Nonprofit Resources


Unpacking the Paycheck Protection Program Flexibility Act

NOTE: See our article on  Applying for PPP Loan Forgiveness  for the latest information on PPP loan forgiveness,  including changes arising from the enactment of the Paycheck Protection Program Flexibility Act and subsequent Small Business Administration (SBA) guidance.

On June 3, 2020, the Senate passed H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020 (the Act), clearing the way for the bill to be signed into law by President Trump. This bipartisan bill passed in the House by a vote of 417-1 and in the Senate by a unanimous voice vote.

So what does this mean for organizations that received a Paycheck Protection Program (PPP) loan? This article reviews the major changes to be aware of.


The Act makes the following key changes to the PPP loan program:

  • Extends the minimum maturity of loans entered into after enactment from the two years set forth by the Small Business Administration (SBA) to five years.
  • Extends the PPP loan program from June 30, 2020 to December 31, 2020.
  • Expands the eight-week Covered Period for capturing forgivable PPP loan expenses to 24 weeks.
  • Extends the time to rehire workers from June 30, 2020 to December 31, 2020.
  • Creates a new exemption to the application of the proportional reduction in loan forgiveness arising from a reduction in full-time equivalent employees.
  • Replaces the SBA’s 75% payroll cost requirement with a new statutory 60% payroll cost requirement.
  • Extends the period of loan deferral to coincide with the date of loan forgiveness.
  • Permits recipients of a PPP loan to defer the payment of payroll taxes as otherwise allowed by CARES Act section 2302(a).

Now let’s review each of these changes in further detail.

Extension of the Minimum Loan Maturity

In its First Interim Final Rule, the SBA exercised its authority to set the minimum maturity for PPP loans at two years. As noted above, the Act extends the minimum loan maturity on any loan entered into after enactment to five years.

While the Act only directly affects new loans, Congress made it clear that nothing in the Act, the CARES Act, or the Paycheck Protection Program and Health Care Enhancement Act (the act that provided the second tranche of funding for PPP loans) is to “be construed to prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of a [previously issued PPP loan] to conform with requirements of this section.” Thus the minimum maturity of existing loans may be modified by mutual agreement of the lender and the borrower to have a five-year minimum maturity and still meet the definition of a PPP loan.

Extension of the PPP Loan Program

The PPP loan program as it was originally envisioned in the CARES Act only contemplated making loans through June 30, 2020. The program was to no longer authorize new loans after that date. The Act extends the PPP loan program through December 31, 2020.

Despite this change, on June 8, 2020, the SBA and the U.S. Department of Treasury issued a statement about the Act that included confirmation that June 30, 2020 “remains the last date on which a PPP loan application can be approved.”

Expansion of the Loan Forgiveness Covered Period

The CARES Act created an eight-week Covered Period during which forgivable expenses are captured. The Act redefines the Covered Period to be the period that begins on the date the PPP loan originates (which the SBA has interpreted to be the date the loan funds are distributed) and ends on the earlier of:

  1. the date that is 24 weeks later; or
  2. December 31, 2020.

Note that this change notwithstanding, if your organization received a PPP loan prior to the enactment of the Act you may choose to use the original eight-week Covered Period.

Extension of Time to Rehire Workers

The CARES Act provided an exemption to the application of the full-time equivalent (FTE) employee reduction quotient for employers who rehired employees by June 30, 2020. The Act now extends the time to rehire employees until December 31, 2020. While this gives employers more time to restore their workforce, it also creates a potential delay in applying for loan forgiveness for employers seeking to use this exemption, as they will not be able to apply for loan forgiveness until after December 31, 2020.

New Exemption from Proportional Reduction in Loan Forgiveness Amount

The CARES Act includes a provision that reduces loan forgiveness by a fraction that compares an employer’s FTE headcount during the Covered Period to its FTE headcount during one of two reference periods:

  1. February 15, 2019 through June 30, 2019; or
  2. January 1, 2020 through February 29, 2020.

Seasonal employers are permitted to select either of the above reference periods or any 12-week consecutive period between May 1, 2019 and September 15, 2019. The CARES Act provided an exemption from this reduction if an employer restored its FTE headcount by June 30 (now December 31; see section above) to the same level or higher.

