House bill would extend PPP rehiring safe harbor, increase overhead expense flexibility

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House lawmakers passed a bill late last week that would loosen restrictions on businesses using Paycheck Protection Program funds to retain and rehire workers, as federal policymakers work to revise the PPP to help companies recover in the aftermath of mandated closures.

The most recent iteration of the PPP, which has undergone significant revision since it launched in early April, provides business owners with a loan for eight weeks of payroll expenses and money for certain overhead costs. The Small Business Administration (SBA) will forgive businesses if they use 75% on payroll expenses and 25% on certain overhead costs, although many business owners have stated these restrictions aren’t practical for revamping operations due to the economic fallout caused by the COVID-19 pandemic.

The “Paycheck Protection Program Flexibility Act of 2020,” passed Thursday with a resounding 417-1 vote, would extend the covered period during which business owners can use a PPP loan and have it forgiven by the SBA from eight weeks to 24. The June 30 safe harbor for rehiring employees would also be extended through the end of 2020.

The bill awaits approval by the Senate.

The payroll spending requirement for forgiveness would also be lowered from 75% to 60% and would increase the flexibility business owners have for using the PPP to pay for rent, utilities, mortgage obligations and other overhead costs from 25% to 40%.

PPP funds that don’t meet guidelines for forgiveness have to be repaid as a low-interest loan over the next two years with a 1% interest rate; the recently passed House bill would increase this loan term to five years.

Businesses that receive loan forgiveness would be able to defer the employer portion of payroll taxes for the remainder of 2020.

“This bill significantly increases small businesses’ ability to have their PPP loan fully forgiven and will change forgiveness compliance,” said Erik Asgeirsson, president and CEO of CPA.com, in a statement released by the American Institute of CPAs. “The current lack of flexibility in some PPP provisions has created unnecessary challenges. We welcome Congress’s attention to this important issue as it will allow more businesses to apply for and use PPP relief.”

The flexibility act, coupled with recent PPP guideline updates, indicates a shift among policymakers to making PPP modifications that would accommodate small businesses in revamping efforts, said Bethany Novis, a partner with the Consulting Services Group at the Lancaster-based RKL.

“We’re sitting here in June, and some businesses are saying it might be July or August before we can re-open,” Novis said. “[The PPP] quickly changed from protecting their paychecks for a short period of time to their realizing that we need to allow this money to be more flexible to keep businesses in business.”