PPP Changes: Paycheck Protection Program Flexibility Act of 2020

By Bello Welsh LLP

On June 4, 2020, the Senate passed the Paycheck Protection Program Flexibility Act of 2020.  It has already passed the House, so it now goes to the president for signature.  The primary changes are as follows:

  • The period in which employers must spend the funds has been extended from 8 weeks to 24.
  • The amount that must be spent on payroll has been dropped, from 75% to 60%.
  • The language of the bill suggests that if less than 60% of the funds are spent on payroll there will be no loan forgiveness at all.   This obviously is a very important development, which we hope will be made clear when related Rules are published.  In the meantime, however, it is very important to track the PPP expenditures to make sure that at least 60% are dedicated to payroll expenses.
  • The amount of loan forgiveness will be determined without regard to a proportional reduction in the number of full-time equivalent employees if the employer is able to document that:
    • it is unable to rehire individuals who were employees on February 15, 2020; and 
    • it is unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or 
    • it is unable to return to the same level of business activity as the business was operating on or 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.
  • Borrowers who do not get full forgiveness will have 5 years to repay the loans, instead of 2.

As always, we will keep you informed of developments.

COVID-19: Department of Labor Issues Regulations Implementing the Families First Coronavirus Response Act’s New Emergency Paid Leave Requirements

By Bello Welsh LLP

The Families First Coronavirus Response Act (FFCRA), enacted on March 18, 2020, creates two new emergency paid leave requirements related to the COVID-19 pandemic: up to two weeks of paid sick leave and up to twelve weeks of expanded FMLA (e-FMLA) leave, ten of which are paid.  Bello Welsh previously posted a summary of the FFCRA, available here.

On April 1, 2020, the United States Department of Labor (DOL) issued temporary regulations to implement the FFCRA’s leave entitlements.  The regulations and supplementary information provided by the DOL (available here)  clarify ambiguities in the FFCRA and provide further guidance to employers.  While we will be providing further analysis of the regulations and their implications in the coming days, certain key provisions of the regulations are summarized below.

Documentation from Employees

Employees are required to provide, and employers must retain, documentation of the need for paid sick leave or e-FMLA.  Regardless of the reason for leave, employees must provide the following:

  • Employee’s name;
  • Date(s) for which leave is requested;
  • Qualifying reason for the leave; and
  • Oral or written statement that the employee is unable to work because of the qualified reason for leave (if the employee provides an oral statement, the employer must document it and retain the documentation).


  • An employee taking paid sick leave because s/he or an individual for whom s/he is caring is subject to a federal, state, or local government quarantine or isolation order must provide the name of the government entity that issued the order;
  • An employee taking paid sick leave because a health care provider advised the employee or an individual for whom s/he is caring to self-quarantine due to concerns related to COVID-19 must provide the name of the health care provider;
  • An employee taking paid sick leave or e-FMLA leave to care for a son or daughter whose school has been closed or whose childcare is unavailable due to COVID-19 must provide: (a) the name of the son or daughter being cared for; (b) the name of the school, place of care, or childcare provider that has closed or become unavailable; and (c) a representation that no other suitable person will be caring for the son or daughter during the period for which the employee takes paid sick leave or e-FMLA leave.

The employer may also require any other documentation necessary to support a request for tax credits under the FFCRA.  Thus, to the extent the IRS issues guidance requiring additional documentation, employers should require employees to provide it.  The IRS’s current guidance on FFCRA tax credits is available here.  Notably, absent the IRS issuing guidance to the contrary, employers may not require doctor’s notes.

Employees or Family Members Particularly Vulnerable to COVID-19

Many employers have asked whether employees in high-risk categories (due to advanced age or underlying medical conditions) are entitled to paid sick time if they do not report to work for fear of contracting COVID-19 and are unable to telework.  Under the regulations, the answer is yes, so long as the employee has been advised by a health care provider to self-quarantine based on a belief that the employee is particularly vulnerable to COVID-19 or a federal, state, or local government authority has advised categories of citizens (e.g., those of certain age ranges or with certain medical conditions) to shelter in place, stay at home, isolate, or quarantine.  Employees must provide the documentation described above (including the name of the relevant governmental authority or health care provider) to substantiate the need for leave.

