Employers who are fearful that they will be forced to repay their Paycheck Protection Program (PPP) loans because employees refuse to return to work can breathe easier. The Small Business Administration (SBA), in consultation with the Department of Treasury, issued guidance on May 3, 2020 stating that laid off employees who refuse to return to work may be excluded from the PPP loan forgiveness calculation.
With certain limitations, employers may obtain forgivable PPP loans up to 2.5 times the cost of their average monthly payroll. But for the entire loan amount to be forgiven, employers must spend at least 75% of the proceeds on payroll costs and maintain their full-time employee headcount. Employees laid off or furloughed between February 15, 2020 and April 26, 2020 may be rehired by June 30, 2020 to meet these requirements.
Many employers have attempted to rehire employees and return them to a paid status even if they cannot work at this time to meet PPP staffing and payroll requirements. Such action by employers is one of the primary goals of the PPP. However, some employees are refusing their employer’s offer because they earn similar or greater wages via unemployment due to the additional $600 per week in Federal Pandemic Unemployment Compensation. This has sparked great concern among employers that they will be unable to meet payroll and employee headcount requirements and forced to repay some or all their PPP loans, causing serious financial harm to already struggling businesses.
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. To qualify, employers must offer to rehire employees at the same rate of pay and hours. Employers must also document the employee’s rejection of the offer. 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.
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. Please feel free to contact us at any time for assistance.