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Employees Refusing Re-Hire? How To Protect Your PPP Loan Forgiveness

Humphrey Law PLLC May 15, 2020

The massive Paycheck Protection Program was meant to allow businesses to continue to pay their employees while their revenues have tried up during the Covid-19 pandemic. The most attractive feature of the PPP is that the portion of the loan spent on payroll and certain other expenses would be forgiven, meaning at least part of the PPP “loan” would in fact be a grant—indeed, many businesses would not have accepted the PPP loan and may not be able to repay it without this forgiveness. But forgiveness comes with a condition: a business must keep or re-hire all their full-time employees at or near their full wages by June 30. If the business’s full-time employee headcount is reduced, or if any employees making less than $100,000 had their salaries reduced by more than 25%, the PPP forgiveness amount will be reduced and the business will have to repay that part of the loan.

Now that millions of businesses have received PPP funding after a chaotic application period, many businesses are facing a new problem. Some of their employees—the very employees whose paychecks were meant to be protected by the PPP—are refusing to come back to work. Some of these employees are refusing re-hire because they are making more in unemployment benefits—which received a $600 per week federal boost under the CARES act—than they were at their jobs. This presents a serious problem for employers receiving PPP funding, because while they are required to re-hire all of their employees by June 30, the increased unemployment benefits run through July 31.

But through recent guidance, the Small Business Administration has exercised its authority to create an exception if the employee rejects a written offer to re-hire: “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 the same number of hours) from the CARES Act’s loan forgiveness reduction calculation.” 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.” The SBA goes on to warn that “employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.”

The guidance is clear: If you are a PPP borrower and an employee has refused re-employment, then the borrower should make the offer in writing, and document the employee’s rejection of the offer.

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