By contrast, an employee is not eligible for paid sick time because a member of his/her household or other close family/friend is in a high-risk category, unless: (1) the other individual depends on the employee for care; (2) the other individual has been advised by a government authority or health care provider to quarantine, self-quarantine, isolate, stay at home, or shelter in place; and (3) the employee is unable to work or telework due to the need to care for the individual.


An employee may take paid sick or e-FMLA leave if s/he is unable to work or telework as a result of the qualifying reason for leave.  Telework is considered an option only if: (1) the employer has work for the employee; (2) the employer permits the employee to work from the employee’s location; and (3) there are no extenuating circumstances (including but not limited to serious COVID-19 symptoms) that prevent the employee from performing the work.

The DOL encourages employers to implement highly flexible telework arrangements that allow employees to perform work, potentially at unconventional times, while tending to family and other responsibilities, such as teaching children whose schools are closed for COVID-19 related reasons.

Other Provisions

The regulations and supplementary information contain detailed guidance on the items discussed above and a number of other issues, including the scope of the qualifying reasons for which employees may take paid leave; the amount of leave and pay available for sick time and e-FMLA; employee eligibility criteria; employer coverage; intermittent leave; the interaction between paid sick leave, e-FMLA, and typical FMLA; employer and employee notice requirements; job protection for employees; and recordkeeping, including documentation required for purposes of obtaining the tax credit.  Individuals responsible for implementing FFCRA leaves should consult the regulations and/or legal counsel to ensure compliance.


Coronavirus Aid, Relief, and Economic Security Act (CARES Act): What Employers Need to Know

By Bello Welsh LLP

The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed March 27, 2020, estimated at $2 trillion, includes billions of dollars in assistance to individuals and businesses of all sizes.  The following describes highlights of the historic legislation relevant to most U.S. employers:

  • Emergency EIDL Grants: The CARES Act adds fast access to grants of up to $10,000, in the form of a cash advance on an application for an Economic Injury Disaster Loan (EIDLs) through the Small Business Administration (a program that existed prior to the CARES Act).  Small businesses (those with 500 or fewer employees, sole proprietors, and independent contractors) are eligible to apply, and will receive funds within three days.  Importantly, so long as the application is made during the period January 31, 2020 to December 31, 2020, the advanced amount does not need to be repaid even if the applicant is not approved for the underlying EIDL.  EIDL applications are available here.
  • Paycheck Protection Program: As discussed in detail in our summary, employers of 500 or fewer employees may take out forgivable loans of up to $10 million (or a cap tied to prior average payroll costs) to cover payroll, rent and certain other costs through June 30, 2020. Such loans are eligible for forgiveness (in part or in whole), in an amount equal to the sum of costs incurred and payments made during the 8-week period beginning on the date of the origination of the loan. The amount of loan forgiveness is reduced if the employer reduces headcount or wages by certain amounts unless the reductions are restored by June 30, 2020.  PPP applications are available here.
    • This program creates an incentive for businesses to maintain or restore employment impacted by COVID-19 pandemic mitigation measures or related business downturn.
  • Expanded Unemployment Benefits: As discussed in our alert, laid off employees are eligible for an additional $600 per week on top of existing unemployment benefits, for up to four months, and unemployment benefits are extended to others not traditionally eligible, such as the self-employed, independent contractors, and those with limited work history.  States that repeal the common one-week “waiting period” (such as Massachusetts) will receive federal funding for this first week of benefits.  Additional weeks of unemployment benefits, up to a maximum of 39 weeks of benefits, will also be made available (through December 31, 2020) if state benefits run out.
    • Paradoxically, the flat dollar amount boost to unemployment may result in some lower wage earners receiving more through unemployment than through the employer, and the fact that workers will receive these additional benefits may well create an incentive for employers to shed employees from payrolls.
    • Additionally, while involuntary separations usually result in increased rates for employers, states are considering mitigating the impact of such potential rate hikes given the widespread pandemic-related job actions, and Massachusetts has already announced that at minimum, rates will not increase before January 2021.
  • Business Tax Relief Provisions (Subtitle C): While individuals will receive checks of up to $1,200, businesses will also benefit from certain forms of tax relief (listed by the Senate Finance Committee) intended to increase cash flow to help sustain business operations and payroll, including, for example:
    • Refundable payroll tax creditof 50% of quarterly wages on up to $10,000 in “qualified wages” paid per employee from March 12, 2020 to the end of the calendar year (including qualified health plan expenses properly allocable to such wages for the employee).  This is in addition to any credits against payroll taxes which are taken to fund paid sick leave and emergency FMLA leave paid to employees under the new Families First Coronavirus Response Act (FFCRA), detailed in our separate alert.  The credit is available to firms in existence in 2020 which were fully or partially suspended due to government-ordered virus-related shutdowns or other restrictive measures, and to businesses experiencing a decrease in gross receipts of 50% or more when compared to the same quarter in 2019.  For businesses with an average of over 100 full time employees in 2019, the credit is available for employees retained but not currently working due to the crisis; for smaller firms the credit applies to all employee wages.
      • The maximum amount of the credit is $5,000, and it is “refundable” in that any amount that exceeds the employer’s employment taxes for the quarter will be paid to the employer as if it were a tax overpayment.
      • Of note, to determine employer size the IRS will use the “single employer” definition under the Internal Revenue Code.
    • Delay of estimated tax payments for corporations until October 15, 2020.
    • Delay of payment of employer payroll taxes (e.g. employer share of Social Security tax), with deferred payments payable over the following two years (first half by December 31, 2021, second half by December 31, 2022).
    • Modifications for net operating losses (NOLs) to allow businesses to carry losses from 2018, 2019, or 2020 back five years, and to temporarily remove the taxable income limitation to allow an NOL to fully offset income (including through amendment of prior year returns). These modifications are also available to pass-through businesses and sole proprietors.
    • Acceleration of the ability to recover AMT credits.
    • Temporary increase in the limit on the amount of interest expense businesses are allowed to deduct on their tax returns, from 30% to 50% of the taxable income for 2019 and 2020.

