Paycheck Protection Program Flexibility Act of 2020
On May 28, 2020, the United States House of Representatives passed H.R.7010, the Paycheck Protection Program Flexibility Act of 2020, by a vote of 417-1. The National Conference of CPA Practitioners announces its support of this legislation.
When the CARES Act was passed in March, many of its provisions were designed to assist the small business owner; however, they were written vaguely and became subject to interpretation by the U.S. Department of the Treasury in a way unintended by the legislation. Other aspects did not fully take into consideration the effects of the economic shutdown across the country. This newly proposed legislation is an attempt to rectify some of those effects.
Under the CARES Act, funds received under the Paycheck Protection Program (PPP) were to be disbursed within eight weeks of their being received by the business owner. 75% of these funds were to go to payroll-related costs, and the remainder could be applied to other costs, such as rent and utilities. At the end of this eight-week period, the business owner then had to provide information on those costs to determine whether or not the amount, in whole or in part, would be forgiven. There were a number of specific problems with this:
- The initial application determined the amount of the PPP grant/loan based on two and one-half months (10 weeks) of average monthly payroll; however, business owners only had eight weeks in which to make the disbursements of the funds.
- Once the funds were received, business owners had to contact employees to come back to work, regardless of whether or not they were able to restart their operations. Upon being contacted, many employees have decided not to return to work, but rather to continue to collect their ‘enhanced’ unemployment benefits.
- Many businesses have not been able to restart their operations. Those that were able to restart have limitations/restrictions that prevent them from operating at 100% capacity.
- Furthermore, many former employees are fearful of returning to work if they have small children or elderly parents living at home that are at higher risk for severe illness from the COVID-19 infection. These people often need a period of time to properly situate their children and elderly family members before they can return to work.
The proposed legislation addresses some of these problems:
- Reducing the 75% payroll use requirement to 60%.
- Increasing the eight-week requirement to 24 weeks increases the likelihood that the business owner will be able to meet the payroll use threshold, thereby making the entire amount of the PPP eligible for forgiveness.
The SBA has recently released a document to determine PPP forgiveness eligibility, which has additional issues, including:
- What can be excluded from payroll costs. The document refers to the Federal Register where it clearly states that the FICA AND FEDERAL WITHHOLDING from each employee be removed from the calculation to determine whether or not a business has attained the 75% threshold (85 FR 20811).
- The original application for a PPP grant included GROSS WAGES (limited to $100k per employee). The information from the Federal Register, unless changed, makes it difficult for a business owner to achieve the current payroll threshold.
- Additionally, limitations on how a reopened business can operate can be imposed by the Department of Health & Human Services (HHS), the Centers for Disease Control and Prevention (CDC), and the Occupational Safety & Health Administration (OSHA). These limitations can include, but are not limited to, social distancing, worker/customer safety requirements, and standards for sanitation, all related to COVID-19.
There are still other portions of the CARES Act that need to be clarified. Some of these have pending legislation, others do not. This bill is a first step in those clarifications.#News