July 5, 2020

Volume X, Number 187

July 03, 2020

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More Flexibility Added to the Paycheck Protection Program

On Friday, June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (the “Act”), which relaxes various rules under the Coronavirus Aid, Relief, and Economic Security Act’s (the “CARES Act”) $670 billion Paycheck Protection Program (the “PPP” or “Program”) managed by the U.S. Small Business Administration (“SBA”). The PPP provides forgivable loans to small businesses to keep their workers on the payroll during the COVID-19 pandemic.

The Act is the first major statutory overhaul of the PPP, which has been plagued with delays, technical issues and severe criticism regarding ambiguities and inconsistencies in the law and accompanying regulations.  The Act is intended to address the fear by many small businesses that their PPP loans will not be forgiven because the requirements for forgiveness are too burdensome.

The Act addresses pleas for flexibility and eases the restrictions required to qualify for PPP loan forgiveness. Specifically, the Act makes the following changes to the Program:

  • Lowers to 60% (from 75%) the minimum portion of a PPP loan that must be spent on payroll costs in order to qualify for forgiveness.

  • Extends the forgiveness covered period to 24 weeks (instead of 8), but provides businesses that received a loan prior to the effective date of the Act the option to continue to utilize an 8 week covered period.

    • The Act moves the deadline for forgiveness eligibility for spending the PPP loan funds from June 30 to December 31, 2020 to accommodate the new 24-week window. June 30, 2020 remains the deadline for applying to receive PPP loans.

  • Extends the loan term for new loans to 5 years (from 2) for amounts of the loan not forgiven and which must be paid back.  Importantly, however, businesses that received a loan prior to the effective date of the Act will still have a 2 year loan, unless the lender agrees to extend the term.

  • Adds a safe harbor such that borrowers will not have their forgiveness amount penalized due to reductions in average Full Time Equivalent (“FTE”) employees if:

    • The borrower can document that it was unable to rehire former employees AND was unable to hire similarly qualified new people to fill positions; OR

    • The borrower can document that it is unable to operate at the same number of FTEs as previously existed, as a result of federal guidance or regulations involving social distancing, sanitation, or other safety requirements related to COVID-19.

  • Deferral of loan payments lasts until a decision is made with regard to forgiveness, rather than for a flat 6 months.

The Act also amends Section 2302(a) of the CARES Act to allow businesses that took a PPP loan to delay payment of their payroll taxes without losing loan forgiveness.

This Act, however, will likely not be the last round of changes to the PPP, however.  The changes contained in the Act will require significant modifications to existing regulations, guidance and application forms related to the PPP.  All of this has the potential to lead to more ambiguity for borrowers, who have had to react to constantly changing program rules.

What should borrowers do now?

To ensure compliance with the new changes to the PPP, borrowers should:

  • Ensure proper documentation and procedures are followed if attempting to qualify for the FTE reduction safe harbor;

  • Consider the advantages (and potential disadvantages) before switching from an 8-week to 24-week covered period; and

  • Consider implications of state law when deciding to furlough or bring back furloughed/terminated employees.

©2020 Epstein Becker & Green, P.C. All rights reserved.National Law Review, Volume X, Number 157

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About this Author

Andrew Kaplan Corporate Services Healthcare and LifeSciences Lawyer Princeton
Associate

ANDREW KAPLAN is a Member of the Firm in the Corporate Services and Health Care and Life Sciences practices. He works primarily in the firm's Princeton office, where he serves as the Managing Shareholder. In addition to health care, hospitality, and other industries, Mr. Kaplan practices extensively in the real estate and secured lending fields.

Mr. Kaplan:

  • Represents buyers, sellers, lenders, developers, and borrowers in real estate acquisitions, dispositions, leasing, and finance

  • Counsels emerging and established companies with...

609-455-1543
Member of the Firm

TZVIA FEIERTAG is a Member of the Firm in the Employee Benefits & Executive Compensation practice, in the Newark office of Epstein Becker Green. She has worked exclusively in the area of employee benefits for more than 16 years, advising employers of all sizes, including Fortune 500 companies, other public and private companies, and start-ups, on all aspects of ERISA compliance and the day-to-day operation of employee benefit plans.

Specifically, Ms. Feiertag’s experience includes:

  • Counseling on the design, drafting, implementation, and administration of 401(k) defined contribution, defined benefit, and self-insured and fully-insured active and retiree medical, life, and disability plans, as well as employee assistance programs, wellness programs, cafeteria plans, health savings accounts (HSAs) and health reimbursement arrangements (HRAs), flexible spending accounts (FSAs), fringe benefits (such as adoption assistance, surrogacy reimbursement, commuter benefits), severance plans, voluntary benefits, and other compensation and benefit arrangements

  • Providing advice on compliance with a variety of laws, including ERISA, the Internal Revenue Code, HIPAA, and COBRA, as well as applicability of state laws/ERISA preemption issues to ERISA-covered plans

  • Counseling on all aspects of Affordable Care Act (ACA) compliance review and assistance, including applicable large employer determinations, controlled group analysis, ACA reporting assistance, employer mandate penalty letters and assessments, design assistance, and vendor contract review

  • Advising on the impact of mergers and acquisitions on employee benefits, and assisting with plan terminations and integrations

973-639-8270
John D. Barry Associate Newark Health Care and Life Sciences Lawyer
Associate

John H. Barry is an Associate in the Health Care and Life Sciences practice, in the Newark office of Epstein Becker Green.

Mr. Barry:

  • Represents a variety of health care providers, including hospitals, physician groups, ambulatory care facilities, accountable care organizations, nursing homes, and various other health care facilities and businesses, in transactional and regulatory compliance matters arising under Medicare, Medicaid, and other third-party reimbursement programs

  • Advises on acquisitions, joint ventures, and...

973-639-8264