On May 5, 2020, the Small Business Administration (SBA), in consultation with the Department of the Treasury, updated their Paycheck Protection Program Loans (PPP Loans) Frequently Asked Questions (FAQs).¹
As we’ve previously reported, the amount of PPP Loan forgiveness decreases if the recipient reduces the size of its full-time workforce below certain amounts during the covered period.² However, an employer may prevent such forgiveness reduction by a timely rehiring of employee(s) that were laid off.
An increasing concern for many businesses is that some employees are declining offers to rehire for a number of reasons, including the effect of CARES Act provisions which temporarily increases unemployment insurance. Some laid off employees are simply making more money from unemployment benefits than they made at their previous jobs.
Significantly, the guidance in FAQ 40, finally answers the question as to whether a PPP Loan recipient’s forgiveness amount will be reduced if a business lays off an employee but offers to rehire that employee, who then subsequently declines the offer.
In response, the SBA and Treasury stated:
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.”
On the other hand, guidance is still lacking for those businesses who had employees leave for their own reasons or who were terminated for cause. Without guidance, businesses are left concerned that their PPP Loan forgiveness will be reduced.
We will continue to update you on these important developments. If you have questions or concerns regarding the Paycheck Protection Program, contact our team at (410) 497-5947.