How the Paycheck Protection Program can assist you

Deciphering complex financial policies can be difficult. We break it down for you

COVID-19 has changed how small businesses operate, from applying for relief such as the Paycheck Protection Program (PPP) to updating payroll processes. Payroll—comprised of complex processes including garnishments and unemployment claims, payroll taxes, and classifying workers—doesn’t have to be confusing. By understanding payroll changes, payroll technology, and the ebb and flow of time and attendance, you can improve and simplify your payroll processes. WeWork Business Solutions powered by VensureHR makes professional services simple, so you can revitalize your small business during this time.

Since the COVID-19 outbreak in March 2020, and as the “new normal” shifts from day to day, U.S. employers have been trying to decipher all the legislation passed to keep their businesses afloat. Policies and decisions that were intended to aid business owners and employees have led to confusion and frustration. This in-depth look at the Paycheck Protection Program (PPP) cuts through the jargon so you can see where you and your business stand right now. 

What is the PPP?

The Paycheck Protection Program (PPP) offers financial relief in the form of loans to small businesses so that they can maintain their workforce and keep operating during the COVID-19 crisis. These loans have an interest rate of one percent, require no collateral or personal guarantees, and come with no additional fees. 

The PPP is part of The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed by the federal government on March 27, 2020. The CARES Act provides $2.2 trillion in immediate economic assistance without third-party intervention. These funds are dispersed to U.S. businesses, employees, and families to offset the public health and economic impacts of COVID-19. According to the Small Business Administration (SBA), there have been more than 5.2 million PPP loans approved, totaling more than $525 billion as of August 8, 2020.

While applications to the PPP closed on August 8, 2020, additional legislation could be passed to reopen PPP loan applications. If this happens, applicants would be able to apply through any existing SBA 7(a) lender or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution.  

Related: How COVID-19 has changed small businesses

Who qualified for the PPP?

The PPP applied to:

  • Sole proprietors, independent contractors, and self-employed individuals
  • Any business in the Accommodations and Food Services industry with more than one physical location and employs fewer than 500 employees per location
  • Any business, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization, or tribal business expense as defined in section 31(b)(2)(C) of the Small Business Act with the greater of 500 employees, or that meets the SBA industry size standard if more than 500 employees

Rules on spending

PPP loans could be used on any small business expense that is covered under the Small Business Administration’s guidelines for business size (industry-based size or alternative size).

On June 5, 2020, Congress passed the Paycheck Protection Program Flexibility Act, which provides extensions and clarifications regarding the PPP loan and forgiveness. Borrowers who received a PPP loan on or before June 5, 2020, now have 24 weeks to spend the funds instead of eight weeks. Borrowers who received a PPP loan after June 5, 2020, will automatically be allotted a forgiveness period that is either 24 weeks, or from the date of the loan to December 31, 2020, whichever is shorter.

Rules on taxes

According to the Internal Revenue Service (IRS) (the answer to FAQ 10), prior to the PPP Flexibility Act, an employer who received a PPP loan was not permitted to defer the employer’s deposit and payment of Social Security tax after a lender forgave partial or all of the employer’s PPP loan. The PPP Flexibility Act now allows employers whose loan was forgiven to defer deposit and payment of Social Security tax.

The deferred deposits of an employer’s share of Social Security tax must be deposited by the following deadlines to be considered “timely”:

  • December 31, 2021, 50 percent of the eligible deferred amount; and
  • December 31, 2022, the remaining amount

For example, if an employer is eligible to defer $20,000 for the payroll tax deferral period and opts to do so, $10,000 is due no later than December 31, 2021, and the remaining amount ($10,000) is due by December 31, 2022, through the electronic federal tax payment system®. However, if the same eligibility applied but the employer paid $15,000 of the $20,000 and deferred the remaining amount ($5,000) for the payroll tax deferral period, the employer must pay the remaining amount by December 31, 2022, since the first payment deadline and requirements (for December 31, 2021) was met. 

The IRS will likely issue a reminder notice to employers for each applicable deadline in 2021 and 2022, despite the fact that the deadlines and amounts will not change.

Regarding Social Security taxes that employers must pay on the PPP loan: On August 8, 2020, President Trump issued a memorandum directing the Secretary of Treasury to delay certain employees’ obligations to pay certain Social Security taxes. This provision is applied to the September 1 through December 31, 2020, time frame. The details of this provision are that:

  • It only applies to the 6.2% Social Security tax on employees
  • It only applies to employees generally earning less than $104,000 annually
  • It only provides a delay of the tax obligation, not forgiveness
  • There are no penalties or interest for those who utilize the delay
  • There is no relief for employers’ withholding obligation
  • Employers are not required to utilize the delay

Related: The complete guide to understanding payroll

Paying back the PPP

PPP loans will be forgiven in full if the funds are used for covered costs utilizing the 60/40 rule: 60 percent of the funds must be used for payroll while 40 percent goes toward other qualified expenses (including payroll costs, interest on mortgages, rent, and utilities).  

The loan forgiveness application and instructions from the Treasury Department include several tools to simplify the forgiveness process for borrowers, such as:

  • Payroll calculators to align your covered payroll period with your regular payroll cycles, as well as flexibility to calculate expenses paid or incurred during the 24-week period after receiving their PPP loan
  • Step-by-step instructions for you to calculate and confirm your eligibility for loan forgiveness
  • Easy-to-understand legislative exemptions from loan forgiveness reduction based on rehiring by June 30, 2020
  • Additional exemption may be provided to borrowers who made a good-faith, written offer to rehire workers who originally declined the opportunity to return to work

Additionally, a three-page loan forgiveness application has been released for borrowers who:

  • Are self-employed, or
  • Did not reduce wages by more than 25 percent and did not reduce the number or hours of their employees, or
  • Experienced reductions in business activities due to health directives related to COVID-19 and did not reduce wages by more than 25 percent

Under the original SBA rules, principal and interest on PPP loans are deferred for six months from the date the PPP loan was disbursed. However, the PPP Flexibility Act retracted the six-month repayment deferral. It also provides up to 10 months after your covered period to apply for forgiveness before payments are mandated.

The PPP Flexibility Act also provided that approved PPP loans may be extended from two years to five years as long as both the borrower and lender agree to the terms. 

Understanding complex financial policies can be frustrating and time-consuming for you. To help alleviate some of the stresses of ensuring that appropriate tax amounts are paid, deadlines are met, and affirming all resources have been exhausted, VensureHR offers many relevant small business resources, such as free, informational general industry webinars and monthly legal HR updates across the United States. Tune in to the first episode of the Business Solutions webinar series to hear experts from Vensure and WeWork discuss more small business recovery best practices.

Lizz Morse is a marketing and communications specialist at Vensure Employer Services. She holds a master of psychology from Grand Canyon University and has been published in Attorney at Law Magazine, Real Estate Agent Magazine, and The Good Men Project, among others. Morse has also ghostwritten a number of articles focused on small business administration and operations, appearing in publications such as Thrive Global and Small Biz Daily. 

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