The Act now creates a second form exemption. The language of this new exemption reads:

(7) EXEMPTION BASED ON EMPLOYEE AVAILABILITY.—During the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness under this section shall be determined without regard to a proportional reduction in the number of full-time equivalent employees if an eligible recipient, in good faith—

(A) is able to document—

(i) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and

(ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or

(B) is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

This new exemption sets aside the FTE reduction quotient where an employer can document the inability to rehire workers employed by the employer on February 15, 2020 or the inability to hire similarly qualified replacement workers on or before December 31, 2020. The term “inability” is not yet defined. For example, does this mean the employer is unable because the employer lacks the financial means to pay the workers? Does it mean the workers are unavailable? Or does it mean some combination of these or other factors?

In addition, the Act provides this exemption applies if, during the period of March 1, 2020 through December 31, 2020, an employer is able to document an inability to return to the same business level at which it was operating on February 15, 2020 because of compliance with certain government requirements or guidance related to sanitation, social distancing, or any other worker or customer-safety requirement related to COVID-19. The Act does not define the manner in which an employer’s “business level” is to be measured for comparison. The Act also does not address the availability of this exemption to businesses that have not been directly affected by the government-mandated safety standards, but nonetheless have experienced a decline in the level of their business because their customers are impacted by the government-mandated safety levels.

It is possible that this exemption will aid schools, camps, conference and retreat centers, and other similar employers whose activity levels have been impacted by stay-at-home orders and other similar pronouncements.

Reduction of the Payroll Costs Expenditure Threshold to 60%

In its First Interim Final Rule, the SBA announced a requirement that at least 75% of forgivable loan costs be payroll costs. The Act changes this threshold to 60%.

The statute states that “to receive loan forgiveness… , an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs.” The June 8 statement from the SBA and Treasury included clarification that partial PPP loan forgiveness remains if the 60% threshold is not met, noting:

If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
Extension of the Loan Deferral Period to Coincide with the Date of Loan Forgiveness

The Act replaces the reference in the CARES Act to a loan deferral period of not less than six months or longer than one year. The new loan deferral period begins with the disbursement of the loan funds and ends with “the date on which the amount of forgiveness… is remitted to the lender.”

In addition, because the loan forgiveness application process may now extend much further into the future, the Act provides that if a borrower fails to apply for loan forgiveness “within 10 months after the last day of the covered period defined in section 1106(a) of the CARES Act,” the borrower must begin making payments of principal, interest, and fees. The reference to “section 1106(a) of the CARES Act” appears to start the 10-month clock at the end of the original eight-week Covered Period instead of the new 24-week Covered Period. We must wait for the SBA to confirm this point.

Deferral of Payroll Taxes

CARES Act section 2302(a) permits employers to defer the payment of 2020 employer payroll taxes. Fifty percent of the deferred taxes are then due in 2021, with the balance due in 2022. The CARES Act specifically denied this deferral opportunity to employers who received forgiveness of a PPP loan. The Act removes this barrier and now permits all employers to qualify for the deferral of employer payroll taxes. The IRS has posted a set of frequently asked questions regarding employer payroll tax deferral on its website. Note that these frequently asked questions do not yet reflect the enactment of the Act.

In the June 8 statement, the SBA and Treasury noted that they will “promptly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing these legislative amendments to the PPP.”

We will continue to provide updates as they become available, and encourage you to check the COVID-19 Resources section of our website for the latest information.

Please contact us online or at [email protected] with any questions.

This article has been updated to reflect additional information provided in the June 8, 2020 statement from the SBA and Treasury.


Ted R. Batson, Jr.

Ted serves as partner, tax counsel, and Professional Practice Leader – Tax. As a certified public accountant and tax counsel, Ted advises exempt organizations of all sizes on a wide range of issues. This includes consulting on tax and employee benefit related matters, representation before state and federal tax authorities, and assistance with firm audit or advisory engagements to formulate advice and counsel on important operating and tax issues. Ted also leads the firm’s tax preparation practice, including IRS Forms 990 and 990-T and related state forms.


  • James Clark says:

    The extension to 24 weeks from the 8 wweks is for all elgible costs including payroll as I read the article. If that is the case then we should meet our fund foregiveness with 12 weeks of paryoll, since we have very little fluctuation in our FTE before and during the qualiflying period beginning May 1, 2020 for us. Should we do the eligible payroll for the full 24 weeks even though it will show signigicantly more payroll cost than PPP funds received?
    If our recalulation for the funds requested was over stated by $7,000 primarily due to the inclusion of our employer payroll taxes and we meet our FTE requirement. Would you see our situation once we file the loan forgiveness application as showing us with needing to return $7,000 inorder to avoid taking taking on a SBA loan obiligation?

