Paycheck Protection Program Forgiveness Act (PPPFA)

Background of the Initial PPP

The US Treasury states that the Paycheck Protection Program was created to provide small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds could also be used to pay interest on mortgages, rent, and utilities. It’s also noted by the US Treasury that the funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

What is the Purpose of the PPPFA?

The new law allows employers more flexibility when using Paycheck Protection Program funds and applying for loan forgiveness. This also includes:

  • Extending the time period for borrowers to spend the PPP loan
  • Allows employers/recipients of the loan to continue to defer Social Security Payroll tax
  • Extends the time-frame for applications
  • Employers now have until Dec. 31, rather than June 30, to rehire laid-off workers.

Key Payroll Changes

The PPPFA will also provide flexibility in regards to the amount of money that must be used for payroll purposes. Prior to the PPPFA, employers had to spend 75% of the loan amount on payroll costs – this has now been lowered to 60%. According to SHRM, payroll costs may include:

  • Salary, wages, commissions and tips—up to $100,000 annualized for each employee.
  • Employee benefits, including paid leave, severance pay, insurance premiums and retirement benefit.
  • State and local taxes assessed on pay.
  • Payroll costs for sole proprietors and independent contractors include wages, commissions, income or net earnings from self-employment (up to $100,000 annualized).

(The additional 40 percent could be spent on mortgage interest, rent, utilities and other costs).

It is likely that we will be receiving further guidance, clarifications, and modifications from the SBA and Department of Treasury in regards to the PPPFA. 

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