May 11, 2020

The Small Business Administration (SBA) recently issued new guidance regarding the Payment Protection Program (PPP), established to offset the economic effects of the coronavirus pandemic. Small businesses can request loans from the PPP to help cover payroll costs. This new guidance from the SBA concerns employees who refuse to return to work after a business reopens. Background Small businesses can request loans from the PPP to be used as wages for employees, up to 2.5 times the average monthly payroll. Using the funds this way makes the loan entirely forgivable. The catch is that the business must rehire the same number of full-time employees that it used to calculate the PPP loan amount. The problem is that many employers don’t necessarily need all those staff members to return, especially if operations have been slowed. Furthermore, some employees may not even want to return—and not necessarily for coronavirus concerns. Some employees might be making more with unemployment benefits and don’t want to lose them by returning to work. What’s New The SBA understands some employees may not wish to return for a number of reasons, so it issued new guidance. As long as businesses “make a good faith” effort to rehire employees—and explain that they may lose their unemployment eligibility by not returning—the businesses would not face a penalty under that portion of the loan. Employers should carefully document any communication with employees in case they refuse to return to work and evidence is needed when requesting PPP loan forgiveness. Read the full text of the guidance below: Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer? Answer: 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 reemployment may forfeit eligibility for continued unemployment compensation. For more information, visit SBA.gov.