the Small Business Administration’s Paycheck Protection Program (PPP) as part of its ongoing relief efforts during the COVID-19 Public Health Emergency (PHE), granting significant new flexibilities to all borrowers, making it easier to achieve full loan forgiveness and delaying the deadline for the employment test from June 30 to Dec. 31, 2020. The original provision required borrowers to show they had rehired a certain amount of their workforce by June 30 or else they would have to eventually pay back some or all of the loan amount.
The bill, dubbed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), originated in the House of Representatives and is expected to be signed within days of its June 4 passage by President Donald J. Trump.
Below is a bullet-point summary of H.R. 7010’s key provisions:
- Percent of money required for payroll drops to 60%. Under the new law, only 60% of your PPP funds need to be allocated toward payroll, down from the original 75%.
- Percent of money for non-payroll expenses upped to 40%. You will be able to spend up to 40% of the PPP funding on expenses not related to payroll.
- Covered period extended to December 31, 2020. The new law rolls back the deadline for forgiveness reduction from June 30 to Dec. 31. Previously, the amount of the loan that would be forgiven would begin to be reduced if you did not rehire (or newly hire) employees such that you would achieve your same number of full-time equivalents (FTE) prior to the COVID-19 PHE. For example, if your practice employed 20 FTEs prior to the PHE, then had to furlough or lay off 10 FTEs, leaving 10 still on the payroll, you will still have your PPP loan completely forgiven if you spend the loan monies on appropriate expenses in the right proportions on payroll, health insurance, retirement plan contributions and overhead (e.g. rent and utilities), so long as you are back up to 20 FTEs on Dec. 31, 2020. You do not need to have the same 20 individuals as employees, nor do they have to be performing the same work functions as before the PHEs.
- New exemption based on employee availability. The law introduces a new exemption which would forgive the PPP loan if you are able to document, in good faith, that you had either:
- “An inability to rehire individuals who were employees of the eligible recipient on February 15, 2020” or “an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.”
- “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 or guidance set by HHS, CDC, or OSHA] for any period beginning 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.”
- Loan payback period extended to 5 years. The repayment period for the PPP loan (for any amounts that are not forgiven) is extended from two years to five years.
Over the years, the meetings have become more tightly wound with young prosecutors and investigators trying to make a name for themselves, resulting in very aggressive pursuit of individuals and corporations for settlement agreements or further litigation. The demands for repayment and fines have skyrocketed over the years based on sampling and post-audit extrapolation methodologies and fueled by the rise in qui tam filings. The outcomes range added to ensure the compliance function is adequately resourced as it sets the compliance programs during a criminal investigation.
The biggest immediate benefit is the delaying of the June 30 deadline to reach your pre-COVID FTE counts back to Dec. 31. This is a big deal for practices trying to figure out how to bring back staff if the patient volume or other measures of business demand just aren’t there.
Another potential game-changer are the new provisions granting exemptions based on employee eligibility. The key verbiage is to “document” and “in good faith,” which is somewhat vague. What constitutes a good-faith effort to document that you can’t rehire all the people you lost, or that your levels of business activity aren’t back to normal? If you are back up to 90% of your normal business activity, does the exemption still apply? These are the questions to ponder if you are considering the exemptions, and we will also be trying to reach a consensus among our experts at DoctorsManagement. In the meantime, you can rest easy knowing you now have till the end of the year to figure all this out.
What to do next…
- If you need help with an audit appeal or regulatory compliance concern, contact us at (800) 635-4040 or via email at email@example.com.
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