Payroll Protection Program Update : Documenting Compliance with Agency Requirements and Guidance to Qualify for the Business Activity Exemption



The CARES Act created the Paycheck Protection Program (“PPP”), which amended the Small Business Act (“SBA”) to provide short term loans to companies with fewer than 500 employees and other companies (such as those in the restaurant and hospitality industry). Such loans may be eligible for full forgiveness if used for payroll and other business expenses and all other statutory requirements are met. The SBA continues to issue guidance on a rolling basis, which can impact a company’s eligibility for the loan, use of the loan, and the level of forgiveness.

Business Activity Exemption and Documentation Requirement

On June 5, 2020, the President signed a bill called the Paycheck Protection Flexibility Act (“PPFA”) into law. The PPFA adds a new exception that may make it easier for certain borrowers of PPP loans to qualify for forgiveness if they experience a reduction of full-time equivalent employees. Specifically, the exception applies if a borrower is unable to return to the same level of business activity it was operating at pre-COVID-19 due to compliance with requirements established or guidance issued by the Department of Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA) 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. A borrower is required to document its compliance with such issued requirements or guidance by these three agencies in order to qualify for the exception.

All three federal agencies have issued various requirements and guidance relating to a handful of mitigation and safety protocols, including:

  • testing,
  • social distancing,
  • personal protective equipment (PPE),
  • sanitation and
  • other worker and customer safety requirements pertaining to COVID-19.

Such requirements and guidance vary by industry, including nursing homes and long-term care, retail, construction, restaurants, and manufacturers. Because a borrower must show documentation in order to qualify for the exemption, it is crucial that companies maintain written policies that evidence compliance with agency regulations and guidance.

In addition to having industry-specific written policies to submit as part of a forgiveness application in support of the business activity exception, such written policies are now a critical best practice given that not only do some states now require safety plans to be put in place, but such plans also may serve to protect companies against claims related to safety and/or exposure, whether from employees or the public.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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