If your business was fortunate enough to access funds through the federal Payroll Protection Program (PPP), you likely already know about the requirements to use a defined portion of the funds – at least 75% – on payroll costs in order to be eligible for loan forgiveness. In addition, most PPP loans also will require employers to restore their full-time employment and compensation levels to account for any reductions made between February 15, 2020 and April 26, 2020.
For the term of the PPP loan, then, many employers need to get their staff off unemployment and back on the payroll or the PPP loan won’t be forgiven. So, what’s an employer to do if an employee doesn’t want to return to work?
The U.S. Department of the Treasury finally has provided guidance on this point:
Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
- Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, 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.
Essentially, employers can rest assured that if an employee doesn’t want to or refuses to return to work, the employer still will be eligible for PPP loan forgiveness provided that the employer: (1) made a good faith written offer to rehire the employee for the same pay and the same hours that the employee received before the layoff and (2) documented the employee’s rejection of that offer.
Employers may wish to inform employees that an employee who rejects an offer of re-employment may forfeit his eligibility for continued unemployment insurance benefits.
It’s important to remember that employers must comply with the terms of their specific loan agreement. If you have questions about how your business should navigate PPP requirements or other COVID-19 legislation, contact us. Our attorneys stand ready to assist during this challenging time.