  • Chris Purnell Chris Purnell says:


    Thank you for your questions. As to your first question: there should not be an issue with having spent an excess amount on payroll costs since there is only a certain amount that can be forgiven (up to 100% of the PPP loan proceeds) and the extension of the covered period timeframe will make that almost a logical necessity. When the loan forgiveness application is tailored to take account of the changes made by the new legislation, there may be an option to choose some alternative covered period between the 8-week and 24-week periods. If that is the case, then you can choose the period that makes the most sense for your organization. As to your second question: I believe that if you used the funds on allowable expenses under the PPP loan program, and you meet the requirements for forgiveness purposes, then the full amount should be forgivable. However, you should also consult with your lender to get confirmation.

    Chris Purnell, Tax Counsel

  • Nancy says:

    Our PPP covered period begins 4/17/2020 and ends 6/11/2020. Our internet bill covering the period 3/28/2020-4/27/2020 (part of which is within the covered PPP period) is automatically paid on 4/15/2020 (prior to the covered PPP period). Is any of this utility expense forgivable??

    • Chris Purnell Chris Purnell says:


      First, the regulations state that nonpayroll costs are includible if they are (1) paid during the covered period, or (2) incurred within the covered period and then paid on or before the next regular billing date, even if the billing date is after the end of the covered period. Therefore, the 4/15 payment that is allocable to the 4/17-4/28 period would be includible in the forgiveness calculation. The May payment would be entirely includible, and the June payment would also be includible to the extent that it is for services during the covered period. Second, you will want to keep in mind the need to spend 60% of the loan proceeds on payroll costs when calculating how much you have in nonpayroll costs.

      Chris Purnell, Tax Counsel

  • Barbara Ernsberger says:

    Is it ok to pro-rate payroll expenses as well as utilities within the covered period? For example, our PPP (8 week) began on 4/16/20 and ends on 6/10/20. We have musicians who are paid monthly. They worked all of the Sundays in April, but would only be paid for 2 under the PPP Program. Can I pro-rate those with supporting documentation? Also, they are paid on a unit basis monthly. We also have our pastor who is paid 2x per month, and an admin who is paid bi-weekly. Is it ok to check all 3 of these on the application??

    • Chris Purnell Chris Purnell says:


      Payroll costs that are paid or incurred during the covered period are eligible for forgiveness. Payroll costs are considered paid when the ACH transaction is initiated or the paycheck is distributed. Payroll costs are considered incurred the day that the employee works, and you would be able to include the incurred amount even if the pay date falls outside of the covered period. So, for the dates where payroll costs are incurred but not paid inside the covered period, you should calculate how much of that work fell within the covered period, and include that amount in your forgiveness calculation. You will need to perform this assessment for your musicians, your administrative staff, and your pastor.

      For nonpayroll costs, you may include amounts that are paid during the covered period, or incurred during the covered period and paid on or before the next regular billing date. If a bill is paid during the covered period, then that is includible. If a bill pay date falls outside of the covered period but was for the provision of utilities during the covered period, you will need to assess how much of the bill is attributable to days during the covered period.

      Chris Purnell, Tax Counsel

  • Judy Oberist says:

    We received our money on June 11. The employee count, per the application, included both full and part time employees. There was nothing about FTEs in the application. Now the forgiveness form contains a calculation for FTEs and reduces our count by about15%. Our headcount has not changed. How do we address this?

    • Chris Purnell Chris Purnell says:


      The number of workers you noted on your initial PPP loan application is not the number that will be used to compute the headcount reduction factor; rather, the ratio that you generate on the forgiveness application is what will determine that. On the forgiveness application, you will need to calculate the number of FTEs you had during the reference period (either 2/15/19-6/30/19 OR 1/1/20-2/29/20) and compare that to the average number of FTEs you had during the covered period. An FTE is defined as a person who works 40 hours or more per week. You can either add up the number of hours worked during a week, divide that by 40, and then round to the nearest tenth for each employee to reach your FTE number, or you can use the simplified method of classifying anyone who works less than 40 hours per week as a .5 FTE.

