What happens to Paycheck Protection Program (“PPP’) forgiveness amounts if the borrower lays off an employee and then offers to rehire the employee, but the employee declines the offer?

The PPP declares that the amount of loan forgiveness will be reduced if there is a decrease in the number of full-time equivalent (FTE) employees which is not restored by June 30, 2020. However, some employees have been turning down offers to be rehired for the same jobs for a variety of reasons. One such reason is that they are making more money in unemployment benefits than they do in pay at their jobs because the CARES Act temporarily provides an additional $600 per week to people who have been approved by their state for unemployment insurance. Consequently, businesses who received PPP loans have feared that the inability to rehire these workers may jeopardize the anticipated amount of PPP loan forgiveness.

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. According to the guidance, 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.  

The guidance does not specify what form that documentation should take, but the SBA further warned that employees who reject offers of reemployment may find themselves ineligible to continue receiving unemployment benefits. “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.

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. 

Related Practice Areas

Business Law