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Businesses that received Paycheck Protection Program (PPP) loans are getting a break pertaining to laid off employees. For purpose of loan forgiveness calculations, borrowers can exclude laid-off employees if the employees turn down a written offer to be rehired, according to new guidance from the U.S. Small Business Administration (SBA).
The loans can be forgivable — meaning they won’t necessarily have to be paid back. But there are conditions on forgiveness. One big one: 75% of the forgiven amount must be spent on payroll. And the rest can only be spent on a few categories: rent, mortgage interest or utilities. But with many businesses unable to reopen, owners wonder how to spend that much on payroll when they have little or no work for their employees to do.
In addition those problems, some employees have been turning down offers to be rehired for the same jobs for a variety of reasons, one of them being that they are making more money in unemployment benefits and pandemic unemployment assistance 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.
The guidance was included among three new questions the SBA added over the weekend to a PPP frequently asked questions (FAQ) file it maintains in consultation with IRS. The SBA and Treasury plan to issue a new rule specifying 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.
Businesses are encouraged to issue return to work requests in writing to their employees along with proof of mailing. These should be retained as records to be provided when loan forgiveness is sought. There are many issues to consider for businesses preparing to reopen. Employees may refuse to return to work for a variety of reasons. Employers need to understand how to respond to employee reactions. My firm is here to help business owners navigate the complex issue of reopening their businesses.