Is the Amount of PPP Loan Forgiveness Jeopardized if Laid Off-Employees Refuse to be Rehired?

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Finally, the employer must document the rejection as such evidence will need to be provided with a forgiveness application. While many companies who received first round PPP loans are now already nearly halfway through the eight week covered period for determining the amount eligible for loan forgiveness, there remain many questions about how forgiveness amounts will ultimately be calculated because the SBA has not yet provided anticipated guidance. Perhaps this recent guidance indicates that the SBA is hearing borrowers’ concerns and further beneficial guidance may soon be forthcoming. An hourly wage employee had been working 40 hours per week during the borrower selected reference period (FTE employee of 1.0), and the borrower reduced the employee’s hours to 20 hours per week during the covered period (FTE employee of 0.5). Because the hourly wage did not change, the reduction in the employee’s total wages is entirely attributable to the FTE employee reduction, and the borrower is not required to conduct a salary/wage reduction calculation for that employee. In essence, PPP loan recipients are eligible for loan forgiveness if the funds were used for qualified expenses over the eight-week coverage period commencing when the loan was disbursed.

• Because the hourly wage did not change, the reduction in the employee’s total wages is entirely attributable to the FTE employee reduction, and the borrower is not required to conduct a salary/wage reduction calculation for that employee.
• The guidance was included among three new questions the SBA added over the weekend to a PPP frequently asked questions file it maintains in consultation with Treasury.
• My guess is that many in Congress mistakenly thought that the law contained this waiver, as it was part of various bills introduced previously.
• Removal of the penalty for rejected rehire offers is just one of the loosened requirements under the Paycheck Protection Program Flexibility Act , an amendment to the PPP passed in early June.
• Some employers are finding it difficult to get hourly employees to return to work following furloughs and layoffs because, depending on the circumstances, employees can make more by staying home.

According to the Ppp Rules On Rehiring Employees, the interim final rule will specify that a borrower may exclude an employee from loan forgiveness calculations if the borrower made a good-faith, written offer of rehire and also documented the employee’s rejection of that offer. According to FAQ No. 40, the “SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the offered to rehire” but that refused to return to work from the PPP loan forgiveness calculation. The FAQ specifies that the employer must make a “good-faith, written offer” to rehire the employee, and must specifically document the employee’s rejection of that offer. The FAQ also indicates that the offer should be “for the same salary/wages and same number of hours” that the employee worked before the lay-off.

“PPP” Loan Forgiveness, What if the employee won’t accept my rehire offer?

SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation. But the SBA’s guidance states that if employers make a “good faith, written offer of rehire” to an employee that is refused, that employee may be excluded from the loan forgiveness calculation.

• “Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation,” according to the guidance, which did not provide specifics on how that process might work.
• The lender will not review whether a specific employee has been rehired or whether a specific role or position is filled.
• Removing salaries for employees who declined rehire offers from the forgivable portion of the loan only added to the challenge.
• If the PPP lender has already submitted a forgiveness decision to the SBA, the PPP lender must promptly transmit the completed Form to the SBA.
• Another 27 percent of borrowers expect at least 75 percent or more of loan expenses to be forgiven.

It is unclear whether the number of rehire refusals excluded from the loan forgiveness reduction calculations will be capped, but businesses facing large amounts of refusals should continue to document and retain all correspondence until further guidance is released. Firms won’t have their forgiveness amount reduced if employees decline the rehire offer, but they’ll have to document the rejection and tell the state unemployment insurance office. The federal Paycheck Protection Program offers forgivable loans intended to help employers cover up to eight weeks of payroll expenses and other costs. A borrower’s loan forgiveness amount will not be reduced if the borrower is able to document in good faith an inability to rehire employees and an inability to hire a similarly qualified individual for the unfilled position before December 31, 2020. The application clarifies that average full-time equivalent employees should be calculated on a weekly basis based on a 40-hour workweek. Alternatively, borrowers may simplify the calculation by treating all employees who work 40 hours or more per week as one and all other employees who work fewer than 40 hours per week as 0.5 FTE.

