SBA’s Guidance on PPP and Employee Refusal to be Rehired

SBA’s Guidance on PPP and Employee Refusal to be Rehired

Empty desk of employee who didn't return to work after pandemic

The team at Sousa & Weber have had several inquiries related to employee layoffs and rehires with respect to the Paycheck Protection Program (PPP). Some employers are finding it difficult to get hourly employees to return to work following furloughs and layoffs, possibly because many employees can make more money through unemployment. 

The enticing aspect of the PPP offered by the SBA allows businesses to qualify for loan forgiveness if they spend 75 percent of it on payroll and 25 percent of it on rent and utilities within an eight-week span.

So, what does that mean for their loan forgiveness when employees don’t return? Will a borrower’s PPP loan forgiveness amount be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

The SBA recently addressed this on their FAQ page, which provides some direction. The answer states:

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.

Now small business owners are left with a dilemma: document the invitation of re-hiring to receive forgiveness for the loan, but have it possibly result in their former employees losing their unemployment benefits. Though not explicitly stated, it is possible the SBA may forward the evidence of the offer of employment and documentation of the rejection of the offer to the appropriate state agency for action.

Though this guidance is helpful, questions still remain and new questions arise. For example, if one employee refuses to return to work, is the employer obligated to attempt to fill that position under with a new employee or can it leave that position vacant? Further clarification would be needed in the instance of an employee refusing to return due to COVID-19 concerns.

As of now, this is just a FAQ and not an actual Interim Rule. In the meantime, our understanding and recommendation for employers is:

  • Include a clear date in the written offer by which the employee must respond, with notice that failure to respond shall be treated as a refusal to return to work.
  • Also include a disclaimer that refusal to return to work may result in the individual being ineligible for continued unemployment benefits.

The team at Sousa & Weber await governmental guidance on this topic and will offer an update when the information becomes available.

By |2020-05-13T21:40:32+00:00May 13th, 2020|COVID-19, Tax and Auditing|Comments Off on SBA’s Guidance on PPP and Employee Refusal to be Rehired
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