PPP Flexibility Act: What You Need to Know

By Owen Yin on July 20, 2020


After hearing concerns from small business owners across the country about the restrictions of the PPP, lawmakers have passed a bipartisan bill called the Paycheck Protection Program Flexibility Act of 2020 to make the PPP easier to use and get forgiven.

Relaxed payroll requirements

Previously, you needed to spend at least 75% of your PPP loan on payroll, and the remaining 25% on rent, utilities, and mortgage interest in order to get your loan forgiven. This was known as the 75/25 rule. This has been relaxed under the PPP Flexibility Act.

The new 60/40 rule means that in order to get your loan forgiven you now need to spend only 60% of the loan on payroll, and the remaining 40% on the other eligible expenses (which remain defined as mortgage interest, rent, and utilities).

Forgiveness period extension

You now have a longer period of time to spend your PPP funds. The covered period has been extended from 8 weeks to 24 weeks. This is an automatic extension and you do not need to contact your lender.

December 31, 2020 is the final cutoff date for eligible expenses. For loans being disbursed July 16 and later, this means that you will not be able to take full advantage of the 24 weeks.

The extension applies to all loans, but those with loans prior to June 5th can still choose to go with the original 8-week period. This grandfathered condition mostly applies to self-employed individuals with the PPP, as they’ll be able to choose between the 8-week and the 2.5-month owner compensation replacement.

Further reading: PPP Forgiveness: 8 Weeks vs. 24 Weeks

Enhanced rehiring exemptions

The deadline that employers have to rehire employees that were laid off between February 15 and April 26, or restore employee wages that were reduced between February 15 and April 26, is extended from June 30 to December 31, 2020.

If an employer is unable to rehire a worker, they may qualify for a new exemption if they are able to show they were unable to fill the position with similarly qualified employees, or document that due to safety requirements, they were unable to return to normal operating levels.

Further reading: PPP Rules on Rehiring Employees

Payroll tax deferral

If a borrower received forgiveness, payroll taxes would have been immediately due. The Act removes this responsibility. Employer payroll taxes will remain deferred until December 31, 2020.

Further reading: How to Defer Social Security Tax (COVID-19)

Repayment deferral and clarification

The 6-month deferral on repayments has been removed. You do not need to repay the PPP until your forgiveness application has been processed and completed.

You have up to 10 months after the end of your covered period to apply for forgiveness. After that time, payments will be required.

Program extension

New PPP loans approved on or after June 5th will automatically have a loan length of 5 years. Interest remains at an annual rate of 1% for all loans. Existing loans can have their length extended from 2 years to 5 years, if the borrower and lender agree to it.

On July 1st, the PPP application deadline was extended. You now have until August 8 to submit an application for a PPP loan. See our updated list of lenders currently accepting PPP applications.

More PPP resources


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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