Additional emergency funds will also be made available to U.S.-based businesses in the airline industry (including passenger and cargo air carriers; Part 145 regulated businesses that perform inspection, repair, replace, or overhaul services; and ticket agents); to businesses critical to maintaining national security; and for the Federal Reserve System to make loans, loan guarantees, and other investments to provide liquidity to the financial system.  Businesses that accept these amounts will be subject to certain additional conditions, including a 1-year prohibition on stock buy-backs and dividend payouts, and temporary limitations on layoffs.

While many of the measures making the headlines are geared toward bolstering small businesses (those with 500 or fewer employees) or specific industries (airlines, healthcare, etc.), this appropriation includes a provision that targets U.S.-based mid-size businesses (between 500 and 10,000 employees).  Specifically, part of the appropriation described above requires the federal government to “endeavor to seek the implementation of a program or facility” to provide financing to banks and other lenders that make direct loans to such mid-sized businesses with interest rates capped at 2% per annum.  These loans would be subject to similar restrictions, such as requiring that funds be used to retain or restore employment at 90%, that jobs not be outsourced or offshored, and that the business not engage in stock buy-backs or dividend payouts.

Unlike the airline, national security and federal reserve lending funds, however, this potential funding would also require recipients not to abrogate existing collective bargaining agreements during the term of the loan plus 2 years, and to remain neutral in union organizing efforts during the term of the loan.  These provisions may not withstand legal scrutiny in the long run, however, as they may run afoul of the National Labor Relations Act and First Amendment rights of businesses.  In addition, given that the CARES Act only provides that the government must “endeavor to seek the implementation” of a program with these parameters, it remains to be seen when and if mid-sized businesses will be able to obtain these funds.

We will continue to monitor legal developments related to COVID-19 and provide updates as new laws and regulations applicable to employers are enacted.

Forgivable Small Business Loans Available Pursuant to the Keeping American Workers Paid and Employed Act (under the CARES Act)

By Bello Welsh LLP

In response to the COVID-19 emergency, the federal government has passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which, among numerous other provisions, makes available forgivable loans for small businesses impacted by COVID-19.[1] Such loans may be used toward payroll costs, as well as covered mortgage, rent, and utility payments, and the program includes incentives for employers to retain or rehire employees.  The following is a summary of these provisions, found in the Keeping American Workers Paid and Employed Act (“KAWPEA,” Title I of the CARES Act).