      The reduction, if any, between the reference period and the covered period will determine your headcount reduction factor. Remember that you now have until December 31, 2020 to rehire workers should you choose to do so, though that will delay your ability to apply for loan forgiveness.

      Chris Purnell, Tax Counsel

  • Helen Bardell says:

    We received our PPP loan distribution on 4/20/2020. We receive our mortgage interest bill quarterly for the previous quarter. The payment due during the loan period is for Jan-Mar 2020. I’m not clear on the amount of this payment that can be includible costs. Is the entire amount for the quarter includible since the entire amount was paid prior to the end of our 8-week period or does it have to be pro-rated for a 56 day period?

    • Ted R. Batson, Jr. Ted Batson says:


      The rule the SBA has published states that nonpayroll related costs paid or incurred during the Covered Period are includible in your loan forgiveness calculation. Based on this and the example provided in the Loan Forgiveness Interim Final Rule, I believe you are NOT required to prorate the payment covering the period January – March for a 56-day period. However, the rule makes it clear you will need to prorate the payment made after the Covered Period that will include April-June such that you only include days “incurred” in the loan forgiveness amount.

  • Helen Bardell says:

    This question is about FTE and return to full staff by 6/30/2020; our church operates a preschool which normal operations closes from end of May till the beginning of September. How does this situation effect the rules for FTE calculations for loan forgiveness?

    • Ted R. Batson, Jr. Ted Batson says:

      The PPP Flexibility Act changed the June 30, 2020 date to December 31, 2020. However, I believe if you apply the seasonal employer rules to a school setting and you maintained your normal staffing until the end of the school year, you can probably avoid any negative consequence of having no teachers on payroll from the end of May through the first of September.

  • Dear Chris,

    Our church filed for and received PPP funding. However; God has blessed our contributions and we have actually had an increase in donations during the Covid-19 shutdown. Many in our church leadership feel we do not need the PPP funding since God has provided through the congregation. What if any, thoughts do you have on giving back the PPP funds or using the increase to fund missions in our area. Our staff has returned to full time work and we have spent payroll in excess of the amount we received. We have the documentation to request the loan to become a grant but not sure that is what we should do. Any comments would be helpful. Blessings.

    • Ted R. Batson, Jr. Ted Batson says:

      Rev. Chancey,

      You raise a good question. The certification the church was required to sign when applying for the loan centered on two elements: (1) did you need the loan to continue ongoing operations; and (2) was the need driven by current economic uncertainty.

      It sounds like God has blessed your congregation such that whatever uncertainty existed when you applied for the loan, that uncertainty has not manifested itself in need. Or at least has not done so yet. In addition, because of God’s grace you have found yourself not actually needing the funds to continue ongoing operations. However, I do not believe you must apply hindsight to the process and conclude that because your giving has remained strong you are somehow ineligible to utilize the funds you received.

      I don’t think there is anything inherently wrong should you decide to hold onto the funds for a little while longer as a reserve against continuing uncertainty, to deploy the funds to the work of missions in your area, or to return the funds to the bank because you don’t need them.

      • Schaun says:

        Mr. Batson,
        We are in a similar situation to Chris. If we don’t require the use of the funds during the 24 week period due to giving meeting goals what are your thoughts? My understanding is that the loan was to keep employees on the payroll. If we are able to do that without the loan then I would assume we didn’t need it and should return it. I don’t think the intent was for it to turn into a grant to be used for non-covid related payroll costs. We have also been blessed with healthy reserves but do have capital improvements that those funds may be required for. We also have discussed using the money for missions but that does not seem to meet the intent of the loan. What are your thoughts?

        • Ted R. Batson, Jr. Ted Batson says:


          The standard used to determine whether you “needed” your PPP loan funds is found in this certification from the PPP loan application: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” This standard is measured as of when you applied for your loan and not with the benefit of hindsight. Thus, if at the time you applied for your loan there was uncertainty regarding the future state of giving and your ability to continue operating, you would not be obligated to return the funds nor would you be ineligible or loan forgiveness. The SBA has further stated that it will not assess factors like the existence of reserves for loans of less than $2 million.

          All of this simply addresses the question of whether you are obligated to return the funds or forgo seeking forgiveness. It does not address the larger question of whether you should return the loan funds on the basis that, as things turned out, you didn’t need the funds. This is less of a tax or legal question and more of a moral question.

Leave a Comment