SBA Releases Interim Final Rules on PPP Loan Forgiveness and Loan Review

Thus, a person alleging this PPP must show that political influence was a factor in the recommendation at issue in their complaint. Our team of experienced attorneys regularly monitor and analyze this, and other unique issues facing employers during this tough time and remain available to provide prompt and reliable advice. 6For a point of reference, California’s current minimum wage is $13.00 an hour for employers with more than 26 employees, and $12.00 an hour for employers with less than 26 employees. That may cause some employers concern that they may effectively face the choice of losing the forgiveness of the debt or facing the consequences of employee relation issues for what will be likely be viewed as the threat of turning in the employee. Please contactyour KDDK attorneyor any member of the KDDK business law team for additional information and individualized guidance on the Paycheck Protection Program or any related matter. Since employment laws change over time and can vary by location and industry, consult a lawyer or HR expert for specific guidance.

• The resources described above are made available to businesses within the United States of America.
• A Borrower with a Loan of $50,000 or Less is exempt from any reductions in the borrower’s loan forgiveness amount based on reductions in FTE employees unless the borrower together with its affiliates received First Draw PPP Loans totaling $2 million or more or Second Draw PPP Loans totaling $2 million or more.
• As with other documentation required for loan forgiveness, it is important for companies to maintain thorough documentation to submit to their lender when it comes time to apply for loan forgiveness.
• Limited funds were available to be allocated, and businesses have been aggressive in pursuing them.
• The key points to note are the requirement for the employer to issue a written offer to rehire the employee and that the employer must document the rejection of the offer.
• Perhaps this recent guidance indicates that the SBA is hearing borrowers’ concerns and further beneficial guidance may soon be forthcoming.
• Otherwise, PPP lenders must transmit the completed Form 3508D to the SBA when the PPP lenders issues its forgiveness decisions to the SBA.

Because the offer to return must include the same hours, salary or wage as the employee’s prior work, employers should spell out the prior terms of employment and clearly state that the employee will be returning under those terms and conditions. Borrowers have until Dec. 31 to rehire laid-off or furloughed employees if they are seeking loan forgiveness. See the subsection below, Steps to Rehiring Workers for Loan Forgiveness, for guidance on rehiring. The 75% rule notwithstanding, if you operate a non-essential business, it’s tough to convince furloughed and laid-off employees collecting more in unemployment compensation to return to work so that you can pay them less instead.

Exceptions exist for PPP loan forgiveness

Almost 20 percent of borrowers said that the forgiveness requirement that the employer’s headcount match their precrisis headcount was very difficult to meet due to suspended business activity. Another 28 percent said it was somewhat difficult to maintain or return to their precrisis workforce staffing level. Employers will need to meet five conditions to avoid having their loan forgiveness reduced, according to the SBA. When the economy is unstable, employers are faced with difficult decisions around staffing, pay and benefits.

To qualify, employers must offer to rehire employees at the same rate of pay and hours. The SBA guidance does not specify how a refusal should be documented, but states that a Final Rule will be issued clarifying this exemption. Meanwhile, employers should try and obtain a written rejection from employees whether via email, text message or letter and keep it on file to provide to their lender. If the employee ignores the offer, employers should document their efforts to contact the employee, even if unsuccessful. Of note, the SBA guidance specifically warns employees that rejecting an offer of re-employment may jeopardize their eligibility for unemployment insurance benefits. Under new guidance issued by the Small Business Administration (“SBA”), SBA and Treasury shall issue a new rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the loan forgiveness reduction calculation.

Just don’t expect the Treasury to relax the 75% payroll spending requirement. Providing exceptional representation and support to a diverse range of domestic and international clients, our firm regularly provides services for small to medium-sized businesses both in the United States and Latin America. The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

• This is an extension from the original eight weeks borrowers had to use PPP funds.
• Employers should prepare written job offers for employees they intend to rehire.
• You know that scientist in the action movie who has all the right answers if only the government would just pay attention?
• Fourth, the borrower must maintain records documenting the offer and the rejection.

If the borrower has already submitted a forgiveness application to the lender, the borrower should not submit a duplicate forgiveness application though the SBA Platform. If the borrower does not apply for loan forgiveness within 10 months after the last day of the maximum Covered Period of 24 weeks, or if the SBA determines that the loan is not eligible for forgiveness , the PPP loan is no longer deferred and the borrower must begin paying principal and interest. If this occurs, the lender must notify the borrower of the date the first payment is due. The SBA’s website will provide further information on how borrowers will report rejected rehire offers to state unemployment insurance offices.