The “Paycheck Protection Program” (PPP) makes available forgivable (partially or in whole), low-interest loans to small businesses, defined as an entity that employs no more than 500 employees during the covered period,[2] including individuals employed on a full-time, part-time, or other basis. The maximum loan amount available is 2.5 times the employer’s average total monthly “payroll costs” (as defined) during the one-year period before the date on which the loan is made,[3] up to a maximum of $10 million.[4]

“Payroll costs” include payments of compensation to employees, including salary, wages, commissions, or similar amounts; cash tips or the equivalent; vacation, parental, family, medical, or sick leave; allowance for dismissal or separation; payment required for the provision of group health insurance benefits or retirement benefits; and payment of state or local tax assessed on the compensation of employees.  Payments of compensation to a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation are also considered “payroll costs” for purposes of determining the loan amount.[5]  Compensation paid to any individual worker that exceeds $100,000 per year (prorated for the covered period) is excluded from payroll costs, as are certain federal employment taxes, the compensation of an employee whose principal residence is outside of the United States, and qualified sick leave or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.


Proceeds of a loan covered by the PPP may be used for the following:

  • Payroll costs;
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • Employee salaries, commissions, or similar compensations;
  • Payments of interest on any mortgage obligation (but not prepayment of or payment of principle on a mortgage obligation);
  • Rent;
  • Utilities; and
  • Interest on any other debt obligations that were incurred before the covered period.

While not referenced in the Act, the Small Business Administration’s recently-issued guidance states that at least 75% of the forgiven amount must have been used for payroll.


Paycheck Protection Loans are fully guaranteed by the federal government, and no personal guarantee and no collateral will be required. While the Act provides that such loans will bear interest at a rate of no more than 4%, the recently-issued guidance states that the interest rate will be .5%. There is no prepayment penalty for any payment made on a covered loan. The loans will be available through Small Business Act (SBA) approved lenders, and the authority to make such loans will be extended to additional lenders as well. Lenders can be found by visiting the SBA’s webpage. During the covered period, lenders will be required to provide complete payment deferment relief for a period of not less than 6 months (including payment of principal, interest, and fees), and not more than 1 year.

While the deadline to apply is June 30, 2020, it is highly likely that the demand will be significant, so employers are advised to apply as soon as possible after determining that a need for the funds exists. The Small Business Administration has announced that small businesses and sole proprietorships may apply beginning April 3, 2020, while independent contractors and self-employed individuals may apply beginning April 10, 2020. A copy of the application is available here.

The applicant for a Payroll Protection Loan must make the following certifications, in good faith:

  • That the uncertainty of current economic conditions makes necessary the loan request to support the recipient’s ongoing operations;
  • That the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments;
  • That the eligible recipient does not have an application pending for a loan for the same purpose and duplicative of amounts applied for or received under a covered loan; and
  • That during the period February 15, 2020-December 31, 2020, the recipient has not received (and will not receive) amounts under the law for the same purpose and duplicative of amounts applied for or received under a covered loan.

Loan forgiveness

 Paycheck Protection Loans are eligible for forgiveness (partial or in whole), in an amount equal to the sum of costs incurred and payments made during the 8-week period beginning on the date of the origination of the loan, including:

  • Payroll costs (excluding compensation paid to any individual worker that exceeds $100,000 per year, prorated for the covered period);
  • Any payment of interest on any covered mortgage obligation (including any indebtedness or debt instrument incurred in the ordinary course of business that is a liability of the borrower, is a mortgage on real or personal property, and was incurred before February 15, 2020);
  • Any payment on any covered rent obligation under a leasing agreement in force before February 15, 2020; and
  • Any covered utility payment for distribution of electricity, gas, water, transportation, telephone, or internet access, for which service began before February 15, 2020.

The borrower must submit an application to the lender to seek loan forgiveness, including documentation verifying the number of full-time equivalent employees on payroll and pay rates, canceled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, covered lease obligations, and covered utility payments, and a certification from an authorized representative of the borrower that such documentation is true and correct and that the amount for which forgiveness is requested was used to retain employees, make interest payments on covered mortgage, rent, or utility obligations, and any other documentation deemed necessary.

The lender will issue a decision on the borrower’s application for loan forgiveness no later than 60 days after receiving the application. Forgiven amounts will be excluded from the borrower’s gross income.

