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Listen Up, Employers: PPP Changes and Loan Forgiveness Updates

August 20, 2020 - minute read

As you’re likely already aware, the Paycheck Protection Program (PPP) was created under the CARES Act (Coronavirus Aid, Relief and Economic Security Act) to help businesses with fewer than 500 employees or those who can satisfy their industry’s SBA size standards to overcome financial strains created by COVID-19.

In April, the program was rolled out to assist employers with keeping workers on their payroll and managing costs associated with essential business functions. Although there haven’t been any changes to eligibility, the application process, and where to actually apply: there are changes which employers need to be aware of- especially with the implementation of the Paycheck Protection Program Flexibility Act (PPPFA).

After multiple rounds of funding many businesses have exhausted their PPP loans or are struggling with how best to use leftover funds. Let’s go over the latest changes to PPP, how to achieve loan forgiveness, and the other options for using PPP for covering non-payroll expenses.

Changes to PPP and Loan Forgiveness

Application extensions for loan forgiveness and flexibility around the use of leftover PPP loan funds are two of the primary changes to PPP loans since the launch of this initiative. PPP loans that originally needed to be used within eight weeks are now allotted three times as much. Under the new PPPFA, borrowers are allowed a 24-week period from the first day of their loan payouts to use the entirety of their PPP funds. This applies until December 31, 2020.

Moreover, the Small Business Administration (SBA) has agreed to forgive loans for businesses whose employee retention criteria are met, and whose PPP funds are being used appropriately as follows:

  • At least 60% (or more) of PPP loan is spent on payroll costs: salaries, wages, commissions, tips (up to $100,000 annualized for each employee); employee benefits like paid leave, severance pay, insurance premiums, and retirement benefits; state and local taxes; and payroll costs for sole proprietors and independent contractors (up to $100,000 annualized).
  • Remaining 40% (or less) is spent on non-payroll, PPP-approved business costs: rent, mortgage interest or utilities payments.

It has been recommended by legal experts to create a separate account for these loans in order to be very clear about how they are being used. In order to earn loan forgiveness, employers must be able to distinguish between approved, non-payroll costs and payroll-related expenses within their system.

What to Do With Your Leftover PPP Loans

Now that you understand how to use PPP loans to achieve loan forgiveness and the changes that have taken place, let’s break down what else you can you do with leftover PPP Loans. If it’s not going to PPP approved business necessities, it’s critical to understand how your options affect loan forgiveness.

Here are some of the additional options for what to do with your leftover PPP loans:

  • You can return the amount of your loan you're not using. You may be liable for a modest amount of interest on the portion you give back. However, you'll also stop accruing interest on the loan once it's given back. If you go this route, it is still possible to be eligible for partial loan forgiveness in addition to potential cost savings.
  • You can hang on to what remains of the loan and spend it on business needs outside of the eligible expenses. This route could help your business in dire circumstances, but it does mean having to pay back your loan. The interest rate on PPP loans is low at just 1%, so it's an affordable option for borrowing essential funds. Just be prepared for the financial burden it could impose on your business.

HR Solutions for Managing PPP Loans

In the midst of financial stress and evolving COVID-related changes, having a dependable HR solution can mean the difference between loan forgiveness and financial disaster. And when you use EPAY’s Human Capital Management (HCM) system, managing new complex processes related to payroll and tax processing, benefits, and documentation is easier than ever.

EPAY is constantly seeking new ways to help hourly workforces navigate COVID-19 and regularly updates our Coronavirus Resource Center as new information and tools become available. Sign up for our newsletter to receive the latest from the blog, or watch a 2-minute tour of our HCM solution today.

Filed Under: Payroll & Tax COVID-19