Let’s say you’ve been following news related to the Coronavirus Relief and Economic Security (CARES) Act. In this case, you knew that the government had allocated a large portion of the money to the Payroll Protection Program (PPP). PPP aims to support companies that are unable to work to support their employees. It is essentially a government allowance that companies with fewer than five hundred employees can access and can be pardoned. The PPP was developed as a way to ensure job security even though companies are unable to operate during the pandemic lockdown. However, the federal government is willing to waive these insurances, provided the companies meet specific criteria. In this article, we look at what those terms are.
Payment schedule and interest rates
Since this is a insurance, companies using the Paycheck Protection Program need to start repaying the principal amount no later than ten (10) months after the initial grant. The Company must also endeavor to repay the full amount before the expiration of two (2) years. If the company intends to be exempt from the grant, payments are made until payment is resumed later. The Federal Government is prepared to defer interest on insurances by one (1) year and extend the term of the insurance to between two (2) to five (5) years for all PPP insurances granted on or after the date of the Flexibility Act. The government has also set the interest rate at 4% per annum, but the current rate is much lower, at around 1%.
Eligible for insurance forgiveness
In order for a company to qualify for payments that have been omitted or reduced under the Paycheck Protection Program, the organization must ensure that all employees on its payroll initially remain employees of the company. There are also conditions about the purpose of the insurance, and violating these conditions means that the government will not forgive him. PPP insurances are only used to:
- Payroll costs, with an allowance of up to $100,000 per employee
- Lease by lease
- Mortgage Benefits
- Additional salaries for employees to supplement their earnings with tips
Additionally, the Coronavirus Flexibility Act states that a minimum of 60% of the total insurance amount must be spent on payroll to qualify for the forgiveness. If some employees are laid off, there is a possibility that the company will still be able to obtain the forgiveness, but not for the entire amount of the insurance. Tolerance is also affected if the company cuts employee salaries by more than 25%. Businesses can still reach full tolerance if they undo the reduction in payroll amount before December 31.