Loans with a remaining balance after the application of loan forgiveness amount will continue to be guaranteed by the federal government. While the Act provides that such loans will have a maximum maturity of 10 years from the date on which the borrower applies for loan forgiveness, the recently-issued guidance states that the loan has a maturity of 2 years. The amount of loan forgiveness cannot exceed the principal amount of the financing made available under the covered loan.


 The KAWPEA creates incentives for employers to maintain and restore employment and pay levels by providing that the amount of loan forgiveness may be reduced according to a proportional formula, if the employer (1) reduces the average number of full-time employees (FTEs) and/or (2) reduces the total salary or wages of employees who earned $100,000 or less in 2019 by more than 25%.

  • In the case of a reduction of average FTEs, the loan forgiveness will be reduced by the ratio of the average FTEs during the covered period to the average FTEs during a benchmark period. That is, the average monthly FTEs[6] during the covered 8-week period is divided by the average monthly FTEs during the employer’s chosen benchmark period (either 2/15/19 to 6/30/19, or 1/1/20 to 2/29/20, at the employer’s election).  The total amount of the loan eligible for forgiveness is then multiplied by the resulting fraction, which is the ultimate amount of the forgiveness.
  • In the case of a reduction of salary or wages of employees who earned $100,000 or less in 2019 (“relevant employees”), the reduction in the loan forgiveness is equal to the reduction in the wages of these employees that exceeds 25%. That is, the total amount of reductions in the total salary/wages of all relevant employees during the covered 8-week period that are in excess of 25% of the total salary/wages of these employees during the immediately preceding full quarter is subtracted from the amount of loan forgiveness. [7]

However, the amount of loan forgiveness will not be reduced by any reductions that occurred in the period February 15, 2020 through 30 days after the enactment of the CARES Act (April 26, 2020) if, by June 30, 2020, the employer has eliminated those reductions. Further, borrowers with tipped employees may receive forgiveness for additional wages paid to those employees.  As the above reflects, the calculation to determine how the loan forgiveness will be applied to a given employer is complicated and fact-specific, and at this point is made more complicated by ambiguities in the law.  Therefore, we have not provided hypothetical examples here, but we expect there to be further guidance (from the SBA and possibly other agencies) on how to make these calculations.  In the meantime, we can work with clients to provide preliminary advice on how a specific situation may be analyzed.

The Small Business Administration has a webpage dedicated to assisting small businesses navigate available loans, including the PPP.  A link this page may be found here.  The SBA also provides other forms of assistance, including disaster loans and COVID-19 related forgivable advances on such loans.  For more information, visit the SBA site at http://www.sba.gov.

It is our understanding that some banks have already reached out to businesses that may be eligible for PPP loans.  If your bank has not, we suggest that you contact your relationship manager.

We will continue to monitor legal developments related to COVID-19 and provide updates as new laws and regulations applicable to employers are enacted.

[1] Provisions of the CARES Act that significantly expand eligibility for unemployment benefits and increase available unemployment compensation are discussed in Bello Welsh’s prior client alert, available here. Our analysis of additional provisions of the CARES Act, including those relating to business taxes and additional funding sources, is available here.

[2] Importantly for employers in the restaurant and hospitality industries, the PPP also provides that such entities with more than 500 employees are eligible for such loans as long as no more than 500 employees are employed in one physical location.

[3] An alternate calculation is available for seasonal and recently established employers.

[4] The covered period runs from February 15, 2020 through June 30, 2020. During this period, individuals who operate under a sole proprietorship or as an independent contractor, and eligible self-employed individuals, are also eligible to receive a covered loan, a departure from the SBA’s usual loan eligibility requirements.

[5] The statute is ambiguous as to whether a business that uses both employees and independent contractors could include such payments to its independent contractors in determining the loan amount, or whether such payments are only available to an independent contractor seeking a loan on their own behalf.

[6] The average monthly number of FTEs is determined by calculating the average number of FTEs for each pay period falling within a month.

[7]  Note that the statute is ambiguous regarding which calculation should be performed first in the case of a reduction in both FTEs and salary/wages.  Given that the order of the calculation will impact the result, it is expected that agency guidance will resolve this issue.